In a co-op or condo community, the responsibility of the homeowners association goes beyond setting house rules. The association also has a fiduciary responsibility to collect maintenance fees from its residents, create a budget to account for where that money will be spent, and raise enough capital to cover long-term special projects and repairs. The budget includes operating expenses, repairs and upkeep of the building and other structures, landscaping, lighting, and special projects, such as new playground equipment.
You Need Professional Help
To sustain themselves and remain solvent, associations must first form a team of financial experts they can depend upon to provide solid financial guidance for an operating budget of possibly hundreds of thousands of dollars. These experts will also create a sound financial plan that is analyzed regularly to prevent shortfalls and unpopular assessments.
"You can't be a master of all trades," advises Karen Sackstein, a CPA in Fair Lawn. "It's really important to put together a team with a specialty to advise your association. The association can make mistakes if they try to do it alone."
According to Jules Frankel, CPA, MBA of Wilkin & Guttenplan in East Brunswick, the budget how-to's are simple. "Associations generally follow the principles of fund accounting. The best way to think about fund accounting is to think about the 'envelope system' your parents or grandparents used. One envelope was for rent, one for food, and one for utilities. Instead, associations' 'envelopes' are operating, replacement and deferred maintenance funds."
Each of the major funds then encompasses certain expenditures. For example, the operating fund is designated for such items as snow removal, management, and insurance. "The deferred maintenance fund is money the association may not spend every year, but is for repairs," says David Ferullo, a partner at The Curchin Group in Red Bank. "For example, in three years the association wants to paint the building, but it costs about $30,000. The deferred maintenance budget is $10,000 each year in the fund."