bank interest income

Started by MarieL • 23 replies • 2043 views

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MarieL (Illinois)
Posts: 82

Posted:

Our HOA has $31,000.00 in a Fidelity inverstment account of some kind. Its paying.01% "tax free interest" annually, which amounts to only pennies quartely.We also have a lot of money in our general operating checking account fund.. This account is paying over $40.00 a month in interest.The bookkeeper is listing this as "investment income" on the reports, leading homeowners to believ the investment account is generationg all this money, when this is not true. He is commingling the checking account interest with the pennies from the the investment accountinterest reporting it all as investment account income.
My question is should the checking account interest and the pennies earned in the investment account be seoerate accounts and reported as two seperate interest income accounts?Or is it okay to commingle them and report them both as investment interest income in the same account on the treasurer's report?
Thank you.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Is it ok? Sure its ok. But if you want it reported separately, ask them to do so.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Marie,

Sorry, but this is really being "nitpicky". It's all interest income and must be reported as such on your tax return.

With such a small amount of money invested and considering the low interest rates at this point in time, I wonder why your BOD is concerned about tax-free investments which traditionally have smaller yields anyway.

MarieL (Illinois)
Posts: 82

Posted:

I know this sounds petty and probably "nit-picky" but there are circumstances ourrounding this I have not gone into.I am a board member and the "investment account" is highly secretive to all but a few. I have asked numerous times for a staremnet of this account, to no avail. In the may minutes, a meeting I missed it was documented this account was earning 1.35% annual interestIn June the quartly interest was reported as .76 cents and a few pennies in dividends. This is supposed to be money market account, I don't know of any money market accounts that pay didivends, but maybe wrong. At the July meeting I questioned the pennies in interest and was told the avvount had been changed to tax free interest account paying.01% annual intrest. Could not give me an answer what kind an an account. or a clear answer of any kind. I fear this money was invested in stocks for higher interest and has lost principle. checking account interest with the pennies from the investment interest is to give homeowners a false sense of security about their reserve fund??
I need to mention I am visually impaired and make many mistakes. I hope there aren't too many to understand what I'm trying to say.
Thank you for you attention in this and advise, if any.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Marie,

For someone who is vision impaired you did quite well. In fact I probably make more mistakes than you did? LOL

Frankly I don't know how this account could be kept a secret as it must be reported on the HOAs balance sheet. Your treas does prepare a financial statement consisting of a balance sheet and income & expense statement each month, I hope. Of course the type of account wouldn't be shown on the balance sheet but the amount invested would be. If the account is losing money it would be readily visible. IMO, an HOA should never make risky investments, rather they should stick with money market accounts, savings accounts and CDs.

MarieL (Illinois)
Posts: 82

Posted:

We do have monthly treasurer's reports.prepared by the hired bookkeepr,, who only deals with the treasurer . The treasurer does nothing except sign checks he directss the bookkeeper to issue.Some without receiptsbeforehand.
I am new to the board, February 2010, but served on it for about a total of 15 years in the past.I don't like what I am seeing in our finacial issues. The annual report prepared by the bpookkeeper under states the salary we are paying him. The treasurer, who performs snow removal is not paid, our documents prohibit this.He is given " gift certificates'" in accordance with the nuber of hors he works during the winter. I believe this is$20.00 or $25.00 per hour,no way for me to know butthe cost of the gift vertificates are also understated in the annual report. We have not had an sudit of our books in many years, so there is no way to know how accurate the reports sre. There may also be inaacuracies in our assessment income, this too is in question. abd figures may be being put in to balance
I worked in the accounting field and none of the reports ringtrue to me.I may be getting ahead of my self and jumping the gun, so to speak, because I will see to it there is an audit of the books this year.And this will be resolved.
I just wanted to know if it is accepyable to commingle the checking account interest with investment account interest and this appears to be acceptable.But I did want to express why I questioned this. I'm not really petty, I just feel I should do the best I can, as a board member, to protect the hopmeowners.
Thank you for the tome you spent responding. I will no doubt have more question to post here.

Mariel

TishS (Washington)
Posts: 116

Posted:

I believe people dont hide anything, if there is nothing to hide....something stinks here. Does this secret money market account secure a loan by any chance? If this bookkeeper is understating there income , they need to be replaced. End of story. Fraud is Fraud. Check their W2

MarieL (Illinois)
Posts: 82

Posted:

TishS,

what W2 form? To the bset of my knowledge we do not provide the bookkeeper with a W2 form. he's paid about $4,300.00 a year for his services, documented in the repors as $3,700.00, but I've never heard it said we give him a W2 form. Is this reqauired??
Maybe as a bookkeeper he provides his own?
thanks. MarieL

TimB4 (Tennessee)
Posts: 21,047

Posted:

Marie,

If the bookkeeper is an employee the Association is to file a W-2 with the IRS and provide a copy to the employee.

If the bookkeeper is an independent contractor the Association files a 1099 with the IRS and provides a copy to the contractor.

IRS instructions for W-2

IRS instructions for 1099-misc

Tim

MarieL (Illinois)
Posts: 82

Posted:

Tish,

I think if anything the bookkeeper is an independant contractor. but I've never heard any mention about a 1099 form being filed with the IRS. Or the need for anyone on the board to do this.
Thank you for bringing this to my attention..I will question this at our September board meeting.
But what if the boad is not doing this, which I suspect they may not be doing???
Thanks,
Marie

MaryA1 (Arizona)
Posts: 7,043

Posted:

Marie,

They may be penalized IF the IRS were to audit the HOA. Also if a 1099 is not prepared the bookkeeper could get away with not claiming this income as the IRS would have no way of knowing she earned this money. As a paid bookkeeper she should certainly know what the requirements are!!

TimB4 (Tennessee)
Posts: 21,047

Posted:

Marie,

As most Boards are made up of volunteers, it is possible that no one knew of the requirement. Sometimes the "bookkeeper" doesn't have formal training in the field, so it's possible that they also did not know. If you ever had an audit of the financial records of the Association by a certified CPA and they failed to mention it, suggest finding a new CPA for audits as this should have been an easy catch for someone trained in the field. All that said, sometimes, things just happen.

The choices are:

1. Start filing them this year and forget the past. Possible problems if audited by the State or IRS.

2. Start filing them this year and for past years. Will probably have penalties from the IRS and the possibility of an audit (as you are drawing attention to the fact that you haven't filed them in the past and should have). Worst case, the IRS deems the person an employee vs an independent contractor which opens even more issues.

3. Don't file them and hope the Association never gets audited by the IRS. If audited, there will me issues to deal with.

Everyone will have an opinion on which choice to make. I will not provide one as everyone has to make their own choices. I've just tried to provide enough information so you can make an informed choice.

By the way, here is a link to the IRS page on determining if you have an employee or independent contractor

Tim

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

"U.S. tax law requires businesses to submit a Form 1099 for every contractor paid at least $600 for services during a year."

So if you didnt pay her over $600 dont worry about it.

That said.... if she doesnt claim taxes on her income you pay her, the IRS, in rare cases, can go after your HOA for the taxes she owes. The IRS will go after anyone with the ability to pay the taxes.

MarieL (Illinois)
Posts: 82

Posted:

Tim and Steve,\

Thank you for your very informative responses.I did ot know any of this.

I do not want to cause pronlems for anyone or get the acountant and/or board members in trouble of any kind.. But I will address this at the September board meeting and advise the board all you told me. I'm sure they don't know any of this or that they may doing something wrong. Or I could also be mistaken, they may be doing things properly and not mentioning it.

The accounant was hired quite some time ago and I don't know what the terms were or are.I just know I am uncomfortable with finding understated expenses in the annual reports he prepares.. Including what he is being paid and wonder what else is being hidden. Especially since our books have not been audited in years.

But there are new laws in Illinois now, specifically for Common Interest Communities like mine.These new laws will change our current financial reporting system and confirms the required fidelity insurance coverages on the accountant and "treasurer" they don't have now.
Again thank you. I hope you know my concerns are for the association and homeowners. No personal agendas. I just want the association administered to as required..And board members do their job properly, as they willingly volunteered to do.

Marie .

TishS (Washington)
Posts: 116

Posted:

It is good procedure for someone to follow up with your bookkeeper. Run through a checklist, where is the tax return, the 1099's, the w2's (if they apply), bank statements, etc. Someone other than the bookkeeper should know where everything is..If they are using a Quickbooks type of program, monthly someone should get a backup copy and store it in another location, in case of fire or whatever. This is a common requirement for a real bookkeeper and they should not be offended. Additionally, a signor on the account other than the bookkeeper should verify balances with the bank randomly. Embezzelment from non profits is very common, because no one is watching. OH...get passwords..huge mistake people fail to get passwords and on an accounting program it will cost thousands of dollars and weeks of time to send it back to the publisher to have it cracked.

I audit companies for employee theft, so I would always check the utility bills, you would not believe how many times I have found bookkeepers paying their own utility bills with company checks.

There should be no reason for a bookkeeper to understate their income on a company report, what good is the report if it has bad information in it..Fishy, Fishy.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Marie - your annual budget should list snow removal costs for the year. EVERY board member should have an approved yearly budget in his/her packet.

The year-to-date fiancials should show how much has been "paid" to this company/individual - whether that is in the form of cash, check, gift certifictes or peanuts. That cost is posted against the "snow removal" expense account.

Ask for a Chart of Acccunts and be sure you get all financials.

PS There is nothing wrong with paying a board member who does a service to the HOA, as long as it's reasonable rates. There is no need for the "gift certificate". Maybe he does not want a Form 1099 at the end of the year.

ThelmaB (Tennessee)
Posts: 29

Posted:

What if the manager doesn't do an annual report for the Assoc. and possibly doesn't file his salary. I may not be making myself clear.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Thelma,

If the manager is resp. for collecting the assessments and performing all the financial reporting then he should be providing financial statements monthly. Normally the mgmt co that he works for has an accounting department and they perform the financial accounting, not the manager himself. If the BOD is not receiving monthly financial reports they should be asking why.

I'm not sure I understand what you mean by saying, "possibly doesn't file his salary". The fee paid to the mgmt co. should be reported on each monthly financial statement. If it isn't, then I certainly would be questioning the accuracy of the financial statement. The manager's salary isn't paid by the assn, it's paid directly to him by the mgmt co he works for.

MarieL (Illinois)
Posts: 82

Posted:

To all who responed to my questions
The bookkeeper does all the financial reports, including an annual report and proposed budget.The treasurer does nothing. The books are not audited and whateve the bookkeeper documents in annual expenses, income and proposed budget is accepted and approved by the board , not the homeowners.They do not vote on any of the financial issues.. including the proposed budget for the upcoming year.This was not the case in the past and I can't recall when it changed.For the past 9 years I have been dealing with loss of vision and paid little atttention to the affairs here.I've recoved some vision and decided to run for a board position again and was elected in January. Since then I noticed there are irregularities in the financial reports for the past 3 years.Understating what the bookkeeper is paid and the cost of snow removal gift certificates paid the the maintenance committee chairman,who also happens to be the "treasurer" of the association
With all the input I have received from everyone here I know how to go forward in this. What questions to ask, what needs to be done and what the legal standings are.I know all will be resolved at the end of this fiscal year. There will be an audit of the books and all questions answered. My sincere thanks to all of you who responded and have given me the valuable advice I needed.
Thanks to all of you,
MarieL

MarieL (Illinois)
Posts: 82

Posted:

I should have made it clearer.The bookkeeper is an independant contractor. He does not work for a management company, he is self-employed.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Marie,

That being the case, he should certainly know how to prepare financial statements under GAAP. And he should also know that a 1099 needs to be prepared for his salary. By hanging his shingle out as an independent contractor for bookkeeping services this is certainly not too much to ask and expect. On the other hand, if he was hired because he is a friend of a board member (past or present) and doesn't have a bookkeeping business -- your HOA is his only client, then what his qualifications are could be questionable.

TishS (Washington)
Posts: 116

Posted:

It sounds as if you have given your bookkeeper complete control and no accountability. Mistake!! There are cases every day being prosecuted (too late) of bookkeepers stealing Clubs, HOA's, corporate business, to the point of bankruptcy. My son's soccer club almost went under two years ago, because of a woman with a gambling habit (over 125,000.00 loss). There are four cases in the news here in Washington of kids sports clubs who have lost over 50,000.00 each. This is a real possibility.

Additionally, how do you know this person has a clue what they are doing? If you are a non profit and filing a 1120,1120h, or a 990 return, these take better than average skills and knowledge to complete. Good business practices should be put in place.

ThelmaB (Tennessee)
Posts: 29

Posted:

Thanks to all of you for your reply. I ppologize for not making myself clear. I have a lot on my plate, so to speak. What I should have said, if the manager doesn't file a report with the Sec.of State and this has been checked out with the State (3) times to which the response from the State has been, that we aren't registered. How should we pursue this if our management says he has always filed with the state. This maybe should be in another thread.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Thelma,

I would ask the manager to produce the reports he claims to have filed.

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