HOA Financial Statements

Hi, new to the boards here. I wanted to get some feedback about HOA financial statements.

I am currently on the BOD of a Texas HOA, and we transitioned to a new MC effective January 1, 2012. The HOA was already under homeowner control, the switch was mainly due to service and fees.

My main concern is with the way our financial statements and accounting records are being presented. Our balance sheet cash only reflects net income since the transition, neither the balance sheet or general ledger have records of two large checks (operating and reserve) sent from the previous management company. I have reviewed bank statements, and the deposits were made, yet no accounting records exist for them.

The new MC states that we will have "two sets of books" for the year due to the transition (btw, we are using cash basis accounting). We had a substantial amount of prepaid dues at December 31, 2011 before the switch, recorded as such with our old MC. Therefore, I understand how this amount would not show up on the Income Statement with the new MC until the accounting records are consolidated at year end--since we are using cash basis accounting, and the cash was received at our old MC. I guess my concern is when I look at the Balance Sheet, I would expect the full amounts in both our operating and reserve accounts to show up there, but they don't. The new MC's explanation is "that was your opening balance equity from the previous company." Then shouldn't this amount show up as Equity in the balance sheet, balancing out our Assets (cash in the bank)?

Has anyone here gone through a change in management companies? Is having "two sets of books" for the first year of the transition normal? Regardless of changing MC's, or choosing cash or accrual basis accounting, shouldn't the balance sheet accurately reflect the association's financial position at a given point in time?

Thanks for your input!

Chris,

We have just gone through this. We terminated the old MC effective 12/31/11. The new MC finally received the year-end statement from the old MC on Feb. 20, 2012. They have finally, as of March 22, 2012 been able to produce the January and February reports for us. They spent a GREAT deal of effort to input the year end balances from the old MC into their system. The new reports represent only one set of books. In the process the new MC identified some suspect transactions that were being carried by the old MC that probably should be written off. We have forwarded those to the CPA who is currently working on the 2011 audit for her recommendation. Unlike you, we operate under accrual accounting.

Your new MC must incorporate the year-end balances from the previous MC into their system and produce a single set of valid books/reports for the association. Anything less than that strikes me as a failure to fulfill their fiduciary duty.