HOA paying out cash to contractors

Started by NancyG3 • 13 replies • 1460 views

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NancyG3 (North Carolina)
Posts: 342

Posted:

I checked some of the posting in the forum search, but,not sure it applies to my question.

In 2010 our Board paid out approx. $12,000. from the petty cash. No note given on check or check stub submitted to accountant. In 2011 Board paid out over $5,000. from petty cash the same way. When questioned the Pres reported that the contractors want to be paid in cash. From the accountants report he list the check #: Paid to: HOA - Petty Cash and the amount. The reports we get have never mentioned a petty cash fund or an accounting of it to the members. We tried to put a cap on the petty cash at the meeting but it was voted down. Does anyone know how much trouble can our Assn get into by doing this? Thanks

GlenL (Ohio)
Posts: 5,491

Posted:

None if they also issue a 1099 to anyone they paid over $600 to, if they didn't then that would be a question for the IRS as to how much trouble they are in.

http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

Studies show that 5 out of 4 people have problems with fractions

NancyG3 (North Carolina)
Posts: 342

Posted:

Glen thanks. Do you mean $600. a year?

GlenL (Ohio)
Posts: 5,491

Posted:

Yes, if they pay 1000 contractors $599 per year they're good but add a dollar and Uncle Sam wants to know about it.

Studies show that 5 out of 4 people have problems with fractions

NancyG3 (North Carolina)
Posts: 342

Posted:

I knew after I sent that questions it was a stupid question. Sorry to have bother you. Thanks again

JohnC46 (South Carolina)
Posts: 14,265

Posted:

While Glen is correct, if I saw that many petty cash expenditures in my associatoion, I would be up someones a$$.

NancyG3 (North Carolina)
Posts: 342

Posted:

There are 2 homeowners that have discussed this with the Board. (Not me) However, a homeowner made a motion to put a cap of $1,000. it was seconded and the homeowners voted it down. I believe there are 3 homeowners that are really concerned and trying to help the Board, and I'm hoping the Board listen. I'm wondering what you would say to get it across to them what they are doing is very dangerous.

BrianB (California)
Posts: 2,820

Posted:

probably not illegal, but a poor accounting practice.

and definitely, an abuse hole you can drive a truck through. I would close it, if I could.

NancyG3 (North Carolina)
Posts: 342

Posted:

Thanks Brian. I believe the 3 homeowners are working on it.

TimB4 (Tennessee)
Posts: 21,059

Posted:

As Treasurer, I insist on receipts or invoices for all checks issued.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Personally, I would be more worried about embezzling than issue with the IRS.

JM10 (California)
Posts: 503

Posted:

I'd be worried about both embezzling AND the IRS. Our HOA didn't have contracts and ignores our CC&R and our questions about contractors. They are going into their second year of this nonsense.

DaveD3 (Michigan)
Posts: 796

Posted:

A cash payment without a receipt or a documented description of what it's for, with the full agreement of the board certainly looks like embezzling to me.

What kind of structure does this board have for authorizing payments to contractors? Does one person have the authority to make payments as they see fit, or is every penny of these "petty cash" payments going through the board for review and approval?

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Often, when a person (contractor) wants a cash payment rather than a check (or, a check made out to "cash"), their purpose is to avoid reporting that payment and avoid the payment of taxes on that income. That is, of course, illegal, but it is not the board's responsibility to enforce the tax laws on that individual.

However, it IS the board's responsibility to comply with the tax laws regarding the payments it makes to individuals and firms (companies) other than corporations. Any payment(s) made to an individual or to a company that is not incorporated, no matter how paid (including cash, goods or services), that total more than $600 in a year, MUST be reported to the IRS on form 1099-MISC. Report on line 7, "Non-employee compensation." There are possible fines and penalties if the IRS discovers your HOA is not complying with tax law and issuing 1099s when required. Remember, any board that fails to comply with the law puts the entire community at risk.

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