Finance Committee

The preparation of our budget and the resulting vote in November drew a lot of criticism and anger from the homeowners this year. Many were upset because they felt they had no input in the budget making process.

I have been elected president for 2012. I would like to heal the wounds caused by the budget process. One suggestion that has been made is that we should have a finance committee. Up until now our initial budget has been drafted by the treasurer with the details decided upon by the board.

I am seriously considering this suggestion. My thinking is that it would involve more people in the budget making process. Also, more people would become aware of the financial responsibilities of an HOA. If I'm really lucky, I may even get more people interested in seeking board positions.

I would like to know if any of you have a finance committee. What is their function? How has it worked for you?

Our association has a finance committee which currently has 9 members. As the Treasurer of the association I am the Board's liaison to the committee and attend all of its meeting.

The finance committee prepares the first draft of the budget. They begin this process in July by meeting with the chairmen of the other committees (e.g. Facilities, Grounds & Landscaping, Social, etc.) and with the staff members (general manager, clubhouse/activities director, etc.) The meetings of the finance committee are open to the association membership. The committee has access to all contracts and to prior invoices for all recurring expenses (e.g utilities, grounds maintenance, etc.) They prepare a written Basis of Estimate (BOE) form that I designed for each budget line item. The form shows the prior year budget, the year to date actuals, the proposed budget for the coming year with the monthly phasing and a narrative section that explains what expenses are charged to that line item and the assumptions used to arrive at the budget estimate. These are all compiled into an Excel worksheet with summary and backup sheets.

I prepare a PowerPoint presentation based on the draft budget which highlights any issues and I distribute it to the board members for review. In September the board holds an open meeting to review the draft budget and to make decisions on all budget issues. Then in October the board meets again in open session to review the updated budget. At the regular November board meeting the board officially adopts the budget. It is then posted on the association website, a hard copy is placed at the clubhouse front desk for homeowner review and an email goes to all homeowners notifying them that the budget is available for review.

We are a large community with a lot of common property and our operating budget is $2.3 million per year. This necessitates a highly structured budget development process. There has been almost no homeowner attendance at any of the open committee or board meetings related to the budget. This is probably because our monthly assessment has not been raised in 8 years and we have operated with an operating budget surplus for the last 5 years. No c no interest.

We are fortunate to have talented and committed volunteers for our finance committee. If you can find such volunteers, by all means, appoint them to a finance committee.

To return to one of your original points, Bruce, and also David's encouraging more homeowner involvement in the budget should be a very positive step. And, also, from '06-'10, in my HOAnew board members usually came via service on the Finance Committee.

Btw, Bruce, you've mentioned that in CT, HOA boards must follow Robert's Rules of Order. It's not required in CA HOAs, but it is in our bylaws. So our committee charters also contain that requirement

Yea, Richard. 49rs won! I lived in Santa Cruz off & on for many years and still am a huge fan.

I totally agree with setting up a finance committee and the benefits of that. My suggestion is only in making sure that everyone is on the SAME page and CONCEPT of what a HOA budget is to be. Establish what a non-profit corporation means. That it is NOT a "Charitable" organization where one can simply have "yard/bake sales" to raise money when needed. It requires a Special Assessment and vote of the members. I think many people don't get that concept and will hold various fundraising opportunities not knowing the ramifications tax wise.

A HOA is NON-PROFIT. That means that it should collect as much money in as it has to pay out. Some people see $ signs when they see the HOA's bank account and reserve funds. They want to go on a "shopping spree" of sorts spending money on different projects here and there. CAREFUL planning has to go into such projects and ramifications/continued costs of supporting such projects need to be understood.

A finance committee is great and useful tool. However, if they don't understand the limitations of a HOA or how funding works in it, that can quickly turn into a nightmare. It is best to establish the overall purpose and educate what the purpose of the committee is to do for the HOA. A HOA is ONLY funded by it's members FOR it's members. When you spend the HOA's money you are then spending EVERYONE's money not just your own or what you perceive as the "BOD" money. A lesson taught to me early and the hardest one to teach or learn.

Our FC charter is similar to the one that Richard posted. One difference is that our FC does not review proposals for contracts.