Monthly Assesment Rounding

Charles,

I'm not real positive of what you are saying.

Our Association will, for bookkeeping purposes, round up assessments to the next 50 cent mark (10.25 rounded to 10.50, 10.75 rounded to 11 for example). This is done because our documents specify that the late charge is 10% of the assessment. Therefore, to keep from dealing with pennies, we round up. However, we also adjust the budget to account for that extra income amount, typically be adding it to the tree trimming line item (as we could always use money to trim another tree).

Are you saying that your Assocaitions income is greater than expenses because of this rounding up?

If you are, have you asked the Board about this?

Our association always used whole numbers because it makes the math easier - in your case, you're looking at $58,212 a month (assuming everyone pays in full and on time), $698,544 a year. You didn't say what's covered by the budget or what your situation is regarding reserves, but it seems a wee bit petty to quibble over 11 cents. This isn't a budget buster ($11 or $110 might be a different story)

.11, you have to be kidding??? A budget is an estimate of events in the past, not a crystal ball into the future.

John- I'm unable to get medical clearance from my Cardiologist and Psychiatrist!

So you can sleep better at night, recommend to the Treasurer that the additional $277.20 be allocated to the reserves and be done with it.

Charles

So we keep it close to home, your home insurance and property taxes are rounded up also. If you belong to a country club, your monthly dues are a whole number.

The purpose of the civil code you referenced was so directors would not have the extra money to throw themselves lavish holiday parties and give themselves hefty year end bonuses. And yes they do.

Charles,

Well, I can understand the rounding to make it easier for bookkeeping purposes.
It sounds like something I actually recently did.

Our Board approved the rounding as I described earlier. I wrote up our letter and included the budget. Unfortunately, I grabbed the wrong piece of paper and sent out the wrong budget (the one that didn't include the rounded up amount). Simple human error. One person (and only one person) brought this to my attention. I quickly wrote up a letter explaining the error and sent out the approved budget.

It could be that simple. Human error.

This is why I suggested you contact your Board about the issue. They simply might not know about the error and, once known, will correct it.

Well done and well said.........LOL

I prepare the budgets for my HOA. I round everything to the nearest $100 - sometimes up and sometimes down. Here is some of our reasoning:

1. It's more readable. Most people have a hard time looking at a column full of numbers that look like this ($125,963.42 and $11,132.76) or even like this ($125,963. and $11,132.) instead of like this ($126,000 and $11,100).

2. It's a best effort guess. A budget is a prediction or guess or estimate of what expenses are going to be for a 12 month period in the future. No one expects anyone to hit those estimates to the penny. At the end of the year, when our CPA audits our books, she includes a Budget vs Actual (BVA) report which shows the variances between our estimates and our actual numbers. (We also have BVAs done monthly, but those aren't audited). Personally, I would not trust any BVA report where the Budget figures and the Actual figures are identical and the Variances are all $0. Somebody would have to be cooking the books to make that happen. It doesn't happen in the real world.

3. Stuff happens. Even if your contracts are set in stone, things can get cancelled or added or deferred. It's the job of our Board to get close to the budget numbers, and to manage to the expectation of our HOs which is that we will get close to what we promised. If our Variances are within $100 or $200 of our budget, our HOs are usually satisfied. When it turns out that our estimates weren't that close, we explain why.

4. Some of the largest numbers are unpredictable. One of our biggest expenses is water (houses are not individually metered). The differences from one year to the next has been in the thousands of dollars. At the beginning of the year, we have no idea what our delinquencies are going to be. Those differences from year to year can also be in the thousands of dollars. Before we went to a fixed rate snow contract, we paid on a per event basis. The differences from year to year was sometimes in the tens of thousands of dollars.

Charles

Your first misconception is that the budget income and the budget expense match exactly because you are tracking things down to the penny. Not so. If you budget at the dollar level, income and expense will match. If you budget at the $100 dollar level, income and expense will match. If you budget at the $1,000 level, income and expense will match. That's because, in fund balance accounting, Revenues = Expenses always. No exceptions.

Your second misconception is your interpretation of CA CC 5600(b). You read it as if there is no flexibility when in fact the concept of "materiality" comes into play in every accounting. You are not dealing with a bank teller who needs to reconcile his cash draw at the end of his shift. You are dealing with hundreds or thousands of transactions done by many different people who are relying on a wide array of best effort estimates.

Your third misconception is that the difference between the Budget amount and the Actual amount somehow results in a "cash disappearance." Not so. The difference between the budget and the actual is captured in the variance. Any excess cash is either spent for the benefit of the HOA, or added to the HOA reserves, or considered when setting the next year's HOA fees. It never just disappears. And it always accrues to the benefit of the members. And it never gets siphoned off into someone's pocket - unless you have a very different type of problem than budgeting.

I think what Charles is saying and, I believe we all agree with, is that the initial budget for the year should have expected income = expected expenses.

This does not appear to be the case with Charles's Association (at least for this/next year).
Personally, I think it's likely human error that it was reported that way.

expected income SHOULD EQUAL expected spending

if you round the 'dues' upward then increase a line spending item (usually reserves) upwards to compensate

this is done when DRAFTING the preliminary budget - not AFTER the final approved version

if form 1120(h) is filed any excess over $100 would become taxable @ 30%

if it had been done properly NO ONE WOULD BE JIBBERING NONSENSE NOW