Act of Bankruptcy?

Our HOA has been running in the red for over five months over $100K. Now we have in the reserves account from our finance statement this entry:

Reserve Account: $1,170K
Net Reserve: $671K

Our HOA brings in about $80K a month and this years budget was based on that. Now strange things are happening. Our Property Management has written checks and yet not mailed them. Some vendors are over 4 months over due. About three month ago, trash was not picked up because of non payment. That got resolved. Now recently all the elevators were turned off because we have not paid the State inspection agency (or that is what our Property Management Company has said). Three months ago, the HOA authorized this inspection. So I doubt it was less than 90 days overdue. From what I understand, the State does not turn off elevators because of non payment. There have been no terrific expense this year, though there is a claim is it slab leaks- but these are not any worse than last year.

The Property Management company has give us no good reason for not paying our bills. Does anybody have an idea what is going on. Have any of you had similar experiences.

Also what does it mean when our HOA Corporation has an FTB status of SUSPENDED?

Members are getting concerned.

If you can't change your people, change your people.. It sounds like your BOD's needs to get rid of the management company. Likewise with the BOD.

My Associations Financial Statements are posted so members can look at them. At the beginning of each statement is a summary consisting of

Operating Accounts:
Due to Reserve Funds
Accounts Receivable - Net
Reserver Accounts

If you run these in a speedsheet over the last seven months, it says that the HOA is bring on the average $120K a month (accounts receivable - net). How can this be? We have property assessments of $82K a month total for all our 180 units. I took the number of units or each type (1,2,3 bed) multiple it by the assessment of each type and sum them all up. How can we bring $40K a month more. Magic money? We make no money on renting our clubhouse? Could one of you accountant types explain how this works? Am I just a dumb engineer. Is there some strange definition of NET I do not understand?

This is from last Financial Statement, the summary statement. Not sure what it means.Hope it answers you question. Can you please tell me what it means.

Operating Account$ 136,814.38)
Due to the reserves: ($499.360.89)
Account Receivable - Net :$111,435.97
Reserve Account: $1,170,435.28
Net Reserves: $671,074.39

Thank you.
If you want to look at our statement, send me your email to [email protected]. I am in Souther California.

From what you have stated I am not sure why you believe you are potentially operating in the RED?

Perhaps there is no CORPORATE treasurer available (y'all are suspended) authorized to SIGN the checks the 'manager' has written.

? Where is the HOA membership while this is occurring ?

Yes we have a HOA Board. It was elected in July. The same person has been the Treasurer for the last two years. We do not sign our checks. The Property Management Company take care of that.

IMO:

the 'manager' should merely process the checks then present them to the Board for signature, they should NOT be signatory to the bank account

accounts receivable = money owed the association

if January not paid it is still owed so February will show 'double' the amount

The Board of Directors is responsible whether or not they pay others to perform the 'grunt work' or the book-keeping.

Y'all elected them - y'all can throw the bums out.

Read, reread then read again your documents:

Covenants and Restrictions
State corporate law and/or any state HOA law
Articles of Incorporation
Corporate Bylaws

I don't agree with such practice.

However, it is a practice that is often done.

The reason I don't believe in the practice is that the temptation is then there for the MC to embezzle. We keep locks on doors to remove temptation and keep the honest people honest. The crooks won't care if it's locked or not.

It can also make it more difficult when MC are changed (especially if the separation isn't amicable).

People in Nebraska don't lock their doors, and haven't for a very long time.

Practices put into place for a self managed complex and one with a off site property management company will have different procedures. I sign most checks except my own. The management fee is on ACH, as it is a contract, anything extra, I will have signed. Invoices go onto a web portal and the Board will approve prior to a check being cut. They have monthly financials presented each month and a bank statement to verify the transactions. It is up to the individual HOA to review their financials.

LOL ... Tim beat me to it ... I also DO NOT AGREE with this policy!!! Keep in mind no matter what happens with the HOA the BUCK stops with the HOA!!! If your homeowners sue anyone it is NOT going to be your Management Company ... it will be the HOA. Your Management Company is an Employee of the HOA and subject to the HOA Board direction. I have seen and heard of too many HOA's when they change Management Companies run into issues regarding their bank accounts ... WHY ... because they gave up control to someone else which is supposed to be their responsibility!!!!

I went and looked at the 2016 Financial. At the beginning of each report, the Property Management Company provided a summary

Operating Accounts:
Due to the Reserves Fund
Account Receivable - Net
Reserv Accounts
NET RESERVE

Under this "Act of HBankruptcy" Topic, I already provided the same for 2017. The 2016 looks an awful lot like 2017 when they only increase our dues by 3.5%

There are two entries you should look at in this report. One is Net Receive (calc) - meaning calculated from Reserve account minus due the reserve and the Net Receive (rpt) - meaning on the report the Action prepares for the HOA.

I have highlighted in pink some issued particularly April 30, 2016 report. Most are nickel and dine or round off errors for most of these except for April 30, 2016 where they are off almost $72K. What this shows me is that our reports are prepared by hand--which is alone scary. Or some programmer is having the system generate manual entries--which is even more scary.

ditto

What I think is the wonderful software the our property management company is using is misleading us and is really screwed up. From this Topic, I have got serval ideas.

1. Take charge of signing the checks and check the invoices (P.O's) against the expenditures. Make sure that the expense was authorized. Have the Board do this instead of the Management Company. Maybe an independent auditor. The have one in the HOA. The Management company will collect the assessments
2. Suspend the Reserves payback until we understand what is going on with our finances.

Revserve issue (seems this thread is going in that directions):

We have 671K in the reserves (July 31, 2017). We owe the reserves $500K We are not broke. The Davis Sterling Act sets up reserves up this way. Except for temporary borrowing, boards may not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established. (Civ. Code §5510(b).)

But we can suspend putting money in the reserves. Suspending reserve deposits qualifies as borrowing from reserves. Monies allocated to the reserve account are pledged in the reserve funding plan annually published to the membership, as well as the operating budget mailed to all members prior to the start of the fiscal year. Those funds are then collected from the membership for that purpose. Intercepting reserve monies before they are deposited into the reserve account or waiting until after they are deposited produces the same result--reserve monies are being used for non-reserve expenses. Such actions are allowed if done properly.

Monies borrowed from the reserves must be repaid to the reserve fund within one year of the date of the initial transfer, except that the board may, after giving the same notice required for considering a transfer, and, upon making a finding supported by documentation that a temporary delay would be in the best interests of the association, temporarily delay the repayment. (Civ. Code §5515(d).) Associations are allowed to levy special assessments to replenish reserve funds.

Maybe we need to reduce the contribution. Can we do that? What I think is the wonderful software the our property management company is using is misleading us and is really screwed up.

Due from and due to are two different animals. In this case, monies were taken out of reserves and the accounting hasn't been properly completed. It is called lazy bookkeeping.

When I set up the chart of accounts for an HOA, all the reserve items are tied to the reserve account. When a pool heater, which is reserve asset, needs to be replaced, the check is cut directly from the reserve account and the line item in the reserve account is adjusted. This way you have two sets of books, one operating, one reserves. In the OP case, they are dipping into the reserves for items not related to the reserves. It's a catch all line item. Show up clear as day on the general ledger though.