What are the risks to a POA with no accounting system

I just looked at the Texas Residential Property Owners Protection Act. The only concern it raises is when an owner makes a request to review the "books" of the Association. But even then, the statute is generous to the HOA, using qualifying phrases that indicate the HOA need only provide the books 'to the extent the books are in the possession of the HOA.'

Roger do your governing documents require that the HOA generate an annual budget; a monthly profit-and-loss (income and expense) statement or anything else?

On the other hand, the Texas Nonprofit Corporation Act has some stern warnings:
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Sec. 22.353. AVAILABILITY OF FINANCIAL INFORMATION FOR PUBLIC INSPECTION. (a) A corporation shall keep records, books, and annual reports of the corporation's financial activity at the corporation's registered or principal office in this state for at least three years after the close of the fiscal year.

(b) The corporation shall make the records, books, and reports available to the public for inspection and copying at the corporation's registered or principal office during regular business hours. The corporation may charge a reasonable fee for preparing a copy of a record or report.

Sec. 22.354. FAILURE TO MAINTAIN FINANCIAL RECORD OR PREPARE ANNUAL REPORT; OFFENSE. (a) A corporation commits an offense if the corporation fails to maintain a financial record, prepare an annual report, or make the record or report available to the public in the manner required by Section 22.353.

(b) An offense under this section is a Class B misdemeanor.
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I do not think what the treasurer is doing at the OP's HOA qualifies as "books." Does the treasurer prepare an an annual report? If he does not do more than what the OP describes, I would be concerned state law is being violated.

He causes it an "annual report" but I would argue that nothing he presents would be construed as such in financial circles. All he presents, as far as an annual report, is a beginning cash balance, receipts, which are pretty much all received assessments, and cash paid expenses, which are checks written broken up in a few categories - examples, mowing service on front ditches of subdivision, utility expenses for power usage for some street lights and irrigation water pump. Then he lists a cash balance. Some of his expenses and revenues categories are very sloppy too. For example, he intermingles savings and checking balances together at the beginning in the starting cash position and then again at the end in ending cash balance, but between those two he breaks them out into two separate assets, and please note that assets is my word in my writing here, he does not call them assets nor have any balance sheet as I recall. He list under revenue, cash transferred from checking to savings, then under expenses he lists that same amount as an expenses from checking - I assume that makes sense to no one but him.

He also got those two things, checking vs savings mixed up in his annual presentation. For example, last week when he went over his report, he stated multiple times that we had XXXX cash in the savings and XXXX cash in checking, when XXXX was clearly those two accounts combined, basically stating we had twice as much cash as we really did. He was not trying to deceive anyone - just sloppy approach to it in my opinion.

This is crazy talk, Roger.

Of course there must be an accounting system of some sort - complexity isn't always necessary, but what you describe is ... well ... crazy.

I completely agree with all your wrote. The problem is that what I described is what is being done, and has been done since 2016 when the current Treasurer became the treasurer - also, the accounting before then, while more detailed was very elementary also. The problem is that few to no members care nor does anyone on the Board. I have an accounting background. I am aware of the control risks that no accounting presents but again, no to few care about those risks.

What I am trying to learn from my query here is if there are any tangible problems, such as IRS problems, or law requirements, that the above might cause - i.e. more actionable problems. If so, then I could use those examples to convince members that this is a problem.

If these homeowners have to have someone explain to them that the current system can allow vital things to be overlooked, expose the association to fraud and embezzlement (because the treasurer might do things like make up vendors and channel money to himself), thus putting THEM at risk for sky-high assessments because there’s not enough money to pay for lawn care or fund reserves (perhaps because no one’s thought about setting one up, let alone getting a reserve study), I would say you have much bigger problems and wonder how they became homeowners in the first place.

You want examples, why not start with goggling HOA embezzlement to see what sort of things can and have happened when the money gets funny – and what may happen to your community if someone doesn’t get a grip and start doing some bookkeeping that makes sense. You can share those stories with the homeowners to start with. Since part of the HOA assessments is supposed to be deposited into reserves, google underfunded HOA reserves and share some of those stories. And “what happens with a homeowner association is broke?”

You can also appeal to their common sense, although I wonder about that too if this has been going on for four years and no one’s said anything until now. Someone once said being in an HOA is like walking into a bar and becoming business partners with everyone there. You don’t know these people – some may be spendthrifts, others are misers, a few may be sociopaths and the rest are various shades of clueless.

Nonetheless, you are all business partners and in order to have a successful business, everyone needs to know where the money’s coming from, where it’s going and ponder ways it can be spent more effectively. An HOA may be a non-profit, but it must be run like a BUSINESS. That means at any time, people should be able to open the books and understand what’s happening, so you’ll have enough money to pay the bills, protect yourself against significant losses (that’s what the association master insurance and reserve funds are for) and improve the property.

Roger, to answer a portion of your question directly:

The IRS will not come looking for the Association, a small HOA like yours is not worth their time. I personally believe the vast majority of IRS 1140-H forms filed are scanned into the computers and never looked at again.

We have no POA/HOA Governing Agency in Texas, they will not come looking for the Association either as there is no "they".

If you are not filing the annual No Tax Due Report with the Comptroller of the State of Texas, they may come looking for the Association and require you make filings for previous years. Lets say no filings have been made since 2016, the Association could be out of pocket $200-$300 or more for filing and late filing charges paid to the State. There may be other expenses as well if there is no office of the Comptroller nearby.

Since the Accounting "system" in use may not capture the information needed for the No Tax Due report, the Association could be made an example of by the Comptroller's office with resultant 'big bucks' spent on a CPA and legal counsel for defense.

Thanks for this information. I will look into it - although now the rabbit hole grows. Also, it might not apply since the Association is a 501c4 but I will research it.

2019: Income, of which over 97% was current and prior year collections of assessments, was $38.2K. Expenses were $19.8K.

He listed budgeted income of $30.7K and budgeted expenses of $30.2K. Please note there is little to no analysis to form a budget. It is roughly the same budget from year to year and from what I can gather. There are a few items where the actual expenses are much lower than the budgeted amount and it is that way every year, but he includes those higher amounts in the budget "because it was done that way previously." To me that situation opens up the door to misuse cash because the membership approves what I just described as a budget and I do not really think many, if any, would question if some of those expenses jumped up to the budgeted amounts.

No I am not sure. I know it files that way with the IRS at least up until 2015. Per the 990-EZ listing that the IRS shows in its public documents, the IRS describes it as "Nonprofit Tax Code Designation: 501(c)(4)" For 2016 through 2018, the Association has filed a 990-N, the "postcard" filing, instead of the 990-EZ and the public record of the 990-ns do not indicate the specific tax exempt classification as the 990-EZs, used in 2015 and several years prior to that, do.

I looked over minutes to meetings in the Association's early years. From 1983 until 1985, a period for which I think I have all the minutes as the minutes indicate what meeting it was as in 1st of 198X, 2nd of 198X etc., I found one meeting, the first of 1983, where under "old business" it was mentions IRS tax exempt status was being sought. I found no more mention of it. I do not have minutes between the beginning of 1985 until the beginning of 1988. I suspect it happened in that period. I can still get into contact with one of the principal people from that period, who would likely know the details, but at this time, do not want to bother him.

I don't put a lot of credence into someone who thinks the association his mom is the member is actually a 501(c)4. Are you really a social welfare group???

Based on the several posts that this Roger Dodger has posted over the past week or so, I really don't think he has any idea what an HOA is or how it is to be run.