Advice to a New Treasurer?

In addition to the points you've raised I would strongly urge you to bone up on Reserve Studies and then take a close look at yours to see if it is adequate for your community. Hopefully, you have one.

-- Ditto.

-- Also, does the study indicate that the current assessment is adequate to cover both reserve funding and annual [non-reserve] operating expenses?

what is a normal amount to be in the reserve account? I think ours has ~1 years worth of dues sitting there, separate from the annual operating expenses.

I agree with HenryS6's response, except I do not feel the "formula" is all that complex.

BobS38, when was the last reserve study done? A reserve study will tell you how much should be in the reserve account as of the date of the reserve study. Conventional wisdom is to have a professional, full reserve study done every five years, with annual adjustments (which amount to far less than a full reserve study) as deemed prudent.

Thank you Henry and everyone else!

Reserve Study: check. We had a new one earlier in 2021. I think someone said a new Reserve Study should come about every 5 years? I'm all ears for advice here. FWIW, my neighborhood's physical assets are in pretty good shape.

Reserve Study Recommendations: check. I'll be happy to champion this stuff. It's do-able, and I'd be very happy to finish out my term on the Board with *no* special assessments or increases to resident fees.

Budget: check. I've been kinda thinking about it already; I'd like to generate some nice reports that show expenditures over the past few years[[1]]. So this is the motivation I need to actually do it.

Copies of Proposals and Signed Contracts: hmmm. I see the wisdom of it. I foresee the mgmt company being 'possessive' about these things (just because they're like that). I'll attempt to pursue it, though.

Reviewing the Ledger: check. I already do that anyway.

Here's a question where my not being an accountant is a problem: the mgmt company sends us various financial reports (2020 August Financial.pdf, 2021 January AP.pdf, etc). They look like they're generated from some kind of accounting software, which implies that there's a database back there somewhere. Any thoughts on Magic Words that might convince the mgmt company to share a copy of that DB? My guess is this is probably a flat *no* (not to mention the "generated" reports might all be hand-entered data in an Excel spreadsheet). But - thoughts?

Again, thanks! Please keep the advice flowing. I'm sure it sounds odd to most people - but not Henry and a few others - when I say that this stuff can actually be fun.

BillD

[[1]] I'm a computer graphics geek.

I see no need to have a copy of the database that the management company uses for financial stuff. You are the treasurer, not the accountant. Your auditor will verify that the money is going where it needs to go from an accounting standpoint.

One other thing that I forgot to mention - you'll want to see how many homeowners are deliquent and be the one to suggest guidance on how to get them back up to speed on payments. You can (with board concurrence) offer payment plans, offer to waive late fees in exchange for paying in full, or send them to attorney's offices for collections. There are a variety of options if they are sent to collections. As the treasurer, the guidance on how to handle them should likely come from you, with concurrence from the board.

A few items since others have covered the important stuff:

The rule of thumb for reserve studies is every 5 years, but there can be reasons to do them more frequently. Anything that can make previous assumptions wrong should get your attention. These can include significant changes in the inflation rate or changes in interest rates (making estimated future replacement costs and estimated earnings on the reserve accounts less accurate) or extreme weather events that can accelerate the aging of physical structures (making estimates of remaining useful life less accurate).

We asked our reserve study company to provide their results in an Excel spreadsheet, and added some columns at the end in which we could track the amounts in our reserve accounts and estimated and actual spending. This also gave us an easy way to decide how much money we could tie up in CDs and for how long.

One other item about reserve accounts: these need to be invested in plain vanilla things like money market accounts (not funds!), CDs and Treasuries because your main goal is to preserve principle. I assume you know this already, but for others reading along, resist the temptation to buy things like brokered CDs and money market funds even if they offer a better rate of interest since these can lose principle. FDIC and NACUA insurance is important. If your reserve accounts exceed insurance limits, there is a program called CDARS offered by many banks that provide FDIC insurance for amounts exceeding $250,000 by holding your funds in multiple banks while allowing you to deal only with the bank that offers the program. Individual credit unions may also offer supplemental insurance to insure funds over the $250,000 NACUA limit.

This is something I put together for my associations. It may or may not be of help to some people.

Awesome piece of work Max.
Thanks

Say, BobS, OR: it'd be best if you'd start your own thread so that we aren't distracted from Bill's good questions & remarks. You definitely have issues with your HOA, bob.

Btw, our current reserve study for 2022 is a "Full" study of our 200+ unit condo high rise including a site visit and review of our CC&Rs for $2,500 with a national firm of certified reserve specialists. Perhaps their first ever study with us was more e expensive, but they had studies by previous firms to review. We have this full study every three years. CA requires a review that often. On the other two years, we have off-site studies when the specialist interviews are PM, building engineer, etc. to update the study.

It's good you have a recent reserve study, Bill. In CA, we should do a complete study every 3 years, which makes sense to me. I think they are interesting and fun. Your reserves analyst or specialist, and I assume s/he is certified, probably would be happy to talk with you about your new study and clarify why certain components are on it and not others that you think should be on it.

To this latter point, an HOA item must meet 4 criterion to be on your study: 1. It has a limited life (generally under 3o-40 years). 2. Its remaining useful life must be predictable. 3. It must be a common area maintenance responsibility (which is why the analyst reviews your CC&Rs); 4. it must be worth between .5% & 1 % of the HOA's total budget.

These analysts or specialists always recommend that your reserves be a least 70% funded and that you shoot for 100% funding. BUT if, say, you're only 50% funded, it's often too hard on some owners to raise dues all in one year to achieve 70% funded! Your analyst, like ours, should be ready to show you a few scenarios displaying how much you need to raise dues to get on a good path to become over 70% funded in, say 3-5 years. If you feel your Board is not very knowledgeable about reserves, have your analyst meet with the entire board or even in an open meeting with owners invited too.

I like the suggestion that executed contracts be posted on your web site. Owners in TX may have the legal right to review executed contracts. Bids & proposals generally are not required to be shared with owners, but I don't know about TX.

Most people wouldn't have much use for it, I realize. But I'm a very good programmer. But it doesn't sound like I'll get my hands on it, so ... oh well.

BillD

Point taken. My big concern is that many residents don't feel they're getting a lot of value for their dues money. Especially these past couple of years, when COVID has reduced access to the pool and trashed all social events. I personally would not want to announce a dues increase unless my family and I had a secure, secret place to sleep. The Good News is that a dues increase is unlikely.

Although I'm reminded of Woody Allen's famous line: "If you want to make God laugh, tell Him your plans."

BillD

This is a common complaint from owners who do not understand why 10% to 40% of their dues is going to reserve funding.

The clever treasurer, supported by a clever board, will pound time and again on why savings must be set aside for infrastructure that has a long lifetime. It is a huge battle, first, because it requires a fair amount of math savvy, and the math skills of adults in this country is appalling. Second, when directors speak of raising the assessment, they risk being voted off the board.

You're a graphics guy, right? Do the pie chart like someone suggested.

Bill

Best practices on when reserve studies should be done, first should be based on what your state requires.

I happen to prepare Reserve Studies as part of my business. While I don't hold Reserve Specialist designation from CAI, I meet the qualifications for one. I will not do any for high rises, as those are a different beast, and will only handle HOA's that have had one done previously. If I happen to take on an associaton that has never had one done (there are some), I will refer them to friends who will climb up on the roofs. We have to have an onsite one done every three years and updates in between.

You're right, there are a lot of mumbo jumbo filler in there. To do updates, we use vendor proposals, vendor invoices on work completed, books on area construction costs and area construction databases. The software I currently use is constatntly being updated and tweaked and it is state specific.

What I do once the report is done is prepare a spreadsheet with all the items with a 5 year projection of when items come up for replacement or repair. This gets sent out to homeowners and the board which I include as part of the annual disclsoures sent out annually by state statues. It is also a financial tool that can be used for investing when the association has a large dollar reserve, so that CD's and money market accounts can be properly managed. Most management companies won't do this and most associations couldn't read a reserve study. I mainly do it for the one person in an association that might take an interest in this sort of thing.

With Max, Bill, you just had a study done, but TX may have requirements for frequented annual reviews and studies.

Unlike max's clients, all of our directors have read our 3 reserve studies for years some more thoroughly than others. Our draft studies for '22 is an inch thick partly because it IS an onsite study so has photos of all 100+ components in our twin towers high rise. Our board met with our reserves specialist a few weeks ago and he gvave a good explanation to our two newest directors, both of whom seem interested (based on the questions they asked) and grasp the essences of them.

Sorry everyone, I have no experience with HOA reserve study costs for an association the size of that of the OP. The sub-association in which we reside has 105 homes and $30,000 worth of association common elements at full replacement cost if we had to write a check today. The master association is comprised of 9,000+ homes with association owned pools, a beach club, tennis courts, buildings, tens of thousands of feet of fencing, entrance monuments, hundreds of irrigation system controllers, lighting systems, etc. The master owns all the amenities.

The last Reserve Study we obtained for a client was for a small condominium association and cost $1,200.

Texas does not have statutory requirements regarding reserve studies, frequency, funding levels, or funds management processes other states seem to have.

I will say I think the OP is getting way out into the weeds as a brand new treasurer. I don't think a focus on the Reserve Study should be a priority just now, nor should be pie charts or graphics culled from the financial accounting data.

BillD16, I recommend you read the Bylaws of your association which describe the duties of the Treasurer and ensure you are dotting those i's and crossing those t's. You may wish to have a private meeting with the President of the Board regarding his or her view of your duties and responsibilities. Perhaps similar conversations with the other members of the Board would be useful as well.

I suggest you review the documents you have beginning with the current year budget and most recent financial report. Ensure you understand every line item on both, including the Balance Sheet and not just the math, but also the accounting rationale behind the numbers. You should also be thinking about the information being presented by the management company. Is it relevant, does it make sense, is it timely, does it provide the information needed to perform financial analyses and reach decisions?

Tomorrow is October 1st. If your association is on a calendar year basis, your MC probably wants the 2022 budget locked down for loading into the accounting system by the end of October. Is the new budget in the works? Have you reviewed it? Does it make sense when tested against the 2021 YTD and 2020 EOY numbers?

I've not followed the mandates affecting Section 209 HOAs enacted by the Legislature in the session which adjourned in May. There were many, how many affected the financial operations side of your association processes? Have they been reviewed, understood, and implemented. Are there new financial tracking and/or reporting requirements? Are those set up and ready to go? Are there projected financial impacts which must be included in the 2022 budget?

Next, as someone previously suggested, look at the Receivables/Collections process. Presumably your association has delinquent accounts, is your Past Due Account management process being followed? Do you have a documented Collections Process? Is it being followed? Do you have homeowners on payment plans? Are they current? Who in the MC is watching delinquent accounts and are they doing their job? Is the entire collections process compliant with Texas law and could the association attorney file a lien or foreclose based on the process as it exists or are there holes in it which would require starting over from scratch.

Do you understand the processes used by the MC to obtain approval to pay bills and then to actually pay them. Do those make sense? Are the books of the association audited? How frequently? Texas does not require annual audits of Section 209 HOA associations, should an audit be scheduled? Do you understand what would be audited and what the outcomes would be?

Are special assessments pending or in the wind? If so, you should understand why and be prepared to discuss the rationale.

I could go on and on. My point is, while the entire Board has a fiduciary responsibility to the Association and the Owners, you as Treasurer should be the financial watchdog. Does your association have a financial committee? Would having one make sense? You have a lot on your plate, two or three sets of volunteer eyes to assist you may be useful.

Good luck