Help Understanding Budget

Sounds like the manager wants to PRE-determine a "loss" of revenue (uncollectable, foreclosures, leins?) and wants to cushion the budget.

I don't think it should show on the budget; you don't know what this figure is, yet. I also think that there should be lots of re-visiting of the budget in the coming year to adjust for the bad economy.

I'd listen to the CPA on this one.

We have an Unknown/Under-Funded line in our Budget. About 5% of the total, with notations as to what (we guess) it might be used for during the year. Uncollected/Non-Paid dues is not on our event horizon, but having a cushion can't hurt.

AS,

I think that line item should be titled "Bad Debts". With so many homes in foreclosure, many HOAs are having to write-off unpaid assessments as bad debts. This may be what your PM had in mind when inserting this line item. You can determine an amount by looking at your delinquent assessment accounts and estimating which ones may fall into the bad debt category.

Don't know if this always applies, but I can say that every auditor in our history has looked for a line item for bad/noncollectable accounts receivable. It should be based in part upon the collection history of your organization. If you historically have had to write off 10% of your receivable income, then you need to plan on that next year.

It is not unreasonable to try and estimate how much you will have to write off next year. If you are just starting out of course it will be a wild guess. But if you have any historical records you can use them. You might bump the figure up some if you have noticed a upward trend with the recent financial pressures. I personally think it better to tell people what you really expect to need them to pay then to know ahead that you will likely have to hit them with an additional assessment because you can't make ends meet otherwise.

Of course it is, in fact every H/O that attends the monthly Board meeting is given a listing of all accounts on deposit, the monthly income and expense vs. YTD and a listing of all delinquencies with the personal identification redacted.

Dear as1 do not let your mc do your budget force them to use tops and have the bod do the budget. They are your employees not the other way around do not be pushed around never ever forget or let the MC forget who is in what position.

On ours we label it OWNER BAD DEBT PERIOD. FOR THE PAST 20+ YEARS

Realistically, nobody can expect to get all the money billed in the current year. If your budget has one line for dues income it isn't giving anyone the whole picture. How would you determine the total past due amount owed to the community? Not who owes what just the dollar amount due.

You have to remember that your reports are only covering one month from the 1st to the last day of the month in the current year. If they aren't run to show the total past dues from inception to the last day of the month. A report showing only the 30 or 31 days will only show you those who are late for the current month. But, if they are run from inception to current then you will get every penny owed and not paid. Meaning you could have a huge past due balance that needs addressing. With foreclosures being so high there are going to be past dues that slip through the cracks and debts written off.

Using a single line to budget for current year dues collected means the difference between your budget and collected should be the total past due for the year. But, previous years past dues plus the current years dues are added together on a single line. Making the variance between the collected amount and budgeted amount mean nothing.

Using the amount past due as of 12/21/?? as a line item and the current years dues as a line item and a line for bad debt write offs or forgiven debts. It makes it clear to the reader that X dollars were past due from the previous year and X dollars of it was collected and X dollars were written off. And the current years dues that are past dues equals X dollars. It allows owners to easily ID this information without asking. Plus, it is an indicator of the job the board and managment company are doing. If the write offs are high then owners should questions why. If the past dues are excessive then the collections policy needs to be reviewed and management company reviewed.