EOY deficit??

Started by BonnieE • 5 replies • 1418 views

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BonnieE (Illinois)
Posts: 338

Posted:

Hello again,

Please see my prior posting entitled, “what is an itemized accounting on the common expenses”.

How would you interpret this: the “Profit and Loss Summary 12/31/2009” for my condo HOA shows on the bottom line: “excess revenue (deficit)” with a negative number.

Now, maybe this is what it says, we are operating with a significant deficit as of 12/31/09 (yikes!!), or, perhaps there is some missing information?

Thanks,
Bonnie

MaryA1 (Arizona)
Posts: 7,043

Posted:

Bonnie,

Again, I wonder how you can have a P&L summary for the 2009 year end when it's only mid-Oct 2009?

It's not uncommon to have a net loss from one month to the next especially if the accrual method of accounting is used. A net loss at year end means income was less than projected (more delinquencies) and expenses higher than projected. A carry over from previous years in your operating fund would take care of the net loss and adjustments can be made on the budget for the new year to hopefully prevent another loss. Perhaps an increases in assessments is due.

BonnieE (Illinois)
Posts: 338

Posted:

Hi Mary,

Q: Again, I wonder how you can have a P&L summary for the 2009 year end when it's only mid-Oct 2009?

A: sorry – I mistyped and meant 2008.

Q: It's not uncommon to have a net loss from one month to the next especially if the accrual method of accounting is used. A net loss at year end means income was less than projected (more delinquencies) and expenses higher than projected. A carry over from previous years in your operating fund would take care of the net loss and adjustments can be made on the budget for the new year to hopefully prevent another loss. Perhaps an increases in assessments is due.

A: We have no carryover from previous years as we have been operating with an end of year number as a deficit for the past several years. The bills then get paid with the next year’s income (i.e., 2008 unpaid bills paid for with 2009 income – assessments are paid by HOs on a monthly basis).

Shouldn’t the (required to the HOs) "end of year financial accounting" show all income and all expenses for that fiscal year and would show whether, in reality, the HOA has an excess or deficit (or is balanced)?

This gets back to my other post on what the Board is required to provide to the HOs. If as a HO all I get are these 2 pages (which show a deficit), how can I determine whether the Board is meeting their fiduciary responsibilities? But, if these 2 pages are all that is required under the Act, then I need to go to plan B to answer the Q re Board meeting their fiduciary responsibilities.

At this time, with the info I have been provided, I see the following: we (evidently) paid the remainder of the 2008 bills with 2009 $$; I have a 2010 proposed budget which shows a decrease in assessments (fyi – the 2009 budget had a couple percent increase in assessments which reflected the increases in our contracts for landscaping, etc.).

Ultimately, I need to provide a response to the BOD on the proposed 2010 budget, and, determine whether the HOA is in good financial shape – if not, then decide what action to take.

Thanks again,
Bonnie

GlenL (Ohio)
Posts: 5,491

Posted:

If this deficit happens year after year and you have underfunded reserves then it doesn't take a rocket scientist to see that the assessments are too low. In another post you say they lowered the assessments for 2010 I can think of three reasons for this: A the BOD is just incompetent, B the BOD is trying to maintain low assessments to keep their "jobs" or C the option I like least they are maintaining the low assessments to help their own personal budgets. B&C is a breach of their fiduciary duty A is not. In any case it looks like the BOD needs to be replaced.

You can talk to them (I would also send a letter, return receipt) I doubt it will do much good. And let's face it, trying to sell your neighbors on the fact you all need to pay more is going to be a tough sell, not impossible but tough. At the very least Bonnie I would start putting away extra money for the special assessment that is surely coming.

Studies show that 5 out of 4 people have problems with fractions

SusanW1 (Michigan)
Posts: 5,202

Posted:

Perhaps . . . The fiscal year may not correspond with your assessment cycle, so your accounts receivable are still there when the report is done.

Are these reports signed off by an auditor or group that does an audit review? What does the treasurer's report say about the report. You should have a narrative to go along with this hard copy report.

Somebody's got some esplainin' to do.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Bonnie,

Not knowing whether the treas is using the accrual or cash basis of accounting makes it difficult to know exactly what is happening. The accrual method means income and expenses are recorded when they are due; the cash basis method means income is recorded when received and expenses when paid. With the accrual method you will have accounts receivable for assessments that have not been paid but are due and prepaid assessments for assessments paid in advance. On the liability side you may have prepaid insurance if your insurance premium is paid monthly.

When the budget is prepared the income should equal the expenses with no net profit or loss being shown. Since your proposed 2010 budget shows a decrease in assessments it appears that the board is planning to lower the assessments. Have some expenses been reduced or eliminated to account for this decrease. Is your reserve fund fully funded or underfunded. Instead of lowering assessments, perhaps the reserve funding should be increased.

The income and expense statement should show the budgeted amount and the variance. That way you can tell what accounts are underfunded or overfunded. Late fee income and violation fee income should not be in the budget -- this is extra income that be used to defray any net losses.

Why do you need to provide a response to the board regarding the 2010 budget? Just curious.

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