Denoting a Planned Reserve Expenditure in a Budget

I have what I think should be a fairly simply question. We are preparing to publish our annual budget in the next couple of days. For the first time, we are planning on actually using money from an operational reserve account to pay for the cost of one maintenance expense, rather than having the HOs pay through the regular budget. Typically our budgets line item each expense annually in one column and break out the average cost per unit in another. At the bottom, there is a Grand Total and the Per Unit Fee, which is essentially the annual assessment.

This expense that is going to be paid for from the operational reserve should be included in the grand total, correct? ... followed by a negative line item showing the same amount from a reserve allocation?

Anyone have an example of how this falls out?

Thanks for the advice Mary. What you are saying makes sense ...

We are entering into a comprehensive maintenance package for lawn care, snow removal, fertilization, and irrigation from one company. Part of the requirement for the price they are giving us is that we bring our community common areas up to a 4" mulch level BEFORE they assume the contractural role of maintaining it at that level ... no one is disputing that this needs to be done (as we have virutally no mulch at present).

The 3 year package price that they are offering includes the cost of this mulch rolled in, but is spread out over the three years of the contract. Because we will have a surplus at the end of this year, the board would like to use this money toward the mulch portion of the contract.

The yearly contract is $9500 per year. Approximately $800 is estimated to be 1/3 of the initial mulch cost that the board would like to use the surplus to pay for.

In the budget, then, would you recommend listing the Grounds Maintenance category as $8700, which is the portion the HOs will be expected to pay, or listing the entire yearly contract rate of $9500 ... even though a portion will be paid by the surplus? I'm thinking from your previous post, it would be the $8700?

Dee - you might also consider showing a deposit from the Reserve Fund into the Revenue column for the Annual budget (under Misc. or Restricted income) Then under expenditures, it simply is taken out. So it becomes a "wash"

Members can view the two reports - Annual Financial Report and the Reserve Fund Report and see all transactions.

oops ... mean "not to give a ho credit" ... up too late last night :-)

Oops, forgot to mention. . .

A reserve fund financial statement should also be prepared each month to show how much has been deposited and expended each month and the balance. This way the BOD has an accounting of the assets, liabilities and equity on the Balance Sheet and the income and expenses on the Income and Expense Statement. Actually our mgmt co prepares 3 financial statements each month: one for the operating account, one for the reserve account and a consolidated statement which combines the two.

Susan,

Good question! When I was treasurer of a small HOA, I always prepared a financial report for each board meeting and a year-end one that was presented at the annual meeting. I explained everything on the financial report so that the members could understand exactly what was being reported. I see no need to prepare a special financial report. The members can be given the official one and the treasurer can explain what the income and expenses were and whether there was a net profit or loss. An explanation of the reserve fund would include how much deposited into it; how much was withdrawn, and for what projects, and what the balance left is. If foreclosures have been causing a drain on the funds, letting the members know how many foreclosures there were and the amount of delinquencies that was written off would be a good idea. If the assessments are being increased it might be a good idea to show the variances between the budgeted amount and the actual amount on the income & expense statement. Each line item that was underbudgeted can be explained so that the members can see exactly why the assessments must be raised. If certain expenses will be higher in the coming year that can also be pointed out.

Good luck!

Dee,

Definitely sincerity! A double

Too funny :-) Sorry, apparently my "ignorant and obtuse" "abject stupidity" got in the way of my typing today ... don't know what I was thinking ... if you know what I mean :-)