Monitoring the Annual Budget
Q. Our Board is responsible for a $450,000 annual budget. We are concerned that we may need to be spending more time overseeing our manager with regard to financial matters in order to fulfill our responsibilities as a board. What guidelines can you give us on this topic? What laws govern us on financial responsibility?
A. As associations grow in size and sophistication, their funds become more vulnerable to market loss and theft. Though many associations are adopting policies to protect their investments from market loss, not all associations adequately protect their funds from theft--an oversight that could cost thousands of dollars.
An association's size often affects the manner in which board members and managers protect its funds. For example, small associations often use volunteer board members to run the association. They do not hire staff members or an outside management company. Therefore, volunteer officers are responsible for all of the association's fiscal matters. These associations depend on the honesty and integrity of the volunteers to protect funds.
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The Budget Process
Q. As the new President of my Association, I need to start the budget process. Who should prepare the budget? Can you give me some guidelines on making a budget and any pitfalls we need to be aware of?
A. The development of a budget is essential to the operation of a healthy association. It is the Board of Directors’ responsibility to establish the budget; however, a Finance or Budget Committee can be used to come up with a proposed budget for the Board to review. In a few older associations the budget must be approved by the owners. Without an accurate budget, the association will soon find itself in financial hot water. The Board of Directors, based on the budget, is responsible for establishing the level of the assessment.
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Budget Process
Q. I have just been appointed the chairman of my community association's finance committee. Can you give me some guidelines on putting together my association's annual operating budget? I read your column about reserves - how does that get included in the budget?
A. Assuming your association's budget runs with the fiscal year, you are probably starting later than we would recommend, but there is no reason you can't catch up and still have a well prepared budget. Unless you are dealing with older documents that require you to limit the amount of the assessment increase or obtain the owners approval of the budget, the process is very straightforward and logical.
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