CAI-NJ March 2017

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other stakeholders can easily see how much is in each fund

and the respective cash balances available each month. As

an example, Capital Reserve and Deferred Maintenance

funds are used for different types of projects and have different

rules governing their use. Co-mingling the funds can create

a skewed picture and makes it difficult to know how much is

allocated to each account. This can cause problems down

the line, especially if accounts owe each other money due

to shortfalls in funding or project cost overruns. Additionally,

there may be IRS implications for co-mingled funds as it relates

to Capital Reserves. Instead, each fund account should have

its own G/L account for tracking the cash account and fund

account for quick and easy reference at any given time.

Additionally, once accounts reach certain thresholds, they are

usually invested financial instruments, such as CDs, bonds and

other “safe” investments that allow for growth over time while

protecting the principle investment. If funds are co-mingled, it

becomes difficult to know what funds are where and makes

allocation that much more difficult as time goes on.

Accounts Receivable

One area that has become a major area of discussion

for communities is bad debt and allowance for doubtful

accounts.

MANAGEMENT

TRENDS

ow fit are your community’s financial statements?

Do the individuals that use the statements to make

decisions get a clear picture when they glance

over the balance sheet or do they have to “decipher” them

to understand the financial position of the association?

Performing a financial fit test and looking for key items like

those listed below can help improve financial reporting and

improve on a community’s financial fitness.

Budget Line Items

One area that can cloud the financial picture of the

Association is line items in a budget. More specifically,

grouping expenses into one-line items as opposed to giving

each expense its own General Ledger (G/L) account can

create a skewed financial picture.

For example, an association has lighting expenses for

street lights, clubhouse and building lighting but lumps all

utilities together on the budget. If one area has a spike

in usage, the entire line item increases. Now – without

looking at each bill to find out where the increase is com-

ing from, there is no way to identify the culprit because

the budget is not sufficiently broken out to provide more

specific information. If three separate line items with three

separate G/L codes were included in the budget, each

category (street lights, clubhouse and building lighting)

could be tracked and variances would be more easily

identified. This is especially important the larger the asso-

ciation’s budget becomes, as one category could include a

large amount of funds that are difficult to breakout without

separate line items to keep track.

Capital Reserve & Deferred Maintenance

Accounts

Another group of items that should be clear on the financial

report are association funds. Each fund should be accounted

for separately on the balance sheet, so board members and

Fit Test Your Financials Each Fiscal Year

By Christopher Nicosia, CMCA, AMS, MM

Prime Management, Inc.

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