COMMUNITY ASSOCIATION BUDGETING

DeLeon & Stang, CPAs and Advisors

Allen P. DeLeon, CPA

Janet Gorden, CPA

allen@deleonandstang.com

LUNCH-N-LEARN

Speaker biography – Allen P. DeLeon, CPA

Partner with DeLeon & Stang, CPAs and Advisors

Over 25 years community association auditing experience

Member of the Community Association Institute (CAI)

Chair of the Maryland Association of CPAs

Speaker biography – Janet Gorden, CPA

Senior auditor with DeLeon & Stang Over ___ years community association

auditing experience Member of the Community Association

Institute (CAI)

Agenda

Introduction Overview of community association budgeting Operating fund budgeting Replacement reserve fund budgeting Cash flow projections Capital budgets Board approval and other issues

OVERVIEW OF COMMUNITY ASSOCIATION BUDGETING

Why are budgets necessary?Most by-laws require annual budgetsThe most important financial

document created by the Board of Directors

If done properly, it sets the plan for the assessments charged to each member

OVERVIEW OF COMMUNITY ASSOCIATION BUDGETING (continued)

Budget are a useful tool to monitor financial progress during the year: Shows how actual expenses compare with

budgeted plan and prior year actual Compute $ and % variances Can be used to forecast expected profit or loss Establishes a guide to be used to determine the

level of expenses to be incurred.

OPERATING FUND BUDGETS

Operating fund budget is used to plan expected operating expenses for the year.

It should cover all expected expenses by line item (utilities, pool, landscaping etc..).

Use prior and current year actual expenses as a guideline.

Anticipate large or unexpected expenses such as: Snow removal Unexpected repairs

OPERATING FUND BUDGETS (continued)

Need to budget for bad debts Look at aging, identify homeowners that are more

than a year delinquent in assessments and not paying—

record current year assessments for those individuals as bad debt budget line item, so money is removed from pool from which board has to spend.

OPERATING FUND BUDGETING (continued)

Use of an operating contingency reserve fund for large expenses or projects.  Allows for communities to “reserve” or put away money each year as part of their operating budget for these projects or an unexpected maintenance project without having to borrow from the reserve fund.

Typical contingencies: Extra large snow fall removal Insurance deductible Large landscaping project Painting projects Unusual legal expenses

OPERATING FUND BUDGET (Continued)

Build up your contingency fund - you do not have to fully fund in one year

We recommend a contingency fund of 8-10% of annual operating assessments.

Budget operating fund expenses on the accrual basis.

REPLACEMENT RESERVE FUND BUDGETING

Start with your replacement reserve study Are replacement reserve studies really

necessary?Check your by-laws, state of county lawsVA law requires studies and supersedes

by-laws?Provides a plan and a goal for major

repairs and replacements

REPLACEMENT RESERVE FUND BUDGETING (continued)

Establishes a basis for reserve assessments. Study should make recommendations as to

the cost each year for each component in the study.

Separate cash and investment accounts should be established.

Avoid lending money to or from the operating fund

CASH FLOW BUDGETING & PROJECTIONS

Begin with cash balance at December 31st of prior year.

Project cash assessment receipts by month. Factor uncollectible assessments Project cash disbursements by month for each

major line item End with cash balance at end of each month;

beginning of next month Used to project cash deficit months

CAPITAL EXPENDITURES BUDGETS

Used to budget acquisition of capital assets, not funded by the replacement reserve fund.

Balance sheet budget. Effects cash flow but not P&L, except for depreciation expense.

Examples are: Furniture and computers Equipment

OTHER BUDGET ISSUES

Monthly financial reporting We recommend comparing budget to actual

expenses for both the current and prior years

Provide the board with written an explanation of major variances each month

ADVICE TO BOARDS

Be active in the budget development Ask questions about how budgets are

established or budgets which vary significantly from prior year budgets or actual results.

Make sure bad debts are considered. Ask questions about contingencies and

consider establishing a contingency reserve, or funding the existing contingency reserve.

DISCUSSION – YOUR BUDGET CHALLENGES?

What budget challenges or experiences have you had?

Where are your largest budget variances? How do you deal with boards that won’t

adequately budget for expenses? Measure your budgeting skills by how

accurately you budget!

QUESTIONS