Do HOAs exercise prudent financial managment procedures?

Homeowners associations fail to follow solid financial procedures.

AZ Capitol Times, States draw down rainy day funds (excerpt)

(http://azcapitoltimes.com/blog/2009/08/27/states-draw-down-rainy-day-funds/) By Stateline.org Published: August 27, 2009 at 8:01 am

Faced with historic revenue drops, lawmakers in states across the country tapped rainy day funds in fiscal years 2009 and 2010 . . . .

Nationally, this spending [by state governments] comes on the heels of heavy use of rainy day funds in fiscal 2009, when several states pared down their reserves by billions of dollars.

The recent eagerness to draw down reserves has rekindled a long-running debate in states about how much to put into these funds, which in practice exist in all states except Arkansas, Kansas and Montana.

Not all such funds are called “rainy day funds.” Minnesota’s is called a “budget reserve fund,” Louisiana’s a “budget stabilization fund,” and in New Jersey, such reserves are simply referred to as the budget surplus. States typically build up the funds during flush years to prepare for lean years.

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Now, as I’ve argued over and over again, responsible and prudent HOA boards should have established these reserves many years ago. In the corporate world, the equivalent of public “rainy day funds” is referred to as “contingency for bad debts” as described by standard CPA procedures.

Why haven’t they been adopted? Because this prudent managerial act is viewed as a negative, and no HOA negatives are permitted to be spoken, seen or heard Not even by the national lobbying organization claiming to be the educational expert for HOAs, CAI, that uses this contingency in its own corporate financial statements.

I wonder if HOAs were held accountable to the state and were required to maintain reserves under the law, and the laws were effectively enforced, would HOAs be viewed by pro-HOA supporters as, “We got a good thing here.”

 

Wake up Legislatures! You’ve been had! Stop blindly supporting HOAs!

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Published in: on August 27, 2009 at 8:27 am  Comments (2)  

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2 CommentsLeave a comment

  1. Hey good stuff…keep up the good work! 🙂 I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say I’m glad I found your blog. Thanks,)

    A definite great read.. <a href="http://wiki.hudson-ci.org/display/~bill-bartmann&quot;

    -Bill-Bartmann

  2. An advocate wrote me, “Insisting that HOAs have these reserve funds does not in any way guarantee that they will be used for the intended purpose.”

    I responded:
    I keep hoping that the outcry for prudent financial management includes not only mandatory reserves, but state accountability. Most states license third-party money handlers — escrow companies, banks, title companies, real estate agents, etc. The demand for reserves must include a demand for strict accountability, and now is the time to demand these changes.

    In Arizona, for example, real estate agents must deposit down payment money within 48 hours. Brokers are subject to strict money handling rules and random audits of their procedures. The same must be demanded of HOA management companies and HOA directors. The CAI bull that it would impose harsh penalties on HOAs — meaning their desirableness and survival — is disgraceful!


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