SB 1196 made significant changes to the statutes regarding year-end financial reporting requirements for condominium and homeowners’ associations.
Condominium associations must provide their members with a year-end financial report (or notice that a report is available, free of charge) within 120 days of the end of the fiscal year. The level of required financial report depends upon the association’s annual revenues.
- Associations with revenues of more than $400,000.00 must produce an audit.
- Associations with revenues of $200,000.00 to $400,000.00 must produce a review.
- Associations with revenues of $100,000.00 to $200,000.00 must produce a compilation.
- Associations with revenues of less than $100,000.00 must produce a report of cash receipts and expenditures.
However, if the condominium has less than 75 units, the law merely requires a report of cash receipts and expenditures, regardless of the association’s annual revenue. While the unit owners may vote to reduce the level of financial reporting, it is worthwhile to discuss the benefits of each level of review with your accountant.
Section 718.111(13), Florida Statutes directs the Division of Florida Condominiums, Timeshares and Mobile Homes to adopt rules setting forth uniform accounting principles and standards. The 2010 changes require those rules to set standards for reporting a summary of association reserves. Communities that reserve on a line-item basis (straight line method) will need to include a good faith estimate disclosing the annual amount of reserve funds that would be necessary for full funding once the Division adopts rules. Condominium associations should therefore engage in some due diligence when preparing reserve schedules. A reserve study is always a good idea as it not only provides the basis for the annual reserve schedule, but will also identify the projects requiring priority attention.
Section 720.303(6), Florida Statutes, part of the Florida Homeowners’ Association Act, has been amended regarding budgets and reserves, but those changes likewise impact the year-end financial reports. The 2010 changes distinguish between “statutory” and ”non-statutory” reserves. There are different disclosures required, depending on the type of reserves established.
HOAs that do not include “statutory” reserve schedules and funding for those reserves in their annual budgets must include the following disclosure in the year-end financial statements:
THE BUDGET OF THE ASSOCIATION DOES NOT PROVIDE FOR RESERVE ACCOUNTS FOR CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE THAT MAY RESULT IN SPECIAL ASSESSMENTS. OWNERS MAY ELECT TO PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO SECTION 720.303(6), FLORIDA STATUTES, UPON OBTAINING THE APPROVAL OF A MAJORITY OF THE TOTAL VOTING INTERESTS OF THE ASSOCIATION BY VOTE OF THE MEMBERS AT A MEETING OR BY WRITTEN CONSENT.
HOAs that include “non-statutory” reserve funding in their annual budgets must include the following disclosure in the year-end financial statements:
THE BUDGET OF THE ASSOCIATION PROVIDES FOR LIMITED VOLUNTARY DEFERRED EXPENDITURE ACCOUNTS, INCLUDING CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE, SUBJECT TO LIMITS ON FUNDING CONTAINED IN OUR GOVERNING DOCUMENTS. BECAUSE THE OWNERS HAVE NOT ELECTED TO PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO SECTION 720.303(6), FLORIDA STATUTES, THESE FUNDS ARE NOT SUBJECT TO THE RESTRICTIONS ON USE OF SUCH FUNDS SET FORTH IN THAT STATUTE, NOR ARE RESERVES CALCULATED IN ACCORDANCE WITH THAT STATUTE.
Confused yet? Well, if you are you’ll be interested in the Community Association Officers Forum. Broward, Miami-Dade and Palm Beach Colleges, in a partnership with Edison State College, is providing free board member training to address these and other issues. Four three-hour sessions include topics of interest to new and experienced board members and, as a bonus, each session has one hour of the newly state-mandated training.