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Florida Condo & HOA Legal Blog News & Updates on Condo & HOA Laws & Legislation in the State of Florida

Changes to Year-End Financial Reporting Requirements for Condos & HOAs

Posted in Assessment Collection

SB 1196 made significant changes to the statutes regarding year-end financial reporting requirements for condominium and homeowners’ associations. Condominium 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. Homeowners’ Associations 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.

  • John

    In your article on Association Accounting you refer to “state mandated training”, what is this and where can I find details?
    Thanks
    John
    RESPONSE: I refer to the new post election board member certification. Its not really “mandatory” because a new board member can choose to attend a certification class or submit the proper form to the association.
    Here’s more info: http://www.floridacondohoalawblog.com/2010/06/articles/board-operations/board-certification-approved-education-providers-sb-1196/

  • Judy

    We are a 54 unit condominium and do not have straight-line reserves per se as our Association members vote them down every year. However, we do have a “contingency” line item in our budget so money is available for significant repair/replacement expenditures as needed. Given the 2010 legislative changes, is our current contingency methodology acceptable?
    Thanks.
    RESPONSE: The ability for the owners to vote to waive or reduce funding has not changed. Please discuss the line item for contingency funds in the operating budget with your accountant – its not a preferred practice, but not against condominium law. You can include extra money in the “maintenance” or “miscellaneous repairs” line item as an alternative to a “contingency” line item.

  • Scott R. Lodde

    Regarding year-end financial reporting requirements for condominium associations, can the the owners still waive the reporting requirements two out of three years?
    RESPONSE: A condominium association can’t waive for more than 3 consecutive years.

  • Steve Mackesy

    Pertainng to your article on financial reporting, the Florida Condominium Act requires condominiums to utilize accrual based accounting. Why then, can a condominium “waive down” to a Report of Income and Expenses which is essentially cash based accounting?? Why couldn’t a condominium present finaciials, as they present all year, in accrual format
    RESPONSE: The base report (cash accounting) was established by the legislature, but the accounting standards were adopted by the Division.

  • Rosemary Bittle

    What percentage of voting interests can waive the funding of Reserves in person and by proxy? 331/3% or 51%?
    RESPONSE: The condominium act says that it is necessary to obtain the affirmative vote of the majority of members voting at a duly called meeting. The quorum for each association is established in its governing documents, although many bylaws set the quorum at the majority (50% plus 1).

  • John Kelley

    If the audit can be waived for three consecutive years,does this mean an audit must be done at least every fourth year?
    RESPONSE: If the income in the 4th year is over $400,000. That change was amended into the statute a few years ago in response to complaints from owners across the state. Owners complained that the association’s financial operations were not transparent without an audit or other formal analysis.

  • http://www.cfoexec.com Larry Davis

    As the treasurer of several HOAs, the former CFO of both publicly traded and privately held companies, a CPA, and an auditor for a Big Four firm earlier in my career, I am curious to know what benefits are derived by condo owners from these requirements. Audit procedures are designed to determine if the auditor has sufficient evidence to express an opinion as to whether the HOA’s financial statements presently fairly the financial picture of the HOA (I will skip the language of the unqualified audit opinion here). Such procedures are NOT designed to detect fraud or to determine operational efficiencies. How does the homeowner know if a dishonest board member has arranged for a family member to have the landscaping contract at their property for which the HOA pays $3,000 per month when other contractors would provide the same service for $2,000? The answer is s/he doesn’t know because audited financial statements provide no such assurance. So, the homeowner’s money is being wasted on questionable expenses, then further wasted on an audit that is not designed to address the greatest risk to homeowners: shady behavior by board members and/or property managers.
    My experience with sharing financial information with homeowners is that very few understand accrual basis accounting. A situation as straightforward as receiving September’s water bill for $2,000 on the 27th, but paying the bill on October 3rd, therefore recording the expense in September by showing an account payable on the balance sheet at September 30th is lost on them. If you add in several pages of footnotes on top of such complex statements as the cash flow, their eyes go completely blank. So where is the benefit of an audit to the people who must pay for it?
    I provide my HOA with quarterly cash flow statements: how much cash did we have in the bank at the beginning of the quarter, how much did we collect from HOA fees and other sources of income, how much was transferred to the reserve account, what bills did we pay, and how much cash do we have in the bank at the end of the quarter. There is another column for the budget, and a third for better or worse than budget. I provide a brief explanation of any significant variances from budget. Lastly, I provide the owners with a simple cash flow statement for the reserve account: beginning bank balance, the amount transferred from the operating account, interest income earned, a detail of expenditures (if any), and the ending bank balance. This is all very easy for the non-financial person to follow and understand, and costs nothing.
    RESPONSE: Thank you for your comments. You are correct – the audit is not designed to investigate or uncover fraud or theft. The legislators included these requirements in the statutes many years ago and I do agree, many people have a hard time understanding accrual accounting.

  • Mark Emden

    I live in a “55 and Over” manufactured home condominium community in Lee county. Our documents prohibit rentals under six months, and occupancy by persons under 18 (except for short visits). Our spa was built about 1989-1990, without a collector tank. We installed the VGB-required drain cover in 2008. Will an exemption application be granted and allow us to avoid installing a collector tank?

  • Pat Geiger

    We live in a small community of 29 units which broke off from the larger association in the same community many years ago. There are now 2 associations (phase 1 and 2). We hear the reason for the split was our president’s constant need to be in control of the finances and his unwillingness to provide transparency. The president has been in complete control with little oversight by the board for 7 years now. We are not able to get basic projects and maintenance such as powerwashing, landscaping, and painting projects, etc completed. I would like an audit to be done ASAP and some of the other owners are willing to help pay. How can this be accomplished in the least expensive way? Should we start with a review and based on the results look at the audit option? Also, I have searched the internet and cannot find local companies that would provide this type of service on our behalf.
    Thanks in advance,

  • Pat Geiger

    We live in a small community of 29 units which broke off from the larger association in the same community many years ago. There are now 2 associations (phase 1 and 2). We hear the reason for the split was our president’s constant need to be in control of the finances and his unwillingness to provide transparency. The president has been in complete control with little oversight by the board for 7 years now. We are not able to get basic projects and maintenance such as powerwashing, landscaping, and painting projects, etc completed. I would like an audit to be done ASAP and some of the other owners are willing to help pay. How can this be accomplished in the least expensive way? Should we start with a review and based on the results look at the audit option? Also, I have searched the internet and cannot find local companies that would provide this type of service on our behalf.
    Thanks in advance,

  • Stephanie

    you stated Condos has 120 days in which the year end financials are due. What about HOA?
    RESPONSE: Its within 120 days or such other date as provided by the bylaws.

  • Kim Hood

    In our association we have 66 lots, however the developer/President of the Association prepared the annual budget and divided the annual expenses by 47 lots. The developer has turned the association over to the HOA. The Board approved last years budget with the same numbers.
    Would this be legal?
    RESPONSE: Its hard to tell as the governing documents allocate the expenses of the association.

  • Annette Dimon

    Our Condo Association has 35 units and a budget of $75,000. In past years’ we have produced a Statement of Cash Receipts and Expenditures as required. This year we have a new management company who tells us we are required to prepare a Review. Here is a quote of what I received in an email.
    “I strongly suggest that a 3rd party CPA prepare the required 718 Review and prepare the year end statements. Who have you used in the past? They are fine as long as its not a board member.”
    Can the Statement of Cash Receipts and Expenditures be prepared by the Treasurer (a retired CPA) or has there been a change that we have to have a Review by an outside CPA? As I see it the only change this year was that the number of units was increased from 50 to less than 75 in order to qualify to prepare the Statement of Cash Receipts and Expenditures regardless of income.
    Thank you
    RESPONSE: If you haven’t had an independent accountant review the financial records for a few years, its a really good idea to do so – especially since you have new management. The manager’s suggestion is perfectly appropriate.

  • Alan

    Do Florida Statutes address a CPA audit report (for the 4th year audit of a condo with revenues north of $400,000) that is anything other than a unqualified report?
    For example: The Board of Directors declines to present a statement of cash flows and a qualified report is issued by the CPA.
    RESPONSE: The association’s members can vote to waive an audit for three (3) consecutive years and merely produce a report of cash receipts and expenditures. It must engage an accountant to prepare an audit in the fourth year if the revenue exceeds $400,000.

  • Sam Haynie

    We recently purchased a 2nd home condo in SW Fla. Within the development there is both a HOA & Condo Ass. Neither of these has a history of providing financial reports of any kind (other than a budjet projection). I am confused by what I read on the internet. Seems the State requires reports but there seem to be exceptions. What gives?
    RESPONSE: Financial reporting requirements are addressed in various places on this site. You also have the right to inspect records. The first step would be to ask to see the financial records or obtain copies of those records. You can also ask how or whether each association reports year-end financial condition.