Let’s face it – homeowners associations don’t get the respect they deserve. So many people simply don’t understand the amount of work required and the significance of these organizations’ legal responsibilities. Too often HOAs are dismissed as glorified social clubs, with leaders intent on ruining everyone’s fun through obsessive adherence to paint selection and the number of plants you can have on your patio.
This perception couldn’t be further from the truth. The homeowners association is actually a vital tool to protect the property values, rights and finances of individual owners and the community as a whole. They are responsible for ensuring that comprehensive accounting work is done accurately and efficiently, as part of their mission to wisely govern the organization’s resources. Meeting this high standard involves monitoring every financial expenditure and guaranteeing compliance with the host of tax, labor, safety and other regulations that apply to the community.
Taking care of invoicing, record-keeping, bill-paying, assessing fees, determining financial priorities, communications and everything else the organization must handle requires many hours of methodical work. To keep expenses down, this work is often performed by board members themselves in smaller buildings. While that sounds appealing at first, over the long run it often turns out to be less cost-effective than members hoped.
Even in those buildings that employ a management company face significant risk. If your HOA finances are managed by the same team that gets bids and awards work, the situation is rife for fraud and mismanagement of the organization and the individual owners it represents.
Consider the recent court case in California in which a property manager was accused of defrauding a homeowners association for almost $250K. The manager and his management company allegedly concealed certain bids for an asbestos abatement project in a ploy to be awarded the contract. They then informed the contractor that there was not, in fact, any asbestos. As a result, the contractor demolished the building without professional asbestos removal and the property manager reportedly kept the funds for expert abatement services, creating significant health and environmental risks to residents and workers.
FBI Special Agent in Charge Eric Birnbaum observed, “This indictment is a stark reminder to those who reside in communities governed by Home Owners Associations (HOAs) to remain vigilant and engaged in the financial affairs of your communities.”
If an HOA wants to ensure proper and transparent fiscal and legal safety, what options do they have to safeguard their financial resources and meet their legal requirements?
Quite a few homeowners’ associations are managing more like the business they truly are and protecting it the way well-run corporations do: by hiring a part-time Chief Financial Officer. A professional CFO can provide rigorous financial oversight for accounting and operations, always keeping the HOA’s best interests as first priority. These specialists are few and far between, but their services are invaluable in protecting the association from fraud and legal liability as well as for long-term financial planning and decision-making.
A highly experienced and professional CFO actually ends up saving money for HOAs in most cases. Many report that in addition to a high degree of confidence from having a CFO on their side, the knowledge and accounting efficiency that a CFO brings reduces expenses and helps property values grow.
If your homeowners association doesn’t already have a CFO, it may be time to look into one. I would be happy to discuss how I work with HOAs and the value I bring. Saving money, increasing value, properly vetting vendors and minimizing risk are always good things. Add sleeping better at night, and that’s a great thing.