Adhering to HOA accounting best practices sets your community up for success, builds trust, and provides a clear picture of your HOA’s financial health. Proper financial reporting is the best way to track the community’s spending, maintain a balanced budget, and ensure Generally Accepted Accounting Principles (GAAP) are followed.
Explore essential accounting best practices for HOAs to ensure accurate financial management, compliance, and long-term fiscal health for your community. This guide covers key principles, strategies, and tools to help HOA boards maintain transparency, efficiency, and financial stability.
Setting Up a Robust HOA Accounting System
Not all accounting software is made to support HOAs and their unique needs. Bank reconciliations, custom financial reporting, and invoice approval are all critical features that communities want.
When looking for an accounting system for your HOA, it’s just as important to find software that is user-friendly as it is to find software with the features you want.
HOA My Way offers an all-in-one solution with our professional-level software and full-service accounting bookkeeping.
Maintaining Accurate HOA Financial Records
There are two ways to manage your HOA’s financial records: cash and accrual accounting.
Cash accounting shows only the income received and the expenses paid. It provides an immediate snapshot of the community’s finances.
Accrual accounting includes income earned but not necessarily received and expenses incurred, even if they haven’t been paid yet. This accounting style provides an overall view of the community’s finances and is considered a GAAP method.
At HOA My Way, our team can accommodate either method for financial records. With the cloud-based Board Portal, accurate, real-time data is available 24/7. You can run financial reports, review monthly financials, and view bank reconciliations from your browser or the exclusive HOA My Way mobile app.
HOA Budgeting and Financial Planning
When creating your HOA budget, reviewing the past year’s financial reporting and reserve study is essential to see what the community realistically spends and what community projects are coming up this next year.
Throughout the year, the board can review the financial reporting for variances that might indicate under-budgeting or a need to review an area of spending to keep the community on track.
Our intuitive budget builder on the HOA My Way Board Portal is a professional-level tool that’s easy to use, and your dedicated accounting team is always available to help.
Managing HOA Accounts Payable and Receivable
To maintain accurate accounting records, community assessments and fees must be applied to homeowner accounts promptly to ensure that correct accounts are receivable.
Homeowner statements should be mailed before assessments are due, and any increases should be communicated far enough in advance.
Accounts payable and vendor payments should be tracked with proper documentation and applied to a general ledger account in the budget to be accounted for in the HOA financials.
With HOA My Way’s complete accounting services, your dedicated accountant processes your invoices and assigns a general ledger account. The board members can then review and approve the invoices for smooth and accurate accounts payable.
Our team also handles all accounts receivable, including mailing homeowner statements, applying charges to homeowner accounts, and receiving payments. All accounts receivable and payable information is available with real-time HOA My Way Board Portal data.
HOA Reserve Fund Management
Reserve funds are like savings accounts for HOAs. They provide an account from which capital projects can be paid and where spending can be tracked.
Communities should periodically perform reserve studies to track their assets, their lifespan, and the estimated cost to replace them with inflation. Reserve studies help the HOA forecast how much money it needs to budget for the reserve fund each year.
You can always stay on track with HOA My Way. On our comprehensive Board Portal, you can always see your real-time reserve fund balance and reference your reserve study when needed.
HOA Financial Reporting and Transparency
HOAs must maintain accurate and compliant financial records for community transparency, strategic planning, and proper money management.
There are a few different reports that make up a monthly financial statement.
The cash flow statement shows the inflow and outflow of money in your HOA’s bank accounts over a set period.
The balance sheet shows the community’s income and spending, broken down into assets, liabilities, and equity. The assets and liabilities must be equal.
The profit and loss report breaks down the community’s profit and loss over a set time frame.
It’s important to regularly share the community’s general financial reporting to ensure complete transparency and community confidence.
Distributing financial information to your community is easy with HOA My Way’s Board and Homeowner Portals. Board Members can upload homeowner-friendly financial reports to the Document Center for homeowners to view on their Homeowner Portal.
Conducting Regular HOA Audits and Reviews
Typically, an HOA needs an audit, review, or compilation every year. What a community needs that year is determined by its governing documents and state laws.
After selecting a CPA, the HOA must send all necessary financial information to them.
We’ve made the process simple with HOA My Way’s full-service accounting. Our team will collaborate with your community’s CPA to ensure they receive the financial documents and data they need and are available to answer any questions.
Tax Compliance and Filing
Like you, the HOA needs to file taxes each year. Because most communities are non-profit organizations, the process is different and requires a professional familiar with HOA taxes.
Our specialized team at HOA My Way is here to help your community with its tax process and ensure all deadlines are met.
Preventing and Managing Financial Fraud
Regular monitoring and oversight of your HOA’s accounting is the best way to prevent financial fraud in your community.
Checks and balances help keep everyone accountable and catch monetary mismanagement. This can be done in self-managed communities by having professional bookkeeping and closely reviewing all financial reporting.
HOA My Way’s transparent Board Portal and financial reporting track all monetary transactions and are key tools for tracking inconsistencies and staying ahead of accounting concerns.
Educating Board Members and Residents
Both board members and homeowners must understand the community’s budget and finances.
Board members need financial literacy to make educated and confident decisions and the knowledge to understand the community’s financial reporting. When homeowners understand how the HOA’s finances work, they feel more engaged and satisfied that their investment is well managed.
With HOA My Way, you can spread community awareness with our inclusive communication tools. From the HOA My Way Board Portal: you can easily send newsletters, email messages, or add community documents
for homeowner review for full transparency.
Need Help Implementing HOA Accounting Best Practices?
HOA accounting best practices show that communities need to be communicative, organized, and prepared to be successful, and it’s easy to tick every box with HOA My Way’s hybrid solution. Your community can enjoy the best of both worlds with professional-level software and specialized accounting services.
Discover how your community can improve your HOA’s accounting practices with HOA My Way. Contact our team for a demo and to learn more about our dedicated accounting team.