5 Rules of HOA Accounting

accounting services

A large part of your job as a team member on the HOA board is to be a good steward of the money that is payed to the board for the upkeep of the community. The task can be a daunting one, but following these five rules of accounting will help you and the rest of the board to use these funds wisely.


Do Not Underfund Your Reserve Fund

One of the biggest mistakes that boards make in accounting is underfunding their reserve fund and relying on special assessment funds for major projects. Residents can become frustrated when there is not enough money in the reserve fund to pay for a project and they end up getting slammed with unexpected special assessment costs. Not only this, but low funds can potentially cause problems in selling homes as the Federal Housing Authority looks for sufficient reserve funds before offering a loan. Reserve studies are essential for helping you to determine how much should be in the account.


Invest in Insurance

Another mistake is cutting back on the amount of money that you spend on insurance. It is one thing to make sure that you are getting a good rate for your insurance on a yearly basis, but do not cut corners by paying less for a policy that will not cover your HOA in the event of a problem. Be sure that you are investing in a high quality insurance that will come through for you in difficult times. Insurance is not an area in which to be frugal.


Design a System of Accountability

It is good and right to trust the members of your board, but do not take trust too far by not designing a system of accountability. Prevent fraud by ensuring that each transaction is monitored by more than one person. This will also help to catch honest mistakes which, when added up, can cost your HOA money and time.


Be Intentional With Leftover Money

It may be tempting to use any leftover money at the end of the year to splurge on a party or other unnecessary items. Consider setting aside any leftover funds by putting them in the emergency fund or the reserve fund. It may be appropriate at times to use extra finances for fun events that help build the community, but weigh all of your options carefully before making this decision, and get a feel for how the community and homeowners would like to see that money being used.


Build a Strong Accounting Team

A team of board members who are strong in accounting, detail oriented, organized, and committed to the health of your community’s finances is the most powerful tool that you have in your arsenal. Take the time to build this strong team, and the whole association will benefit.


These five rules of accounting can go a long way in ensuring that your community thrives. By building a strong team, preparing for the future, and being intentional every step of the way, your team will learn to wisely manage your HOA’s funds.