This article provides a basic understanding of some obvious and some less-obvious assets of an HOA. As a board member, your Homeowners Association is not expecting you to memorize every asset. Any critical issue that comes up where these assets are relevant will involve at least discussions with the entire board, and almost always legal help. However, some familiarity will be useful as every member has a stake in how well the HOA runs.
Assets of an HOA are, of course, more than the just money collected from fees. To help frame the examination of assets, remember that HOAs are corporations. They aren’t a corporation like Ford or AT&T, but instead a nonprofit corporation. “Nonprofit corporation” might sound like a contradiction, but HOAs are corporations which are not building or distributing a profit. Also, the homeowners would be considered the shareholders. Categorizing the HOA as a nonprofit corporation primarily affects how the HOA is taxed. However, understanding how an HOA is categorized for tax purposes also sheds some light on how assets are determined and possibly distributed.
So What Are the Assets
Assets aren’t just crucial for balancing the budget itself. Before joining a Homeowners Association, potential members may want to learn about the different assets. Homeowners don’t want to sign up for an organization that can’t afford the benefits they want.
HOAs have a variety of assets. The easiest to figure out are the ones most commonly understood. Cash found in checking accounts and any other accounts the HOA has, such as investments and the reserve account. “Accounts receivable” is also counted as an asset and the total amount owed to the HOA from homeowner assessments.
Another essential asset category on the balance sheet is “retained assets.” The money saved from last year’s budget, combined with the HOA’s net income at that moment. This pot of money could be the accumulation of leftover funds from several years, or just from the previous year.
Fees, a big piece of the asset pie, are also divided up into a few categories. There are fees that have been prepaid full, fees that have been paid monthly, and late fees. The finance committee involved needs to understand the details on how each asset evaluated for revenue.
Is It An Existing Asset?
There could be times the board needs to figure out if something is an existing asset or a new improvement for the community. These distinctions are needed to determine where funds come from in the budget. An example is refurbishing a pool in the community, this is considered an existing asset, but adding new showers are considered something new for the community.
When All the HOA Assets Need to Be Considered
Finally, let’s go back to those assets that have been paid for by the HOA. Usually, all common areas are owned by the HOA and are considered assets of the HOA. This can include recreational facilities, sidewalks, equipment, and more. If an HOA dissolves, the homeowners would need to consider options on what to do with these assets. They are owed to the homeowners, but a division of that sidewalk can be tricky! Often, they are bought out, but again, this only needs to be fully understood if the HOA dissolves.
How Assets Play Into the HOA Accounting
Assets are essential to be familiar with because they are a key part of the HOA’s balance sheet. The balance sheet is a recording of the monthly liabilities subtracted from the monthly assets of the association. This comparison of the assets of the association minus the liabilities gives the association its net worth. The balance sheet should always balance or else they’d have to call it something else.
Of course, since assets are crucial for a functional HOA, protecting them is a priority. An association’s system of checks and balances, with responsibilities divided up, helps make sure that all the statements line up. For instance, divide the responsibilities of receiving the money, paying out expenses, and reconciling the balance sheet between three different people or departments. Then the balance sheet, as well as revenue coming in and expenses paid out, need to be reviewed by the finance department and HOA director every month.