Any given homeowners association or community association management company has a primary goal — making sure residents’ day-to-day needs are met. To reach that goal, these groups end up processing payments and performing numerous other functions around HOA finances, and the way they perform these financial duties can set the tone for their overall interactions with their communities.
While HOAs can range in size from serving a few residents to representing communities with thousands of homes, every HOA needs a financial solution, whether that means managing accounting functions in-house or working with a financial firm. While many organizations tasked with these HOA finance duties are still taking an old-fashioned approach to record-keeping and management, it’s best to leave spreadsheets and non-industry-specific software behind and move into dedicated HOA accounting solutions.
Applying an industry-leading approach to HOA financial management standards means combining the right technology with a resident-friendly mindset. The heart of good accounting is record-keeping, and organizations with accurate, accessible and comprehensive records such as HOA financial statements are better equipped to deal with board member scrutiny, resident requests and everything in between.
Why is great HOA accounting so important to communities and management companies?
The volunteers who make up HOA boards are at their best when they can adjust their practices and technology to make their own tasks easier while simultaneously helping their residents get things done. This is the impact of improved accounting processes.
Without records and visibility, a board is limited in its effectiveness. Unfortunately, this is often the default, with many HOA boards held back by manual processes and non-industry-specific software. This lack of a single, digitized point of information keeps HOAs from having quick answers when residents ask how their money is being spent, and may even prevent them from noticing misuse of funds until significant damage has been done.
Efficient HOA accounting practices designed around purpose-built technology are so helpful because they deliver an efficient approach to financial functions. Funds are accounted for in a centralized location, ensuring that employees can spend less time handling manual accounting functions.
A dose of automation enables sound HOA accounting principles to help guard against malfeasance and data entry errors while also giving community managers and accounting staff time back in their day. This combination of efficiency and performance is worth the upgrade, providing a strong incentive for HOA boards to finally move away from their legacy accounting methods.
An HOA board member is typically not an accountant by trade. When HOA boards have strong, technologically enabled HOA finance processes on their side, they don’t have to worry about building accounting know-how.
How can management companies differentiate through their accounting practices?
Management companies that have effective accounting practices simply have an advantage over those that are still dealing with legacy processes. When residents request information — for example why a fee increased year-over-year or how their money is being spent in the HOA budget — the more digitized, effective HOA management company will be able to answer immediately.
Management companies that have adopted modern, digital accounting practices can also integrate their financial systems with other HOA technology. This may mean providing an improved resident portal experience, with homeowners able to log in and verify information about their accounts.
Financial information managed by one of these specialized systems forms a tidy, auditable financial report trail. Using a system that does not allow figures to be concealed or changed after the fact adds extra value — this gives residents peace of mind that their money is being managed responsibly.
What’s the risk of poor HOA accounting performance?
Just as good accounting can simultaneously make HOA board members’ jobs easier and help their organizations perform better, failures of accounting or financial reporting can prove both time-consuming and damaging. Tracking down a financial error in HOA financial statements based on paper records or offline spreadsheets can take days, frustrating board members and raising questions.
The other risk factor that good HOA accounting standards guard against is one no HOA board member likely wants to think about, but a very present threat all the same — intentional financial crime. A malicious person can take advantage of accounting systems that lack technology and best practices to remove funds and doctor records, potentially avoiding detection for a long time.
In most states, auditors will check associations’ books at least once a year to make sure all records around HOA finances are being kept honestly and accurately. Not only does purpose-built and audit-friendly accounting software help these regulators sign off on HOA financial management performance, but the digital records can also serve as evidence in court, proving that the board has behaved properly and assembled a comprehensive financial report.
How do you apply HOA accounting standards?
When it comes time for an HOA, community association management company or specialized accounting business to update their approach, the actual process is relatively straightforward. These groups simply need to phase out existing systems that are driven by manual activities and outdated technology options.
Establishing a new, centralized approach to bookkeeping is the crux of adopting record-keeping and accounting best practices. Having such a system eliminates numerous problems, from the manual labor associated with updating records to the risk of suffering malfeasance through doctored offline records.
Choosing which technology platform the organization will use is part of this upgrade process. HOA management is a unique field in many ways, with its own regulatory needs and a defined relationship between the homeowners paying for services and the often-volunteer board members tasked with overseeing their funds.
What does an accounting firm dealing with HOA boards need to know?
In some cases, the organization managing accounting and budgeting for an HOA won’t be the board itself, but rather an accounting firm called in for financial assistance. From a best practices standpoint, not much changes — these accounting services firms still need to take tech-forward approaches that are specially tailored to the HOA-resident relationship.
These firms can even employ the same types of HOA accounting software used by HOA boards. While they likely won’t need other features of such tech tools, such as community management functions, having comprehensive and auditable accounting systems that are tailored to the HOA sector can deliver efficiency and performance, and show that these businesses are committed to helping boards succeed.
What role does technology integration play in HOA accounting?
A fully integrated technology strategy is empowering for HOA boards, as they can communicate more directly with their residents about matters including both collecting payments and providing accurate expense records of how the money is being spent.
These organizations no longer have to purchase numerous systems from various software providers and force those tech tools to work together. Instead, they can be confident their fully integrated platforms will deliver performance and efficiency out of the box, saving them time and providing more seamless workflows that will help them manage their communities.
When the system that handles online community portals and resident apps is directly integrated with accounting functions, it’s easy to give residents streamlined ways to pay their bills and then check up-to-date records of their contributions.
These all-in-one software platforms allow HOAs to create branded public-facing tools that increase trust in their organizations. Homeowners always know they’re dealing directly with the homeowners association as they make their payments and communicate with the board about the way the money is being used on community services and improvements.
How do HOAs connect with their banking providers?
Software that enables a direct link between banks and HOA boards is an important trait to look for, because of the amount of manual work it saves. When HOA board members need to process payments by hand, the actions can be time-consuming, month after month.
A large-scale community management organization will feel this need most acutely — processing thousands of individual payments is an arduous process that introduces the risk of human error. In these cases, it’s far more efficient to use HOA accounting software that enables automatic processing to accounts, sending of validation files and alerts regarding lockbox transactions.
How do HOA boards find ideal accounting and community management software?
When HOA board members embark on a search for a new accounting solution, they should make sure they’re getting a best-in-class option. This will not just enable them to take their accounting method and financial practices to a new level, it will ensure they can go longer without performing another upgrade.
The perfect solution for accounting management in the HOA space will provide:
- A centralized record of resident payments and HOA budget spending
- Auditability and tamper-proof features to prevent malfeasance
- Integration with other HOA management systems, such as community portals
- Connections with financial institutions for efficient, secure processing
Good record-keeping is a universal value for organizations to adopt, and in this way, an HOA management company is no different from any other type of business. Specialization of tools and practices will help these groups discover the proper way to become better financial managers within their unique property management space, building effective HOA accounting principles into their workflows.
The ideal tech option will be designed from the ground up for the HOA space and available as part of a comprehensive community management suite. Empowered with this solution, HOA board members can step up their accounting performance without retraining themselves to become accountants.
To discover your organization’s next-generation accounting solution, request a FRONTSTEPS demo today.