By April Ahrendsen, CIT Community Association Banking
The board treasurer manages the association’s finances and must exercise prudent judgment with investments, evaluate the maintenance costs, and ensure that association funds are always protected. It is a crucial role that comes with large responsibility. While there are several nuanced aspects of the board treasurer position, the following can provide a foundational understanding of the role:
Tools of the Trade
The board treasurer has a wealth (pun intended) of information at their disposal to assist them with keeping the community’s finances on track. This includes budgets, bank statements, balance sheets and delinquency reports. These pieces of information provide a holistic overview of the financial health of the community. Balance sheets help determine association liquidity and cash flow. Budgets keep a running tally of any overages or shortfalls. Bank statements give a detailed account of where association funds are being spent, and delinquency reports offer an excellent overall picture of the financial health of the community. Notice a sharp increase in unpaid assessments? The delinquency report allows boards and management to proactively work with homeowners to keep them from sliding further into arrears.
Choosing Where to Place Reserve Funds
A healthy association reserve balance can contain more money than many people will see in a lifetime. Volunteer board members, some who may be financial novices, are often tasked with the security and placement of dollars that can number into the millions. When choosing where to place these funds, three key considerations are safety, liquidity, and return:
- Safety is a top priority as most association investment policy statements require that reserves be placed in FDIC-insured, principal-protected accounts, such as Certificates of Deposit or Money Market accounts.
- Liquidity must also be evaluated, as capital improvement or deferred maintenance costs require cash on hand to complete the work.
- In terms of return, no association will become rich from the interest earned from principle-protected accounts. However, they are low risk/low yield financial instruments, designed to emphasize safety over the potential greater yields (and greater losses) of more high-risk vehicles.
A Reserve Study is Your Buddy
While the reserve study is a great resource for all board members, it plays an enhanced role for the treasurer. As the treasurer is tasked with maintaining community finances, it’s important to know what lies ahead to effectively deploy funds for investment.
For example, if the reserve study indicates the association’s roofs are one year away from the end of their useful life, it wouldn’t be prudent for the treasurer to recommend placing all of the HOA’s funds into a three-year investment. While not an absolutely accurate barometer of the community’s financial future, the reserve study provides an excellent roadmap for the major shared components of the HOA and allows for more concise forecasting, budgeting and investing.
Healthy Finances Equal Healthy HOAs
The role of board treasurer is vital to the overall health of an association. The care and deployment of community funds can mean the difference between an HOA that thrives and one that languishes. Board treasurers should consult with their financial partners in the community association space, such as CPAs, HOA partner banks and reserve analysts to educate themselves and ensure that they are consistently acting in the best financial interests of the community.
April Lynn Ahrendsen is a vice president and regional account executive for CIT’s Community Association Banking business, supporting community management companies and homeowner associations in Colorado, Idaho, Montana, and Wyoming. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views CIT.
