Financial Controls in the Community Association Environment

by Christopher Nicosia, CMCA, AMS, MM

Financial controls are at the cornerstone of all successful businesses operating in the litigious and financial minefield of the 21st century.  Historically, some of the largest and most successful corporations have been brought to their knees by less than adequate financial controls and reporting standards.

In the community management industry, management companies are held to a high standard when it comes to financial controls and reporting.  Planned unit developments that have associations managing its day to day affairs of the community are required to contract for a 3rd party audit annually (based on governing document requirements) that reviews the association's financial records as well as the management company's policies and procedures for financial controls and reporting.  This review evaluates everything from separation of check signing privileges from account reconciliation, personal information confidentiality, segregation of funds in separate accounts and evaluates the strength of those controls against industry standards and published regulations.  The independent auditor (a CPA firm) issues an audit with an opinion on the financials and provides a management representation letter, which provides a summary of their analysis of the controls, the financials as they are presented and suggestions for changes, if necessary.  This document becomes part of the public record of the association and is an important part of the overall management and governance of the association.

In the association environment, there is always speculation regarding the transparency and adequacy of fiscal management and financial controls.  All too often, especially when a maintenance fee increase is necessary or a special assessment is approved, the integrity of the financial process is brought into question.  The political pressures placed on a Board to justify the financial position of the association and the management of funds becomes overwhelming.  It is imperative that associations have professionals on their side to provide support, ensure that all financial controls are in place and all documentation is in compliance with all applicable standards and regulations.  This provides a board of directors with the ability to explain to their constituents with irrefutable proof that the finances of the association are properly managed, well maintained and protected.  While proper financial management and 3rd party oversight is not without a cost, the necessity and benefit of having proper preparation of financials and third party verification of the work of those in charge of financial management is undeniable.  Having a strong team of professionals working together to provide comprehensive preparation, review and oversight of the financial process will help avoid unnecessary fodder by stakeholders regarding board decisions of financial matters.

Bottom line -- professional financial preparation and management by a qualified management company or accountant in conjunction with 3rd party oversight and evaluation provides protection for an association and a strong position for financial decision making and justification of decisions to stakeholders within the community.

Christopher Nicosia is the Operations Manager at Prime Management, Inc.  He has nearly 15 years experience in association management and consulting, is a Certified Manager of Community Associations, an Association Management Specialist and has undergraduate and graduate degrees in business and management.  Mr. Nicosia can be reached at (609) 693-0090 or cnicosia@primemanagementinc.com.  Visit Prime Management, Inc. online at www.primemanagementinc.com.