Make Sure Your Read Your HOA Financials

Take the current years figures and find expenses that were from projects; things that were not budgeted in and were over and above regular expenses.  Irrigation repairs are normal but, an irrigation audit may not be.  If the dollar amount is very large and the budgeted amount was zero or has a large negative variance then it's not a normal expense.

Add up all the expenses including reserve contributions (use totals for each category if provided) either skipping the extras or subtracting them out.  This is your total normal expenses.  Subtract the normal expenses from the total income.  This gives you the amount of surplus or if a negative the amount overspent.

Now that the surplus or amount overspent and subtract out the extra expenses you didn't include in the normal expenses.  The amount left over is a true surplus and the amount over spent is really the amount over spent.  Here is an example:

2011 Regular Expenses + Contributions - Total income = $48,119.61
2011 Extra Projects                                                         $82,094.71
2011 Amount of Deficit                                                ($33,975.10)

I have to ask myself, how did they spend more than what was brought in and where did it come from.  I go to the previous years balance sheet. 

2010 Checking Balance was $67,901.84 which came from the 2008 ending checking balance and surpluses from 2009 and 2010. 

                 $67,901.84  -  $33,975.10= $33,926.74 which matches the 2011 ending Checking balance.

Now if I take;

                    $48,119.61 surplus after normal expenses from above
                    $30,111.77 surplus in 2009
                    $20,14070 surplus in 2010
                    $98,372.08 Total Surplus
                    $82,094.71 2011 Extra Projects
                    $16,277.37 Total remaining Surplus
                    $17,649.37 2008 checking ending balance
                    $33,926.74 2011 checking ending balance


From this I have determined that the total amount of actual surpluses for the three years that was not put into the reserve fund as required by law was $98,372.08.  With $82,094.71 getting spent in 2011, there is still $16,277.37 remains.  So, if I add the 2008 ending checking balance to the remaining amount of surplus it should total the 2011 ending checking balance.  Which it does.

From this I've concluded that technically I'm due my share of the 2009 and 2010, surplus since it was not put into the reserves as required by AZ law.  Or I can say what's done is done and force a refund of my share of the remaining surplus of $16,277.37.  Because of the lack of fore thought by spending that kind of money on an area that does not do one tiny thing to increase property values within the community.  And was spent on an easement not even owned by the community and a monument sign add-on causing increased maintenance costs.  I'm likely to make the argument that we are owed the sum of the 2009 and 2010, surplus. 

Had the ownership been asked what we wanted them to do with this sizable surplus amount I would feel differently.  However, they only asked those who would agree with them.  Had they done something trying to offset the decrease in property values I would also have felt different but, they didn't.  They spent 47% of the entire amount spent on landscaping on this project!  They could have painted the community just short of 5 times for the cost of this project.  You could have had a small club house or meeting room (nothing fancy just a room with lights and a window unit for this price.  Heck, they could have put about $40,000 with it and had the streets replaced! 

Be sure to run the numbers on your financials you never know what you may find.  You cannot ask questions if you do not know where they are hidden.  When something goes way way over budget, ask why.  When surpluses exist ask what it's from and when it's going to be refunded!  Don't let it add up.

When you get your annual financials from your HOA don't throw them away. Keep them you will need them next year. It's very very important to have the previous years numbers when looking at the current year.