What is the role of a budget?
- what services and programs the community will provide
- when they will be done
- how they will be done
What is a budget?
A financial plan for an organization.
Sources of budget requirements - • federal laws and regulations • state statues , regulations and court decisions • local laws and regulations • governing docs
Federal-Fannie Mae, Freddie Mac, FHA , VA
State-require or regulate reserves, audits, insurance and conduct of financial operations
Local-
2 budget components, revenue and expenses.
What are each?
Revenue - assessments, interest, penalty fees, user fees, other revenue.
Expenses - operating expenses, major improvement expense, replacement fund.
What is a replacement fund?
Funds put aside in reserve for replacement of major components.
5 reasons for maintaining a replacement fund?
- Meets legal, fiduciary and professional requirements.
- Provides for planned replacement of major items.
- Equalizes the contributions of old and new owner.
- Minimizes the need for special assessment.
- Enhances resale value.
3 ways of funding goals?
Baseline funding- keep reserve cash balance above zero. This is the riskiest.
Full funding - most used. Least likely to do special assessment.
Threshold funding - keeps balance above a specified dollar amount.
Budget line items. Mandatory and discretionary.
Mandatory - the community is obligated to meet like repairs, maintenance, utilities, etc.
2 methods to prepare a budget.
Zero-base and historical trend.
Zero base - all line items are set to zero and each must be justified.
Historical trend - there are existing line items that are expected to change. Contracts, bills from past year.
Purpose of reserve study?
Is a budget planning tool that considers status of the replacement fund and determines a stable and equitable funding plan to offset the anticipated future major common area expenditures.
5 benefits for a reserve study
- Fulfilling fiduciary responsibility
- Meet state requirements
- Compliance with AICPA audit
- Reduce liability from claims
- Save time with prioritized plan
- Effective communication tool to owners
- Can turn up items that were not budgeted
What are the 3 authorities to collect assessments?
- Federal laws and regulations
- State statues
- Governing documents
Federal fair debt collection practiced act required 5 things.
- Amount of debt
- Name of creditor (association)
- Statement the debt to be valid
- Statement of verification of debt unless disputed by 30 days
- Statement to provide name & address of creditor if different
Under state statues - gives the board the power to collect assessments and what procedures to follow.
True or false
True
Under the governing documents, there are 7 items in collection:
- Mandatory nature of assessments
- Authority to collect
- Purpose of assessments
- Basis for calculating assessments
- Reasons for levying fines, fees, etc.
- Payment procedures
- Collection procedures foe delinquent payments
