FINANCIAL RECORDS AND ACCOUNTING PROCEDURES
A review of the financial and procedural documents of the Evergreen Park Estates Home Owners Association (EPEHOA) was performed for 2005 and 2006. Although we were able to reconcile the individual transcripts of the checking account to invoices and bank statements, the spreadsheet used to record these transactions requires reformatting to be in compliance with Generally Accepted Accounting Principles, to provide adequate checks and balances and to have a clearly documented paper trail. The spreadsheet should be formatted to automatically subtotal transactions and these subtotals should be properly reflected in the total. For example, individual dues entered on the spreadsheet should be subtotaled and the subtotal should be reflected in the daily transaction total.
During the period September 9 through December 31, 2005, no ledger activity was documented in the spreadsheet for the checking account. Two deposits and one check were written on the account during this period and the checkbook balance reconciles with the bank statements. However, it is imperative that the ledger accurately and completely provides a paper trail that reconciles to the bank statements.
The record of dues payment to the HOA, at present, includes only the names of homeowners (last name only) that have paid dues, without property verification. It is recommended that a list of homeowners eligible to pay dues be maintained separate from the accounting spreadsheet, along with the property address or unit/lot numbers for identification. As homeowners pay their annual dues, the payment should be documented on this list, since dues payment affects certain rights of homeowners.
The audit also identified an insurance policy, the premium of which is paid by EPEHOA dues, which exists to protect the Board members against personal liability. Mr. Robert Tibbals, Esq., was questioned regarding the necessity of this insurance policy for Board members of a non-profit corporation. Mr. Tibbals feels that this is necessary to properly protect our board beyond the umbrella of the corporation. At present, the policy has not been made available for audit review, and so, no recommendations are made with respect to the types and extent of coverage or the cost-effectiveness of this policy.
Two loans to the HOA by HOA members are referenced in the accounting spreadsheet. No documentation has been provided for the audit regarding these loans. It is recommended that these loans be documented, including the terms of the loan and a repayment schedule.
The EPEHOA has been registered in Colorado as a non-profit corporation. However, after a great deal of effort by the HOA Board, the classification under the IRS Code remains unconfirmed. The HOA most likely applied as a class 501(c)(4) non-profit corporation that is not required to file a tax return as long as the organization accrues less than $25,000.00 in annual gross income. However, the IRS sends a card annually to the officers of the organization requesting information on the tax-exempt status of the corporation. If no response is documented for three consecutive years, the tax-exempt status will be revoked. This may be the reason we were unable to confirm our organization?’s tax classification. It is imperative that the IRS classification is confirmed and procedures be established to assure full compliance with the applicable requirements based upon that classification. Starting in tax year 2008, non-profit corporations will be required to e-file form 990N, which basically completes the information exchange currently provided by the cards.
A review of the financial and procedural documents of the Evergreen Park Estates Home Owners Association (EPEHOA) was performed for 2005 and 2006. Although we were able to reconcile the individual transcripts of the checking account to invoices and bank statements, the spreadsheet used to record these transactions requires reformatting to be in compliance with Generally Accepted Accounting Principles, to provide adequate checks and balances and to have a clearly documented paper trail. The spreadsheet should be formatted to automatically subtotal transactions and these subtotals should be properly reflected in the total. For example, individual dues entered on the spreadsheet should be subtotaled and the subtotal should be reflected in the daily transaction total.
During the period September 9 through December 31, 2005, no ledger activity was documented in the spreadsheet for the checking account. Two deposits and one check were written on the account during this period and the checkbook balance reconciles with the bank statements. However, it is imperative that the ledger accurately and completely provides a paper trail that reconciles to the bank statements.
The record of dues payment to the HOA, at present, includes only the names of homeowners (last name only) that have paid dues, without property verification. It is recommended that a list of homeowners eligible to pay dues be maintained separate from the accounting spreadsheet, along with the property address or unit/lot numbers for identification. As homeowners pay their annual dues, the payment should be documented on this list, since dues payment affects certain rights of homeowners.
The audit also identified an insurance policy, the premium of which is paid by EPEHOA dues, which exists to protect the Board members against personal liability. Mr. Robert Tibbals, Esq., was questioned regarding the necessity of this insurance policy for Board members of a non-profit corporation. Mr. Tibbals feels that this is necessary to properly protect our board beyond the umbrella of the corporation. At present, the policy has not been made available for audit review, and so, no recommendations are made with respect to the types and extent of coverage or the cost-effectiveness of this policy.
Two loans to the HOA by HOA members are referenced in the accounting spreadsheet. No documentation has been provided for the audit regarding these loans. It is recommended that these loans be documented, including the terms of the loan and a repayment schedule.
The EPEHOA has been registered in Colorado as a non-profit corporation. However, after a great deal of effort by the HOA Board, the classification under the IRS Code remains unconfirmed. The HOA most likely applied as a class 501(c)(4) non-profit corporation that is not required to file a tax return as long as the organization accrues less than $25,000.00 in annual gross income. However, the IRS sends a card annually to the officers of the organization requesting information on the tax-exempt status of the corporation. If no response is documented for three consecutive years, the tax-exempt status will be revoked. This may be the reason we were unable to confirm our organization?’s tax classification. It is imperative that the IRS classification is confirmed and procedures be established to assure full compliance with the applicable requirements based upon that classification. Starting in tax year 2008, non-profit corporations will be required to e-file form 990N, which basically completes the information exchange currently provided by the cards.
