Dec. 31, 2025, 5:01 a.m. ET
- Condominium associations should assemble a team of experts for sound financial management.
- Key team members include a specialized CPA, a bookkeeper, and an internal finance committee.
- The board of directors is ultimately responsible for overseeing all financial operations.
Q: What advice can you offer to condominium associations on good financial practices and how to make the most of their budgets and reserves? (G.C., via e-mail)
A: In my opinion, the most important key to success is a good “team,” which should have members who play particular roles.
The mistake I see most often is the failure of an association to have a standing consulting relationship with a certified public accountant who is conversant in the peculiarities of “CIRA” accounting, which is an acronym for Common Interest Realty Associations.
CIRA accounting has its own special set of rules. Further, the law requires that condominium associations adhere to “GAAP,” which is an acronym for Generally Accepted Accounting Principles. The association’s consulting CPA should be available to assist with general strategic goal implementation, legal compliance, and assistance with good internal controls.
Another key team member is what I call the “bookkeeping” function, which is the handling of all of the money in and out. This includes ensuring that all assessments are properly billed, collected and accounted for as far as the money “in,” and oversight of the “out” side of the ledger, includes ensuring that proper bills and invoices are timely paid to avoid late fees or potential contract breach, ensuring that payments are properly coded and drawn from the correct accounts, and that payments are summarized for board review, such as the preparation of a monthly ledger.
The third component of the team is what you might call the “internal watchdogs.” The bookkeeping function for most associations is most often performed by a third-party entity, such as a management company, an accounting firm, or a bookkeeping company. The importance of keeping your own eyes on your own money cannot be overstated and is ultimately one of the components of fiduciary duty.
The “watchdog” function is ultimately the responsibility of the treasurer of the corporation but is usually supported by a finance committee. While not essential to its success, most associations try to seek out the talents of members with financial backgrounds, such as people who have worked in accounting, corporate finance, or wealth management to serve on the finance committee.
The fourth component of the team, and the place where the “buck stops,” is the board itself. In my view, every board meeting should include a review of financial operations, including whether expenses are in line with budget projections, possible capital spending requirements, and an understanding of unexpected or unbudgeted expenses.
The fifth key member of the team is the association’s insurance agent, who plays a vital role in both risk management and the potentially devastating effect of fraud or embezzlement. The condominium statute requires that all officers of the association and any person who has the authority to disburse association funds be covered by a fidelity bond or similar insurance policy, in the amount of the maximum balance of all funds of the association.
The sixth component of the team is a reserve specialist, at least for associations that must budget for reserves pursuant to a “SIRS,” which is an acronym for Structural Integrity Reserve Study. The laws related to funding and use of reserves have become incredibly complicated. The issue I am seeing most often here is confusion between the concept of a “reserve study” and a “reserve schedule.”
A reserve study is intended to project the remaining useful life and replacement cost of various capital components, and the SIRS is only legally required to be updated every 10 years. However, a reserve schedule is required to be prepared every year as part of the budget adoption process. Because many associations have shifted to the use of “pooled” reserves because of their legal flexibility, and because actual reserve expenditures are almost never as projected several years ago, preparing a proper annual reserve schedule is usually above the competence level of most laymen.
Finally, the association should have a standing relationship with competent legal counsel with substantial experience in this field of law. The legal issues related to association financial operations are legion, and the state agency that regulates residential condominiums enforces them harshly.
Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com. Past editions may be viewed at floridacondohoalawblog.com.