Reserve account balance misleading

Our Florida HOA has a current reserve study. This year, we had an expense for a reserve component. The expense was paid from the checking (operating) account. Funds were not transferred from the savings (reserve) account. The monthly financial reports are misleading as it appears we have significant reserve dollars and less operating dollars. Currently (May) it isn’t a cash flow issue as our operating account is healthy. The expense is being listed as a reserve fund liability. Neither the Statement of Activity or Financial Position reflect the actual expense and description. Is this correct? Since it was paid directly from Operating funds, should it have been classified on the Statement of Activity? Based on the reports there is no way anyone will know in the future this expenses was incurred and our reserve analysis document will be questioned.

Absolutely true! I have served as treasurer and secretary so I know anything/everything will/can be questioned.

I ran into this myself not long ago while looking at my HOA’s financial records: some capital expenses were paid out of the Operating fund and not the Reserves. I was told this was done to “true up” the Reserves. Okay. Long story short, it’s apparently okay to do this, although it seems like something that should be documented somewhere. But I’m not an accountant. Paying operating expenses out of the Reserves is a no-no, however.

Bill

I agree with you TracyP3 - your property manager should make a transfer from the reserve account to the operating account to cover the expense, and they should also amend the financial statements to show this was a reserve fund expense. You want that properly reflected on the statements so there is no confusion.

When property managers say they handle "accounting", you should substitute the word "bookkeeping". They usually do a decent job at the basics like opening the mail, depositing checks, and scanning invoices. They often make mistakes with more difficult tasks like this - categorizing transactions, etc.