Community Associations are entities which are tasked with overseeing the common elements of the community. These communities may be residential (HOA) or commercial (COA) community developments. The management of this community association is a crucial element as mismanagement of the assets can result in costly situations. Management of any community association will generally include oversight and maintenance of common areas and amenities such as parking, swimming pools, and halls. Property management service providers may also offer services such as maintenance and landscaping.
Most community associations charge dues to their members to cover management, maintenance, and oversight of the association. Since the association does not typically own assets, the association’s management works on behalf of owners. These management companies are often experts in the property management side but they also need to have a strong level of expertise in the accounting side to ensure that all owner contributions are independently controlled and prudently used. Your community association should have a detailed budget to calculate the dues assessed on members which is prepared by the management of the association. Many associations outsource accounting and finance management services, although some employ a resident accountant to provide professional services.
For associations who employ a resident accountant, these services may prove costly and unsustainable in the long run, especially if the services are performed by a Certified Public Accountant (CPA). In addition, the resident employee may not have backup or proper internal controls due to limited resources.
Outsourcing CPA services, on the other hand, to financial management companies allows your organization to enjoy professional services at reduced costs. Here, we look at the benefits of outsourcing CPA services for your community association.
Specific Benefits of Outsourcing CPA Services
Numerous benefits accrue to associations that outsource their financial services. These benefits are spread across the membership and ultimately result in lower dues and better service. This article will concentrate on the main benefits that make outsourcing viable to community associations, particularly the small ones.
Expertise and specialization: CPA firms have the training and experience to handle all aspects of Association HOA accounting, from bookkeeping to tax preparation to audited financial statements. They can also provide valuable guidance on the Association’s financial management and budgeting plan. For instance, federal tax laws consider an Association to be a business that must file taxes.
As such, the organization has to follow accounting principles and standards. Outsourcing CPA services allows your organization to get professional guidance on tax laws and compliance. A CPA firm can help your organization understand what tax returns must be filed annually.
Engaging a firm like McNurlin, Hitchcock & Associates PC that specializes in accounting and Association or HOA tax services takes the burden of preparing financial reports and filing taxes from your shoulders, allowing you to focus on governing your HOA or COA.
Cost-effectiveness: While certified public accountants help with the accounting and financial aspects of an Association, whether HOA or COA, members do have the option to employ a resident CPA or outsource the services. Since you incur costs when you hire or outsource, comparing the costs aids your decision-making.
Outsourcing CPA services can be more cost-effective than hiring an in-house accountant, especially for smaller Associations. When you outsource, you reduce employment costs, such as employee benefits and allowances. CPAs can also help Associations save money on taxes and other financial expenses.
Time savings: Board members and volunteers may maintain organization books and prepare some financial statements and reports.
However, the accounting process can be complex and tedious, especially when the persons tasked with the activities are inexperienced. Outsourcing CPA services can free up HOA board members and volunteers to focus on other essential tasks, such as managing community amenities and resolving resident concerns.
Data security and privacy: Reputable CPAs use robust security measures to protect HOA financial data. Once you outsource CPA services, you do not worry about your financial data getting into the wrong hands. The data maintained by the CPA firm can also aid decision-making through trend analysis and forecasting.
Scalability: As HOAs and COAs grow and change, their accounting needs can become more complex. Moreover, accounting needs may change with seasons depending on various factors. Outsourcing to a CPA firm allows associations to scale their accounting services up or down as needed.
Common HOA Accounting Tasks That Can Be Outsourced
Your organization can outsource several accounting tasks and enjoy the benefits of outsourcing. HOA accounting services may include:
- Bookkeeping,
- Accounts payable management
- Accounts receivable services
- Payroll management
- Tax preparation and filing
- Financial reporting & financial records management
- Annual Audits
- Annual Budget Preparation
Bookkeeping for HOAs
Bookkeeping refers to recording, classifying, retrieving, and reporting financial transactions in an association. Some transactions recorded in a homeowners’ association include members’ fees, trash collection expenses, and common area and amenities maintenance expenses.
While board members or volunteers can attempt to provide bookkeeping services, they must have a deep understanding of accounting principles and standards. Your association can also outsource CPA services for professional bookkeeping services.
Accounts Payable Management
Accounts payable management refers to maintaining a record of all monies owed to creditors and managing it to avoid default. Without proper accounts payable management, your association can miss cash discounts or incur penalties and fines for late payments.
Moreover, poor accounts payable management can taint the organization’s credit ratings. Outsourcing accounts payable services helps your association record and manage its short-term obligations and reduce or eliminate late payment costs.
Accounts Receivable Management
Accounts receivable management refers to maintaining a record of all revenues and managing it to avoid losing income. You can outsource your accounts receivable management to ensure prompt revenue collection.
Payroll Management
Homeowners associations pay trash collectors and common area and amenities caretakers. A payroll is maintained to account for wages and salaries. When an organization has multiple employees, a CPA firm can maintain a professional payroll.
Tax preparation and filing
Community Associations have unique tax requirements that must be adhered to avoid penalties or tax overpayment. Outsourcing your tax preparation and filing helps comply with state and federal tax laws.
Financial Reporting
Homeowners’ associations are required to prepare financial reports for internal and external uses. Members use the financial reports to understand how the board uses their funds, while other stakeholders use the reports for different purposes, including taxation. Outsourcing financial reporting helps you prepare financial statements that comply with Generally accepted accounting principles, or GAAP.
How to choose a CPA firm for your Homeowners’ or Commercial Owners’ Association’s Accounting Services
Outsourcing CPA services has numerous benefits, especially for small Associations. It is more advantageous to outsource than to hire a resident accountant. When choosing a CPA firm, consider factors such as experience with Community Associations, fees, and communication style.
Choose an accounting firm that understands the nature of your operations and has experience in accounting for Associations, including tax preparation. Finally, compare the fees charged by the eligible firms and go for cost-effectiveness.
Contact Us for HOA CPA Services
Outsourcing CPA services for Associations often outweighs hiring a resident accountant. You save on costs and also benefit from professional bookkeeping and financial reporting.
At McNurlin, HItchcock & Associates CPA’s, we understand the unique needs of Community Association accounting, audit, and tax preparation and can help your Association comply with the various accounting standards and tax laws. Contact our experts today to book an appointment.