Financial Reporting and Controls Flashcards

What is the purpose of requiring two board member signatures on checks above a certain dollar threshold?

Answer: To provide an additional authorization control over large disbursements

Dual-signature requirements on large checks add an extra layer of authorization, reducing the risk of unauthorized or fraudulent payments.

Which of the following best describes a 'special assessment' in a community association context?

Answer: A one-time charge to homeowners to fund an unbudgeted or emergency expense

A special assessment is a non-recurring charge levied on homeowners to cover costs not adequately funded through regular assessments or reserves.

An association uses a management company that also handles its bookkeeping. Which control is most important to implement?

Answer: Having the board independently review monthly bank statements and financial reports

Independent board review of bank statements and financials ensures the management company's work is overseen and limits the risk of undetected errors or misappropriation.

What does 'adequate reserves' mean in the context of community association management?

Answer: Having sufficient funds set aside to repair or replace common elements as they wear out

Adequate reserves means the association has accumulated enough funds to address expected major repair and replacement costs without resorting to special assessments.

Which financial report would a board member review to determine whether the association has enough cash to pay its bills for the next 90 days?

Answer: Cash flow projection or cash forecast

A cash flow projection shows expected cash inflows and outflows over a future period, helping the board assess short-term liquidity.

An HOA's governing documents limit borrowing to 10% of the annual budget without homeowner approval. The board wants to borrow 15% for emergency repairs. What must happen first?

Answer: A homeowner vote must be held to authorize the higher borrowing amount

Governing documents are binding; exceeding a borrowing limit set in those documents requires homeowner approval as specified in the association's rules.

When preparing the annual budget, which cost factor is most critical to review for reserve contributions?

Answer: The current reserve study's recommended annual contribution

The reserve study calculates the annual contribution needed to keep reserves adequately funded; ignoring it risks underfunding future capital repairs.