Are you the president of a condo association? Are you looking for ways to ensure the smooth running of your community and the success of your condo homeowners association?
If so, you’ve come to the right place!
As a condo association manager, you want to make sure everything runs smoothly, and your finances are in good order. That’s why having effective cash control procedures in place is critical. Cash Control procedures are designed to help with both accountability and fraud prevention.
In this article, we’ll discuss 7 highly effective cash control procedures you can implement in your condominium association to ensure its success.
So, get ready to elevate your management game! Read on to learn more about these control procedures and how they can benefit your condo homeowner’s association.
The Separation of Accounting Duties in your Condo Association
Condo associations must enforce strict cash controls and divide accounting duties among multiple individuals. It is crucial for different people or groups to separately handle tasks such as paying bills, recording income and expenses, reconciling bank statements, and maintaining other financial records.
This separation of duties helps prevent one individual from controlling or manipulating the association’s finances and enables the board to better monitor the financial activities. Multiple people’s involvement adds a layer of checks and balances to guarantee accuracy.
Furthermore, this separation of duties also allows for cross-training of staff, ensuring that financial records can still be maintained if any individual has to be absent or replaced without a major disruption in operations. The people responsible for handling the association’s accounting should also sign a confidentiality agreement to protect the financial information from being shared with anyone internally or externally who doesn’t have clearance.
Access control is one of the condo homeowners association’s most important control procedures. Access control involves limiting the number of people accessing the association’s accounting system or financial information. Only authorized personnel should be granted access and users should be restricted by levels, allowing certain users to access specific parts of the system. This limited access allows financial data to be better safeguarded for both confidentiality and protection from manipulation or attempted theft.
For example, the association treasurer, and CPA alone should have complete access to all accounts and records. Everyone else would be granted specific areas of the accounting system, such as account balances or invoices, to other personnel on a need-to-know basis. The system should track all changes to the system automatically as well for an added layer of protection.
The association should also have a procedure in place for granting access to new personnel and revoking it from departing personnel so nothing is accessible after employment is terminated or the role internally changes. We suggest requiring regular changing of passwords and encrypting sensitive information. Furthermore, we suggest that all users are educated on proper security protocols and then closely monitored to make sure they are followed.
Conducting periodic audits is an essential step in the control process for your condo association. An independent third party should conduct an audit at least once a year and ideally every six months. The auditor examines the association’s financial records and processes.
An auditor will look for any discrepancies or irregularities in the association’s accounting and financial procedures and make recommendations for improvement. The audit also serves as a way to detect fraud or other misuse of funds. You ensure financial transparency and proper management of your association’s assets by conducting important audits.
An audit can identify potential problems with expenses, income, investments, and contracts, allowing the board to address them before more significant issues arise. Therefore, when selecting an auditor for your condo association, it’s important to select someone with experience auditing similar types of organizations.
Additionally, you should opt for auditors who are certified and have professional liability insurance in case any errors are made during the process. Furthermore, requesting detailed reports from the auditor after each audit is important so you can track the effectiveness of different financial controls over time.
Finally, if there are any issues identified during the audit process. In that case, the board should follow up with corrective measures to maintain compliance with relevant regulations and laws.
Standardized Documentation Procedures
Having a standardized system for documenting procedures within a condo homeowners association is important for accuracy and accountability. This system should include clear guidelines for when, where, and how documents are created, stored, and updated. In addition, documentation should be kept up to date so that the association has a clear record of what is going on at all times.
The most important documents within a condo association include meeting minutes, financial records, maintenance records, and other documents related to the running of the association. It’s important to make sure that all documentation is accurate and updated regularly. The board of directors must set these standards and guarantee compliance.
For example, the board decides to create all meeting documents in a specific format and store them in a designated location. They also require the appropriate authority to sign off on all documents and annually review them with the board. This ensures that the association is compliant with any relevant laws and regulations.
It’s also important to keep records of any changes or additions to documents over time. This helps to ensure that the association remains organized and up to date with any changes to regulations or laws.
Condo associations can enhance efficiency and comply with laws by implementing standardized documentation procedures. This enables the association to run smoothly and prevents any legal issues from arising in the future.
Trial balances are a highly effective way to ensure that the books of the Condo Association are accurate and up to date. A trial balance is a financial report that lists the total amount of debits and credits for all accounts in a company’s general ledger at a given time.
By verifying the accuracy of the trial balance, the Homeowners Association can be sure that its financial accounts are correct and that any discrepancies have been identified and addressed. This can help to avoid costly mistakes as well as disputes among members. It also provides an important safeguard against fraud, as the association can regularly review the trial balance for any suspicious activity or irregularities.
The COA should reconcile all accounts against each other to guarantee accuracy. Investigate and correct any differences. Update the trial balance every quarter and check all financial accounts to match the trial balance. Enter and immediately review any changes made to accounts for accuracy.
By taking the time to ensure the accuracy of their trial balances, the COA can help to keep its finances in order and protect itself from potential financial problems.
Periodic reconciliation is an important control procedure for any condo homeowners association. This process involves comparing the actual expenses and income with the amounts expected in the budget. It’s a key way to ensure that your association’s finances are accurate and up-to-date.
You should also review bank statements, check registers, and other financial documents during the reconciliation process. Investigate and resolve any discrepancies between the two sets of numbers. Ensure healthy finances and correct money allocation for your association.
Conduct periodic reconciliation at least once a year, and consider doing it quarterly or monthly.
You can use software programs or hire an accountant to help you with the process. The more frequently you do it, the easier it will be to detect and resolve any issues quickly.
By performing periodic reconciliations, your condo association can make sure that it is functioning efficiently and properly managing its finances. It will also help prevent any misuse of funds or misallocation of resources, both of which could have a major impact on your association’s long-term success.
A Multi-Process Approval System for Purchases
Having a multi-process approval system for purchases is essential for any condo association. This system will ensure proper authorization and accounting of all purchases. It should include steps such as:
- The association requires that you submit all purchase requests in writing with a clear description of the item(s) you want to purchase.
- After the association approves your request, they will issue a purchase order that includes the item description, estimated cost, delivery date, and payment terms.
- You must check the receipt after the purchase to verify that the purchase order is accurate and the items are received promptly.
- Finally, the association will review and approve the invoice before they make payment.
A multi-process approval system will ensure proper authorization and accounting for all purchases. Furthermore, it will help prevent unauthorized purchases and minimize any discrepancies with accounting records.
Employing These Cash Control Procedures Helps Immediately
Having effective control procedures in place within your condo homeowners association is essential for the safety of your community and its financial stability.
Your condo association should employ all highly effective control procedures, including separating accounting duties, establishing access controls, performing audits, standardizing documentation procedures, running trial balances, periodically reconciling, and having a multi-process approval system for purchases.
Utilizing the 7 methods outlined above, you can create a reliable system of checks and balances to protect your finances and maintain the efficiency of your organization. By proactively addressing potential issues before they occur, you can ensure that your association can make sound decisions and manage its resources effectively.
So, implementing these procedures to monitor the flow of finances, identify any irregularities quickly, and protect the financial security of your condo association will be of great benefit and we recommend you get it done as soon as possible.