Control procedures for HOAs and COAs are critiical. Businesses are built to grow and expand. Entrepreneurs put their money into businesses to see that it scales and expands to yield profits. It makes no sense that any business-minded person would put his money into a business lacking growth and does not have any plans to grow.
However, with expansion comes complexities. As any business grows and expands, what was once likely the role of a single person or a small internal team of individuals may need a full-fledged department. Departments can further grow into tens or hundreds of staff. This inevitably brings a level of complexity when it comes to roles and control.
It’s quite an easy task to handle the accounting and also aspects of a growing business when it is just a few people, however, it becomes difficult when you have a large group. A lot of things need to be in check, the question of who checks what, who checks who, all can arise into little issues.
Every business including HOA and Condo owners needs to consider the urgency of internal controls.
What is Internal Control?
Internal controls can be defined as the various techniques, processes, and procedures that businesses like condo owners can use to ensure their accounting and finance data is legal and accurate. To make certain that any business is run legally without problems, certain internal procedures are set in motion.
Apart from making sure that the business is run legally, internal controls also put out safety policies in place to protect an establishment’s assets and make certain that individuals function within the laws, statutes, and ethics of the company.
The primary function of internal controls is put in place within the framework of an establishment to reduce any risks to the company, minimize the number of errors and ensure the operations run smoothly according to any set rules or regulations.
Importance of Internal Controls
For HOA’s, it is simple to understand why you need to trust the accounting data submitted to you. Apart from accurate data needed to make proper future decisions, you also need to make sure that it is error-free.
Internal controls can assist businesses in tracking down issues and errors. In worst-case scenarios, track down and stop any fraudulent acts from happening.
7 Types of Internal Controls Procedures
There are seven types of internal control procedures that HOA and even business owners can apply to make sure that they get correct and reliable data. They include…
- Separation of duties
- Access controls
- Physical audits
- Standardized financial documents
- Regular trial balances
- Periodic reconciliations
- Approval authority
Separation of duties
Separation of duties has to do with dividing responsibilities for different tasks like bookkeeping, deposits, reporting, and auditing among different people. The more duties are divided, the less opportunity any employee has of committing fraud.
Controlling access to different parts of an accounting system using passwords, lockouts, and electronic access logs can help kick illegal users out of the system. This also allows business owners to track down and monitor access to the accounting system.
Physical audits have to do with hand-counting cash and keeping track of any physical assets that is logged in the accounting system, such as inventory, materials, and tools.
Standardized financial documents
By standardizing documents that are used for financial transactions like invoices and inventory receipts, businesses can help to keep and maintain consistency in record keeping as time passes.
Businesses can also make sure that the likelihood of errors happening is less.
Regular trial balances
By checking the trial balances regularly, HOA and condo owners can gain more understanding of the status of their system and ensure any inconsistency is picked up and gotten rid of as early as possible.
Even when double-entry accounting systems are used to check that the books are rightly documented and balanced, there is still a possibility for errors to happen.
Quite alike to regular trial balances, periodic reconciliations make certain that the balances in the accounting system match up with those across multiple systems, banks, suppliers, and customers. Any errors or misconceptions can then be revealed and attended to quickly and easily.
Requiring certain managers to take responsibility for authorizing certain types of transactions can add a layer of control to accounting records by showing that the transactions have been seen, analyzed, and approved by proper authorities.
Assigning approval for large expenses can help prevent crooked employees from carrying out large fraudulent transactions with the business funds.
At core accounting, The owners and condo board need to trust that condo management’s financial decisions are fair and in line with the condominium’s declaration. You need someone who takes the time to read and understand what your CC&Rs say and mean so that you can have a healthy and happy community and will own the problem so it can get solved effectively. C.O.R.E. is always focused on your Association’s financial documents.