Financial Management and Budgeting
The budget cycle
Know the difference between the operating budget, funded by regular assessments, and the reserve budget, funded by reserve assessments. Follow the sequence: estimate expenses, project income, set assessments, adopt, monitor, and report variances monthly. Understand fund accounting - operating and reserve money stay separate - and why borrowing from reserves to cover operating shortfalls is a red flag.
Controls and reporting
Internal controls reduce fraud risk: segregation of duties, dual signatures, monthly bank reconciliations by someone who does not write checks, board review of statements, and an annual review or audit as required by documents, statute, or lenders. Trap: assuming every association needs an audited financial statement; many only require a review or compilation.
Collections and collections policy
A written collections policy, consistently applied, with dated notices, late fees, interest, and lien steps, is the best defense against claims of selective enforcement or waiver.
Rule of thumb: percent funded = (actual reserve balance ÷ fully funded balance) × 100. Roughly 0–30 percent is weak, 31–70 percent fair, 71–100 percent strong.
Worked example: Reserves hold $240,000; the reserve study's fully funded balance is $600,000. $240,000 ÷ $600,000 = 40 percent, a fair position. A candidate who computes 240,000 ÷ 600,000 but reports "60 percent underfunded" is answering a different question than the one asked.