By Kassie Davis, Accounting Manager and Melinda Waite, Executive Director
When an association hires an association management company (AMC) to handle its organization’s finances, it expects them to provide financial oversight, management, and reporting. AMCs bring expertise in providing accurate and timely financial statements and budgets that guide decision making for long-term planning, growth, and sustainability.
Financial Management
An AMC typically:
- serves as the financial interface between the management team and the association
- serves as the broker/procurer of goods and/or services of third-party vendors to the association
- documents and organizes corporate records; advising associations to prepare appropriate and timely reports to local, state, or federal agencies
- implements a process for the presentation of timely, understandable financial reports
- implements management practices that ensure the integrity of the association management company and the association’s financial assets; specifically, prohibiting the commingling of funds between the management company and any other client association
- devises a strategy to assist the board of directors of the association in the development and administration of a budget
- creates a fiscally responsible budget-setting process and ensures genuine fiscal accountability to the association’s board of directors, membership, and appropriate governmental agencies, while meeting the association’s goals and objectives
- establishes an effective cash-flow management program that includes a reasonable return on the investment of the association’s funds
Accounting Best Practices to Enhance Financial Transparency
Implementing GAAP
The AMC should implement a financial system with formal accounting policies and procedures, based on the appropriate “generally accepted accounting principles” (GAAP) that have been ratified by the association’s board of directors. The AMC will ensure that the accounting function is staffed by competent, bonded or insured individuals trained to carry out their assigned fiscal responsibilities.
Segregation of Duties
One of the most important ways to keep member assets safe is to prevent fraud by segregation of duties: No individual should control all four aspects of any financial transaction. For example, with a payment, no individual on the association’s staff should oversee all steps in the process listed below:
- Initiation (payment request)
- Authorization (approval to pay)
- Asset custody (keeping the checkbook/credit card)
- Recording the transaction
Setting Approval Required Levels for the Treasurer
- The board can determine what expenditures above a certain amount require treasurer’s approval (payables over a specific amount, credit card charges, other large expenses)
Monthly Financial Statements
- Sending monthly financial statements by the 15th of each month is optimal
Treasurer Training
When a new treasurer takes office, AMC staff should provide a thorough orientation detailing the AMCs financial operations. The training should include a review of:
- Treasurer Responsibilities
- Check Signing and Bill Processing Procedures
- Treasurer Packet Contents
- Variable Expenses (photocopying, printing, postage fees, graphic design – expenses already in the association’s operating budget)
- How to Read a Financial Statement
- Cash Management Guidelines
Monthly Treasurer Packet
The association’s treasurer should receive a monthly packet that includes the following:
- Comprehensive deposit detail report for all incoming payments
- Comprehensive check detail report for all outgoing payments
- Monthly credit card transaction detail report for payments received through their online processor
- Bank statement(s) and/or investment(s) statements
The treasurer will have a clearer understanding of all monthly inflows and outflows, building trust in the association management company’s ability to handle its financial and accounting management responsibilities. When treasurers report to the board, they can do so with full confidence that the financial management function is being handled appropriately and with best practices and full transparency in mind.