CLMHOA Budget Preparation and Execution Procedures

19 December 2002
Revised & Approved December 16, 2008

CYPRESS LANDING MASTER HOMEOWNERS’ ASSOCIATION (CLMHOA)
BUDGET PREPARATION EXECUTION PROCEDURE

PURPOSE

The purpose of this document is to prescribe the budget(s) preparation process and to define the parameters for execution of the budget(s) once they have been approved by the CLMHOA Board of Directors (BOD).

BACKGROUND

The BOD has empowered Chairpersons of HOA funded standing committees and the Community Association Manager (CAM) to operate and maintain the facilities and equipment under their purview, sustaining amenities and services to the Cypress Landing community. The BOD, Committee Chairpersons, and the CAM have budgetary responsibilities with legal and tax liabilities that they must consider in fulfilling their positions.

With the exception of the Cypress Landing Golf Course and the Cypress Landing Marina which are operated as financially independent corporations, Committee Chairpersons and the CAM are tasked with the development of proposed financial budgets and forecasts. Once the BOD has approved the budgets, Committee Chairpersons and the CAM are responsible for properly executing them.
The foundation for the CLMHOA’s comprehensive financial management system is a financial budgeting and planning process that encompasses (1) the normal operations of the CLMHOA through its funded committees and the CAM, and (2) the acquisition, maintenance, life extension and replacement of the capital assets owned by the CLMHOA.
Income and expenses related to the “normal operations” of Cypress Landing are addressed in an annual “Operating Budget”. The costs of acquiring, major maintenance, replacing, or extending the life of capital assets are contained in the annual “Capital Budget”.

IMPLICATIONS

With the delegation of greater authority and the assignment of increased financial management responsibility to the various funded standing committees and the CAM, each is expected to incorporate all projected income and expenses and to reflect the timing of cash receipts and expenditures in their area-of-responsibility budgets – both operating and capital. Furthermore, committee chairpersons and the CAM are expected to exercise appropriate oversight and approval of expenditures against budgeted items throughout the year.

IMPLEMENTATION RESPONSIBILITY

The Treasurer (in his absence the Assistant Treasurer) and the Finance Committee are responsible for the implementation of this procedure and for oversight of the budget preparation and execution processes.

PREPARATION AND APPROVAL OF BUDGETS/FORECASTS

In 2004, the CLMHOA adopted the accrual method of accounting. This means that income and expenses are related to the accounting period in which they occur. If expenses have been incurred, but the applicable invoices, statements, and/or other acceptable means of documentation have not been received, expenses will be accrued to the accounting period in which they were incurred.

The responsibilities of each of the HOA funded standing committees are outlined in their respective charters. Accordingly, budgets/forecasts must be prepared and executed in a manner that ensures the fulfillment of these charter responsibilities and the sustained operation and maintenance of Cypress Landing and its related amenities for which the CLMHOA BOD has overall responsibility.

BUDGET DEVELOPMENT PROCESS

The Treasurer (T) and the Finance Committee (FC), acting in its financial policy role, will draft the annual guidance and assumptions for the Capital and Operating budget process. It is anticipated that the following general schedule will be followed: (indicates responsibility)

March – complete the annual inventory (FC); update the Master Asset List (T); run the Reserve Model calculations (FC); using guidance provided by the BOD, draft the Budget Guidance & Assumptions document (T, FC).

April – present recommended Budget Guidance & Assumptions document to the BOD for approval (T, FC).

May – conduct budget briefing with committee chairs and the CAM to provide Budget Preparation Packets and review procedures and timelines (T, FC).

July – provide consolidated draft budgets to the FC and the BOD and coordinate discussions with the BOD, Treasurer, Finance Committee Chair, each committee chair, and the CAM to finalize budget decisions (T).

August – finalize the proposed budgets and conduct a community forum, obtain final approval by the BOD, and make the approved budgets available to all members of the community (T). (NOTE: The approved budgets will be posted on line, available electronically, by mail, or a copy may be obtained at the HOA Office).

September – annual meeting of the Cypress Landing Master Homeowners’ Association

November - coordinate the development of monthly allocations of the approved operating budget with the committee chairs (T).

December – execute annual billing of approved assessments and include a hard copy of the approved budgets (CAM).

January – brief new committee chairs on budget execution responsibilities (T, FC, and CAM).

EXECUTION OF THE APPROVED BUDGET

By the BOD approving the annual operating and capital budgets and distributing them to each of the standing committees and the CAM, the BOD assigns responsibility for execution of those budgets to those committees and the CAM within the parameters defined below:

Operating Budgets:
- Each committee/CAM is authorized to spend the operating budgeted amount in each approved expense line item without further discussion or approval of the BOD within the guidelines specified herein.
- Each committee/CAM is authorized to exceed monthly budgeted expense line items provided the total committee/CAM annual budget is not exceeded. Budgeted line item amounts will not be reallocated between line items nor will expenses be incurred for items not specifically included in the approved budget without prior approval of the BOD.
- BOD approval must be obtained anytime a total committee/CAM annual budget is expected to be exceeded. The committee/CAM must communicate (email, memo, etc) to the BOD, via the Treasurer and the Finance Committee, explaining the cause for exceeding the budget line item and identifying possible alternatives. Both the Treasurer and the Finance Committee will append their recommendations for consideration by the BOD.
- Similarly, any time a committee/CAM expects to receive less income than the approved budget income line item, the BOD, via the Treasurer and the Finance Committee, must be notified (email, memo, etc) explaining the cause for the shortfall and identifying possible alternatives including recommendations for reducing expenses to offset the shortfall. Both the Treasurer and the Finance Committee will append their recommendations for consideration by the BOD.
- The only exceptions to the paragraphs b., c. and d. above are:
  - When an event or a transaction generates higher revenues in amount that offsets the increased expenses (i.e., there is no net impact on the approved budget); or,
  - When an event or transaction incurs lower expenses in an amount that offsets the reduced income (i.e., there is no net impact on the approved budget).
Capital Budgets

Before any individual budgeted capital project over $2,500 is initiated, the responsible committee will report to the BOD on details, including bids if applicable, and obtain BOD approval to proceed. Once approval is granted, the committee chairperson/CAM or their designated project manager can authorize all expenditures up to the approved amount.
Any individual budgeted capital expenditure that is expected to exceed the approved amount must be submitted for approval to the BOD, via the Treasurer and the Finance Committee, before the project or amendment to a project is initiated or any expenditure is incurred. The Treasurer and the Finance Committee will append their recommendations for consideration by the BOD.
Any unanticipated and non-budgeted capital expenditure, regardless of the amount, must be submitted for approval to the BOD, via the Treasurer and the Finance Committee. The request must provide justification for the capital expenditure in the current fiscal year. The Treasurer and the Finance Committee will append their recommendations for consideration by the BOD.

ROLE OF CLMHOA BOD IN BUDGET EXECUTION

The BOD will continually monitor budget execution based on monthly reports from the Treasurer/Assistant Treasurer and reports from the committee chairpersons/CAM. The BOD may reapportion monies across committees and individual line items as required.

ROLE OF CLMHOA TREASURER IN BUDGET EXECUTION

The Treasurer is responsible for all disbursements of funds and will oversee all activity associated with the budget execution. The Treasurer is accountable for all financial transactions and will update the BOD on the budget status in the Treasurer’s monthly report. To that end, the Treasurer will assist the committee chairpersons/CAM in the performance of their responsibilities for budget execution. The Treasurer will advise the BOD if a need for reapportionment exists or if budget revenue and expense goals are not being achieved.

The Treasurer is responsible for the transfer of funds to/from the Operating Investment Accounts and the Operating Accounts and transfers to/from the Capital Reserve Accounts. This responsibility may not be delegated. These transactions are documented on the Statement of Changes in Restricted Members Equity Report and on other records maintained in the CAM’s office.

ROLE OF COMMITTEE CHAIRPERSONS/CAM IN BUDGET EXECUTION

The BOD holds the committee chairpersons/CAM accountable for the proper execution of the approved budgets. To fulfill this responsibility, the committee chairpersons/CAM (or a formally designated representative) shall approve any financial obligations/commitments for services, equipment, and supplies before they are incurred to ensure these obligations/commitments are in accordance with the approved budget. (See following section, “Role of the CAM”, for details regarding approval and management oversight of certain contracts.) Each committee/CAM may establish internal means of gaining approval for committee expenditures by their chairperson or a designated representative.

In the event a committee chairperson/CAM wishes to designate a representative to carry out their budget execution responsibilities, the chairperson/CAM will submit a letter (email) to the Treasurer, with a copy to the CAM, specifying what authority their representative has been delegated. Examples:

Approve contracts or contract modifications up to a specified dollar value.
Approve other obligations or commitments up to a specified dollar value.
Approve for payment invoices up to a specified dollar value.
Review monthly CLMHOA financial reports for accuracy.
Any other applicable function.

This delegation of responsibility is a continuing authorization for the budget year; not for short-term absences. The CLMHOA Treasurer will act for a Chairperson in the event short-term absences by both the chairperson/CAM and/or their designated representatives preclude fulfillment of weekly budget related tasks.

Furthermore, each committee chairperson/CAM is expected to review applicable portions of the monthly financial reports to ensure such reports accurately reflect the income generated and expenses incurred by the committee/CAM. These reports will be available in the CAM’s office. The reports for the prior month will be available normally not later than the second Tuesday of the following month.    These monthly reviews should be completed prior to the end of the second week of the month and any errors must be brought to the attention of the CAM and the Treasurer in order to make corrections, if required, before the financial reports are submitted to the BOD.

If a committee chairperson/CAM determines that errors are too frequent and/or errors are not being corrected in a timely manner, the BOD President should be notified immediately.

ROLE OF THE CAM

The CAM provides day-to-day management, supervision and administration of the CLMHOA, including the maintenance of the financial records and the oversight of various annual and periodic contracts. These contracts include, but are not limited to the following:
            Common Area Landscaping (including Wetlands clearing and Lot mowing)
            Pest Control
            Trash Removal
            HVAC Maintenance/Repair
            Copy Machine Service

It is expected that the appropriate committee chairperson/CAM will conduct all necessary steps to put the above contracts in place and to obtain BOD approval.   Once the contracts are signed by the President of the BOD, as prescribed in the CLMHOA bylaws, and the contractor is authorized by the committee chairperson/CAM or a designated representative to commence work, oversight responsibility will be assumed by the committee/CAM.

In fulfilling the management oversight of the these contracts, the CAM will monitor performance of the contractor per the terms and conditions of the contract, will authorize work and expenditures within the scope of the contract, and will attempt to resolve issues related to interpretation of the contract. The CAM will obtain clarification from the appropriate committee chairperson for any work that appears to be beyond the scope of the contract, or any financial expenditure that appears to exceed the financial terms of the contract. (Note: Nothing herein prevents the committee from monitoring the quality of contract work performance and advising the CAM.)

The CAM will ensure that monthly financial reports are available to each committee chairperson no later than the second Tuesday following the end of the prior month. The CAM will refer all reported errors in the financial report to the Treasurer who will ensure that appropriate corrections are implemented prior to submitting the monthly Financial Reports to the BOD.

The CAM is responsible for processing all invoices and bills for the CLMHOA on a timely basis. This process includes annotating the invoice with the account to be charged and the amount authorized for payment. The Treasurer (in his absence the Assistant Treasurer) will authorize payment by initialing each invoice and signing the check. In the absence of both Treasurers and/or the need for two signatures (checks over $5,000), the President and the Vice President of the BOD are authorized to sign checks.