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PROCEDURES FOR USE OF RESERVE FUNDS FOR CLMHOA
Approved
March 27, 2007
This document outlines how funds are to be used from
the Reserve for Capital Repairs and Replacements (1325), the Reserve for
Major Maintenance(1327), the Reserve for Capital Additions(1350), the
Reserve for Hurricane Damage(1355), and the Reserve for Phase 2 Section
5/6(1330).
Use of Funds from Reserve for Capital Repairs and
Replacements – 1325
1.
Asset Replacement
·
The asset being replaced will no longer have a useful life
and must be properly disposed of, and the accumulated Reserve funds for
that asset will be used to purchase the new replacing asset.
·
If the amount of money required to replace the asset
exceeds the amount of money identified in the reserve model, the
additional funds shall be identified as additional capital requirements
for the next year’s budget.
·
The new asset will be entered into the Reserve Model with
the appropriate data as to life, cost, etc. and begin to accumulate
reserves the year following the asset’s purchase.
·
Replacement of an asset must be requested by the owning
committee and will be listed in the capital budget for the year in which
being replaced.
2. Asset Repair
·
If the amount of the repair is $1000 or more, the repair
is a capital repair by definition. The cost for the repair must be less
than the remaining total amount of funds to be set aside for replacement
in the Reserve Model, and the useful life must be extended at least the
corresponding number of years.
·
As an example, for an asset having 3 years of estimated
remaining useful life and $500 being set aside annually, the capital
repair must be less than $1500 and project at least 3 more years of
useful life. If the repair cost is much more than $1500, say $2,000,
the projected new useful life must be at least 4 years. If these
criteria are not met, the asset should normally not be repaired but
properly disposed of and replaced ahead of schedule. Availability of a
replacement, time to repair, and urgency of need are extenuating factors
to be considered.
·
Committees should budget for routine repairs under $1000
in their operating budgets as separate line items based on reasonably
anticipated requirements and/or historical spending. The Board may
choose to hold these funds under its central contingency fund.
Use of Funds from Reserve for Major Maintenance
Accrual – 1330
·
Unanticipated major maintenance of any capital asset may
be funded from this contingency account with the recommendation from the
Finance Committee and approval by the Board of Directors. As an
example, unnoticed erosion and undermining of the ground around the
swimming pool caused significant cracks in the swimming pool, which
required ground stabilization and repair of the pool structure at a cost
of $20,000.
Use of funds from Reserve for Capital Additions -
1350
·
Each new asset
costing $1000 or more with a useful life of five(5) or more years may be
purchased using funds from this reserve account. If there are
insufficient funds in this reserve account to purchase the new asset,
then the purchase will have to wait till sufficient funds have been
accumulated. The new asset, along with all required information, must
be entered into the Reserve Model, the Master Asset List, and the Master
Booked Detail List.
NOTE: The BOD
may consider other financing alternatives such as a special assessment
or use of the BOD’s Contingency Funds.
Use of funds from Reserve for Hurricane Damage -
1355
·
These funds shall be used as the deductible for the CLMHOA
insurance policy after a hurricane or other severe weather has caused
damage to community property.
·
Funds required for storm cleanup for which no insurance
will be applied for should come from the B&G annual budget line item or
Board of Directors contingency funds.
Use of funds from Reserve for Phase 2 Section 5/6 –
1360
·
These funds may be used only to pay for capital repairs,
replacement, and major maintenance for capital assets of the Phase 2
Section 5/6 ponds and dams. The HOA pays 20 percent, and the Phase 2
Section 5/6 lot owners pay 80 percent as required by the Covenants.
·
Routine annual maintenance and any other non-capital
expenses of the ponds and dams is budgeted and funded in the operating
budget at the same 20/80 ratio. The annual billing for Sec 5/6 lots
includes an estimated annual expense and reserves to be added to this
fund.
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