Daily bank reconciliation for HOAs can be a tedious process for bookkeepers, accountants, and treasurers. Nonetheless, it can be beneficial for homeowners in many ways. Let’s examine why daily bank reconciliation can be ideal for communities.
What is Daily Bank Reconciliation for HOAs?
Bank reconciliation is the process of comparing internal account records with bank statements to make sure they align. If records match, it means the bookkeeper and accountant did well when recording daily transactions.
However, mismatched data often means there was a miscalculation or a mistake in the recordation process. The bookkeeper or accountant must find what caused the discrepancy and fix the records to ensure the accounts reflect reality.
Daily account reconciliation, on the other hand, simply means you do this process daily. The accountant or bookkeeper must compare the day’s records with the bank statement to ensure the ending balances are correct.
Why is Bank Reconciliation Important?
Bank reconciliation is important for many reasons. Here are the biggest reasons why HOAs should always reconcile their bank statements.
1. Correct Mistakes
HOA accountants and bookkeepers are in charge of recording daily transactions and ensuring they are correct. Skilled as these professionals may be, though, it’s not uncommon for them to make a few mistakes here and there. They might have forgotten to record a payment or miscalculated certain transactions.
Unfortunately, mistakes like these can be hard to spot without a reference point. Bank reconciliation allows them to use bank statements as the point of reference to identify discrepancies. Moreover, it helps them track down which transaction might have been responsible for the error.
2. Internal Control
Why is bank reconciliation important in internal control? While discrepancies may point to honest mistakes, they can also uncover suspicious activity committed by one of the staff or board members. In other words, they can reveal potential fraud.
Sadly, fraud is a common occurrence in homeowners associations. Some board members think it’s their right to misuse funds to “compensate” them for their work—even though they do not usually receive a salary.
Other times, staff members, directors, and HOA managers may have bad intentions and take community funds themselves. They might steal a small portion every month, so it goes unnoticed. This is why even the most minor discrepancies in bank reconciliations should be investigated.
3. Understanding Your Financial Position
The assets of a homeowners association may project a financially healthy community, but assets only tell one part of the story. With bank reconciliation, HOAs can zoom into their liquidity and examine their cash flow. It allows them to make more informed decisions to stay liquid for upcoming expenses.
4. Correcting Bank Errors
It’s uncommon, but banks do make mistakes. The bank might have charged duplicate fees or miscounted a particular deposit. Not noticing the error can be devastating as it could mean hundreds — maybe even thousands — of losses. Bank reconciliation helps you spot these errors and notify the bank.
Bank Reconciliation: The Benefits of Doing it Daily
Most people recommend conducting bank reconciliations at least once a month. However, the truth is that it’s always better to do it as often as possible. What is the purpose of the daily bank reconciliation in HOAs?
Easier to Correct Mistakes
First of all, it’s much easier to correct mistakes when you reconcile statements daily. The longer you wait, the more transactions you must review and verify. It can get complicated, mainly if the discrepancy traces back to several errors.
Spot Fraud Early
Fraud often happens when there are few to no checks and balances in the community’s accounts. The person committing fraud might slowly withdraw money from the accounts to evade detection. If bank reconciliation only happens once a month (or worse, every few months), they might have already stolen a large amount.
While you can catch the fraud after reconciling the bank statements, it’s not easy to get the money back. Homeowners will have to shoulder the consequences of negligence and pay higher fees just to cover the cost.
More Accurate Reflection of Reality
Daily bank reconciliation for HOAs ensures your records always accurately reflect reality. Homeowners will sometimes review the HOA’s financial records to keep the board accountable. They might make the wrong conclusions if the community’s cash accounts are bloated or underreported.
For example, a resident might question a recent assessment increase. If the records show the HOA has a lot of cash, they might make a complaint thinking the increase is unreasonable. In reality, the board might have made the decision because the community lacks cash in the bank.
How to Conduct a Bank Reconciliation
How do you conduct daily bank reconciliation for HOAs? Here are a few simple steps to help you cross-examine your records and bank statements.
1. Compile Records
Get all of the relevant records and transaction lists together. This includes your bank records, statements, general ledgers, logbooks, journals, and any other document you might think is necessary.
Most banks provide monthly statements to homeowners associations. However, a lot of banks will also update your account in real time through online banking. Sophisticated accounting software can also connect to certain banks and collect financial information instantly.
2. Review and Cross-Examine Records
The hardest part of bank reconciliation is the review part. Make sure to check each income and expense account in the books to ensure each line item corresponds to the transactions in the bank statement. Deposits and withdrawals should also be accounted for.
3. Make Adjustments
If you find a discrepancy, it’s essential to adjust the bank statements and cash accounts properly. Remember that some discrepancies can be caused by processing delays, such as deposits in transit or outstanding checks.
4. Check Ending Balances
After making each adjustment, ensure all records’ ending balances match. Otherwise, you might have missed an error and need to go back.
The Board’s Fiduciary Duty
Daily bank reconciliation for HOAs is ideal because it eliminates errors immediately and uncovers fraud before it snowballs. Of course, it’s not always feasible if you don’t have the manpower. Nonetheless, these checks and balances are part of fulfilling the board’s fiduciary responsibilities to the community.
Does your HOA need help with daily bank reconciliation? Freedom Community Management can help. We provide financial and HOA management services to communities in Florida. Call us today at 904-490-8191 or contact us online to find out more!
