HOA C.U.R.S.E. No. 3: No definition for “financial records”

By Deborah Goonan, Independent American Communities Blog

This HOA Consumer Unfriendly Regulatory Statute Example (C.U.R.S.E.) comes from North Carolina.

Jim Lane,   a reader and NC advocate for HOA owners, writes:

In order to judge the Financial Health of any business ( incorporated, as most HOAs are, or not ), a true picture of that business is impossible to asses without the following: Last Three Full Years plus current YTD of:

1. MONTHLY Income & Expense (P&L)

2. Balance Sheet end of last three years and YTD.

3. “Aging Report” of “Receivable”, which for HOA means “Delinquency Report, 30,60,90,90+ days late for every Owner (coded so as to remove name / address to protect privacy) Monthly for three years.

4. Budget for past three full years and current year – for comparison with #1 (P& L).

That is a MINIMUM … From my own experience and position as Business Manager and then as Management Consultant for over 30 years. Why are HOAs NOT OBLIGATED BY LAW to do what ANY Business Manager / Owner does routinely and HAS TO DO in order to successfully manage the business?

The NC Planned Community Act gives homeowners the right to have access to “association records,” as specified below. However, neither Statutes 47F, the NC Planned Community Act, nor NC Statute 55A, North Carolina Nonprofit Corporation Act, specifically define “financial records” except to mention an annual report to members. NC Statute does not incorporate any of Mr. Lane’s reasonable suggestions as to what constitutes minimum financial reports for an HOA . In fact, the statute does not specifically require the use of Generally Accepted Accounting Principles.

Furthermore, records are only made available to lot owners or their agents. Therefore, a prospective buyer of a home with mandatory membership in a homeowners association corporation is not entitled to inspection of financial records, according to NC law.

The obvious question, then, is how can a buyer truly determine the financial health of a planned community (homeowners or property owners association) without meaningful financial disclosure? And how can homeowners be made aware of the current financial condition of their community – of which they are co-investors – with such loose financial record keeping and disclosure requirements?

See relevant NC Statute excerpts below – my emphasis added.

NC Planned Community Act, Section 47F regarding association records:

§ 47F-3-118. Association records.

(a) The association shall keep financial records sufficiently detailed to enable the association to comply with this Chapter. All financial and other records, including records of meetings of the association and executive board, shall be made reasonably available for examination by any lot owner and the lot owner’s authorized agents as required in the bylaws and Chapter 55A of the General Statutes. If the bylaws do not specify particular records to be maintained, the association shall keep accurate records of all cash receipts and expenditures and all assets and liabilities. In addition to any specific information that is required by the bylaws to be assembled and reported to the lot owners at specified times, the association shall make an annual income and expense statement and balance sheet available to all lot owners at no charge and within 75 days after the close of the fiscal year to which the information relates. Notwithstanding the bylaws, a more extensive compilation, review, or audit of the association’s books and records for the current or immediately preceding fiscal year may be required by a vote of the majority of the executive board or by the affirmative vote of a majority of the lot owners present and voting in person or by proxy at any annual meeting or any special meeting duly called for that purpose.

(b) The association, upon written request, shall furnish to a lot owner or the lot owner’s authorized agents a statement setting forth the amount of unpaid assessments and other charges against a lot. The statement shall be furnished within 10 business days after receipt of the request and is binding on the association, the executive board, and every lot owner.

(c) In addition to the limitations of Article 8 of Chapter 55A of the General Statutes, no financial payments, including payments made in the form of goods and services, may be made to any officer or member of the association’s executive board or to a business, business associate, or relative of an officer or member of the executive board, except as expressly provided for in the bylaws or in payments for services or expenses paid on behalf of the association which are approved in advance by the executive board. (1998-199, s. 1; 2005-422, s. 7.)

Section 16, North Carolina Nonprofit Corporation Act,Corporate Records

§ 55A-16-01. Corporate records.

Part 1. Records.

…(b) A corporation shall maintain appropriate accounting records.
Part 2. Reports.
§ 55A-16-20. Financial statements for members.
(a) Except as provided in the articles of incorporation or bylaws of a charitable or religious corporation, a corporation upon written demand from a member shall furnish that member its latest annual financial statements, if any, which may be consolidated or combined statements of the corporation and one or more of its subsidiaries or affiliates, as appropriate, that include a balance sheet as of the end of the fiscal year and statement of operations for that year. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements shall also be prepared on that basis.
(b) If annual financial statements are reported upon by a public accountant, the accountant’s report shall accompany them. If not, the statements must be accompanied by the statement of the president or the person responsible for the corporation’s financial accounting records:
(1) Stating the president’s or other person’s reasonable belief as to whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
(2) Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.
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