Question: Which accounting method is preferred for HOAs, the Cash Method or the Accrual Method? Currently, we use the Cash Method and it seems to distort the actual financial situation. We're showing a profit when, in fact, we're losing money.

Answer: Accountants recommend the Accrual Method because it shows a more timely and accurate picture of income and expenses. With Accrual accounting, income is posted when the goods are delivered or services rendered; expenses are posted when the bill is incurred. But few folks handle their checkbooks like this. With the Cash Method, income is posted when received and expenses are posted when paid. But this method can cause income and expenses to fall outside the budget time frame to which they apply (monthly, quarterly or yearly).

While Accrual is the most accurate way to track finances, it is more labor intensive since more transactions need to be recorded. For example, income must be reported when earned and when it is received. The good news is that computers and software have simplified the accrual accounting process. In the final analysis, the board needs to adopt an accounting method which it can understand and deal with. Those that have used the Cash method forever will have a difficult time changing.

Question: What are the duties of a board appointed Nominating Committee?

Answer: The Nominating Committee is appointed by the board to identify candidates for election. The committee is usually charged with these tasks:

1. To verify that candidates are in good standing with the HOA (no outstanding delinquencies or rule violations)

2. To inquire whether a candidate has special training or expertise (accounting, engineering, project management) which would be useful to the director position.

3. To verify that the candidate is aware of the meeting schedule and able to attend all board meetings.

4. To provide candidates an overview of the director duties.

While the Nominating Committee may recommend certain candidates, all members in good standing are entitled to run for the board and should be included in all meeting notices, proxies and ballots.

Question: I live in an HOA that has rental restrictions. I recently got transferred and am unable to sell my unit because of market conditions. I need to rent it but am afraid of violating the rules.

Answer: You are not alone in your predicament. I suggest that you request an exception to the rental restriction due to the circumstances you describe for a period of, say, one year, to allow time for the real estate market to recover. If circumstances have not changed in a year, ask for another year extension. By requesting a temporary exception, you aren’t opening the door to everyone else unless they are caught in the same bind. The board could say no but if your inability to sell or rent causes you to lose the unit to foreclosure, the HOA will likely lose fee revenue. It’s in the best interest of the board to compromise when circumstances dictate.

For more innovative homeowner association management strategies, see Regenesis.net.

Published: October 15, 2008

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .