The buck stops with HOA boards, not management companies
Q: My homeowners’ association (HOA) employs a management company. When neighborhood issues arise, the management company representative tells us it is up to the HOA’s board of directors to solve the problems. I think that if our HOA board has to solve all the problems, we don’t need the management company. The management company is compensated for their services; the board isn’t. What is the management company’s responsibility? In my May 2 column ( http://bit.ly/107yFtg), I discussed whether a reader’s HOA should hire a management company. Understanding the roles of the management company and the board of directors is essential before deciding whether to hire a manager. Running an HOA requires a variety of skills, and depending on the size of your community and the extent of your amenities, may require a major time commitment. Someone has to prepare the annual operating and capital expense budget. The budget needs to be mailed to owners prior to the beginning of each year, and a meeting of the owners must be scheduled and held to vote on ratification of the budget. Someone needs to handle the billing and collection of assessments, send late notices and take action for collection of delinquent assessments. Someone needs to negotiate and monitor the vendor service contracts for the landscaping, the pool, and so on. Someone needs to determine the amount and type of insurance necessary to properly insure the HOA, its officers and directors, and the common elements. Someone needs to make periodic inspections of homes and lots and respond to violations of the community’s restrictive covenants. Someone needs to process and pay invoices from vendors, keep track of the bank accounts, invest the capital reserves and prepare periodic income/expense statements. Tax returns must also be filed each year. Without a management company, all these tasks (and more) fall on the shoulders of the HOA’s board. Most HOA management companies offer an a la carte menu of services. Regardless of which tasks the board may assign to a management company, all critical decision-making authority regarding the operation of the HOA remains with the board of directors. The manager’s duty is simply to carry out the directives of the HOA board. Federal and state governments may delegate certain services to private enterprises (road construction, prison operations, real estate management), but our elected officials remain ultimately responsible to their constituents for the decisions that are made. Likewise, your elected HOA board bears ultimate responsibility for the decisions made with respect to the operation of the HOA, whether those directives are carried out by the board and various committee members or by vendors (such as managers) hired by the HOA. Note: In response to our last column (July 25, “Does HOA accountant need to be a CPA?”), we received an e-mail from Robert N. Brooks, Executive Director of the N.C. State Board of CPA Examiners. He pointed out that accountants may no longer refer to themselves as “public accountants” unless they are licensed CPAs. Non-CPAs must use the title “accountant” and only that title.