Revised: Handling End of Year Surplus or Deficit of Money

Finance & Legal 2014-09-15

Summary:

Simplify the way we handle deficits or surplus funds. Each year, once the books have been officially closed after taxes, the bookkeeper does the calculations to determine how much operating money, if any, is left. If we have a deficit, a special assessment is issued. If we have a surplus, it immediately becomes community money, not committee money.

Background:

Early in Great Oak's history, we created a simple document outlining how to handle either a surplus or deficit of money at the end of a fiscal year. Basically, if there was a deficit, we agreed that a special assessment would be issued. And if there was a surplus, we would rebate the money. The original agreement is here: http://www.gocoho.org/boa/

We have never had to impose a special assessment, and hope that we never have to. In fact, we have set up several mechanisms to make this an unlikely event (very thoughtful budget process, savings accounts, critical needs fund, etc).

However, we have continually made special agreements, usually during the budget process, about various ways to exempt certain line items from being rebated. The intention was to give committees a way to save some of their unspent money for future plans. This was a cumbersome process, as not all agreements were communicated to the bookkeeper, and no one was addressing how to prioritize them. There was never any review of all these types of agreements.

When it came time to close out the 2012 books, we encountered how problematic this was when it turned out we had money left, but not enough to honor all of the various line item agreements we had made. F&L and the bookkeeper realized we needed to fix this both for the immediate situation and long term. The community passed a 1-time proposal to handle this, and F&L began to work on a long-term solution.

The first step was to ask committees that had savings accounts to put a cap on them and have a clear savings goal in mind. Second was to ask them to budget for putting money towards their savings. And third, was for F&L to bring back a new proposal for improving how we handle excess money at the end of the year. During this time, our CPA also recommended that we stop rebating money because we have already paid tax on it.

F&L did attempt to bring one proposal forward to put surplus money into the reserve instead of rebating it, but there was not much support for that, and it did not address the more complicated issue of the various line item agreements we have made.

This proposal seeks to simplify the way we handle deficits or surplus funds. If passed, it will replace all of the previous end of year budget agreements. The only exception is the one-time Common House Solar Hot Water Investment Early Pay Back Proposal, if it is agreed

(Please see attached flowchart of proposed process)

Proposal:

2014 Proposal for Handling End of Year Surplus or Deficit of Money

Early in Great Oak's history, we created a simple document outlining how to handle either a surplus or deficit of money at the end of a fiscal year. Basically, if there was a deficit, we agreed that a special assessment would be issued. And if there was a surplus, we would rebate the money. The original agreement is here: http://www.gocoho.org/boa/161

We have never had to impose a special assessment, and hope that we never have to. In fact, we have set up several mechanisms to make this an unlikely event (very thoughtful budget process, savings accounts, critical needs fund, etc).

However, we have continually made special agreements, usually during the budget process, about various ways to exempt certain line items from being rebated. The intention was to give committees a way to save some of their unspent money for future plans. This was a cumbersome process, as not all agreements were communicated to the bookkeeper, and no one was addressing how to prioritize them. There was never any review of all these types of agreements.

When it came time to close out the 2012 books, we encountered how problematic this was when it turned out we had money left, but not enough to honor all of the various line item agreements we had made. F&L and the bookkeeper realized we needed to fix this both for the immediate situation and long term. The community passed a 1 time proposal to handle this, and F&L began to work on a long-term solution.

The first step was to ask committees that had savings accounts to put a cap on them and have a clear savings goal in mind. Second was to ask them to budget for putting money towards their savings. And third, was for F&L to bring back a new proposal for improving how we handle excess money at the end of the year. During this time, our CPA also recommended that we stop rebating money because we have already paid tax on it.

F&L did attempt to bring one proposal forward to put surplus money into the reserve instead of rebating it, but there was not much support for that, and it did not address the more complicated issue of the various line item agreements we have made.

This proposal seeks to simplify the way we handle deficits or surplus funds. If passed, it will replace all of the previous end of year budget agreements. The only exception is the one-time, Common House Solar Hot Water Investment Early Pay Back Proposal,if it is agreed

(Please seeflowchart of proposed process: https://drive.google.com/file/d/0B2UnkS1QO3rOZTZBNXMweEZ6UTRqcjR5RGJ4aUtRSUlwdG5N/view?usp=sharing)

That each year, once the books have been officially closed after taxes, the bookkeeper does the calculations to determine how much operating money, if any, is left.

If we have a deficit, a special assessment is issued.

If we have a surplus, it immediately becomes community money, not committee money. The amount is reported to the community. Then, the money automatically gets divided equally between the existing committee savings accounts, up to each accounts' threshold. This will allow committees to reach their savings goals faster than they currently can.

If a savings account reaches it's goal and there is still money left, it is spread equally across the remaining savings accounts. This process continues until the EOY funds are spent or all of the accounts have reached their max.

If there is any money leftover, it will then be applied to the next fiscal year's budget to lower everyone's association fees.

Committees must have a cap on each of their savings accounts, and a clear plan for the money. If something comes up during the year and they want to use the money for something else, they need to get community approval. Committees can have more than one savings account, but they must be approved by the community during the budget process.

A full report of the savings accounts, with balance, caps and spending will be provided to the community before the budget process begins each year.

Pros

- Greatly simplifies the end of year process

- Eliminates the multiple line item agreements

- Allows all committees to reach their short term savings goals quicker

- We no longer return money that we have already paid tax on

- Members can benefit from lower association fees

Cons

- This is a big change from the way we have done things

- We will no longer be giving rebates, we will instead lower future associations fees

whenever we have money left after the short term savings goals have been met.