A finance committee is the most useful committee most associations have and the one most likely to be run incorrectly. It is useful because budgets and reserve schedules reward sustained attention that a board cannot give in a two-hour meeting. It is run incorrectly because boards treat its work as homework rather than as governance, and in a condominium the statute says otherwise. This guide covers the charter, the meeting rules, the financial review itself, the audit engagement, internal controls, and the handful of things the committee should never decide on its own.
The committee's proper charter
Start with what the committee is for. A finance committee that reviews monthly statements, tests the reserve schedule against the reserve study, questions variances and drafts a proposed budget for the board is doing exactly the right work. A finance committee that approves invoices, moves money, negotiates with vendors or talks to the auditor without the board is not a finance committee. It is an unsupervised treasurer with three heads.
The charter should say, in this order: the committee recommends and does not take final action; the subjects it covers; who appoints the members and for how long; how often it meets; that it reports in writing to the board; that it has no authority to disburse funds, sign anything, or direct the manager or the accountant; and that its materials are association records. Our guide to writing a committee charter works through each of those clauses.
Size matters less than composition. Three to five members is usually right, and at least one should be able to read a balance sheet without help. Retired accountants and controllers are worth recruiting. So is the incoming treasurer, because a year on the committee is the best available training for the office.
Why the budget committee is subject to the open-meeting rules
Section 718.112(2)(c)4. is explicit. Meetings of a committee to take final action on behalf of the board, or to make recommendations to the board regarding the association budget, are subject to paragraph (2)(c). That means adequate notice posted conspicuously at least 48 continuous hours before the meeting, identifying the agenda items, and a meeting open to unit owners. Chapter 719 does the same for cooperatives at § 719.106(1)(c).
The reason the Legislature singled out the budget committee is not mysterious. The budget determines every owner's assessment. A committee that builds the number in private and hands the board a finished product has effectively made the decision, and the statute closes that gap by opening the door earlier.
Chapter 720 does not follow. Section 720.303(2) applies the open-meeting rules to a committee only when a final decision will be made regarding the expenditure of association funds, and to architectural bodies. An HOA finance committee that only recommends is outside that language. Many HOA bylaws nonetheless require open committee meetings, and many boards adopt the practice voluntarily. Both are sound. What is not sound is assuming the condominium rule applies to an HOA or the reverse.
| Condominium | Cooperative | HOA | |
|---|---|---|---|
| Budget-recommending committee must meet openly | Yes, by statute | Yes, by statute | Only if the bylaws require it or the committee decides on spending |
| Posted notice | 48 continuous hours, agenda identified | 48 continuous hours | 48 hours when the meeting is covered |
| Owner right to attend and speak on agenda items | Yes | Yes | Yes when the meeting is covered |
| Remote participation counts toward quorum and vote | Yes, § 718.112(2)(b)5. | Yes, § 719.106(1)(b)5. | Governed by the bylaws |
| Notice of the board meeting adopting the budget | 14 days, with a copy of the proposed budget | 14 days before the budget meeting | Set by § 720.303(2) and the bylaws |
One practical point about the board's own budget meeting: in a condominium, at least 14 days before the meeting at which the budget will be considered, the board must deliver to each unit owner a notice of the meeting and a copy of the proposed budget. The committee's calendar has to work backwards from that date. Our guide to annual budget planning lays out the full timeline.
Reviewing the financial statements
A committee reviewing monthly statements is looking for four things, and it can find all four without an accounting degree.
- Variance. Which line items are materially off budget year to date, and does management have an explanation that survives a follow-up question.
- Cash. What is in operating, what is in reserves, whether the two are in separate accounts, and whether the totals tie to the bank statements.
- Receivables. The delinquency aging, how it has moved over three months, and whether anything has been written off without board action.
- Payables and commitments. Unpaid invoices, open contracts, and any obligation that will land in a future year that the budget does not yet show.
Reserve funds deserve separate attention. In a condominium, reserve funds and the interest on them must remain in the reserve accounts and may be used only for authorized reserve expenditures unless their use for another purpose is approved in advance by a majority of the total voting interests. That is a membership vote, not a board vote and certainly not a committee recommendation. A committee that discovers reserve money paying an operating bill has found the most important item on its agenda that year.
The reserve schedule itself should be tested against the study rather than rolled forward. For condominiums, the structural integrity reserve study governs the components it covers, and members of a unit-owner-controlled association required to have a SIRS may not vote to provide no reserves or less reserves for the items the study covers. Our guides to the structural integrity reserve study and to cooperative budgets and reserves cover the mechanics in each chapter.
The annual financial report and the engagement
Both chapters set the level of the annual report by total annual revenues, and the tiers are the same. Below $150,000, a report of cash receipts and expenditures. At $150,000 and above but under $300,000, compiled financial statements. At $300,000 and above but under $500,000, reviewed statements. At $500,000 or more, audited statements. Chapter 720 adds a parcel test: an HOA with at least 1,000 parcels must prepare audited statements regardless of revenue.
The delivery deadlines differ and this trips up management companies that serve both kinds of communities. A condominium must provide the report to each unit owner within 21 days after it is completed, but no later than 180 days after the end of the fiscal year. An HOA's outside date is 120 days. Put the correct date in the committee's calendar rather than relying on a general rule.
Both chapters let the members vote to prepare a lower level of report than the revenue tier requires, and both prohibit doing so in consecutive fiscal years. A committee that recommends the downgrade should say plainly what the association gives up, because the step from a review to a compilation removes the accountant's analytical procedures, and the step to cash receipts removes nearly everything.
On the engagement itself: the board engages the accountant, not the committee. The committee can interview firms, compare fee proposals and scope, and recommend. The engagement letter is signed by an officer under board authority. During fieldwork the committee is a useful point of contact, but any management representation letter is signed by management and the board, and any communication about a suspected irregularity goes to the board and to counsel immediately.
Internal controls and segregation of duties
No Florida statute prescribes an internal control system for associations. That silence is exactly why the committee should look at controls, because nobody else will.
- The person who opens the mail and records receipts should not be the person who reconciles the bank account.
- Bank statements should be delivered unopened to a director or committee member who does not write checks, and reviewed before they go to the bookkeeper.
- Disbursements above a stated dollar amount should require two signatures, and reserve disbursements should require board approval regardless of amount.
- Transfers between accounts should be reported to the board monthly, with the reason.
- Association credit cards should be limited in number and dollar amount, with receipts required for every charge.
- The board should confirm annually that the association's fidelity or crime coverage matches the funds actually on hand, including reserves.
A committee that documents these controls once and then tests two or three of them each quarter provides more protection than an annual audit, which is designed to express an opinion on financial statements rather than to detect a small ongoing theft.
The treasurer's role versus the committee's
The treasurer is an officer of a corporation with a fiduciary duty to the association. A committee member is a volunteer with an assignment. The difference is not a matter of respect; it is a matter of who answers for the numbers.
In practice the treasurer should present the financials to the board, sign what needs signing, and own the relationship with the bookkeeper. The committee should review independently and be free to disagree with the treasurer in its report. A committee chaired by the treasurer loses that independence, which is why many charters make the treasurer a member but not the chair.
Where the association has a manager, the manager prepares and the committee reviews. The committee should not direct the manager; the board does that through the management agreement. Committee requests for reports go through the board or through the process the management agreement sets out, a point covered in our guide to reviewing the management agreement.
What the committee should escalate
The committee should bring these to the board promptly and in writing rather than holding them for the next quarterly report:
- Any use of reserve funds for a non-reserve purpose, or any transfer out of a reserve account.
- A reserve balance that will not cover a component whose remaining useful life has run out, particularly a structural component in a study.
- Delinquencies rising over two consecutive quarters, or a single large receivable that is aging.
- An insurance premium or deductible change large enough to alter the budget assumption.
- Any contract commitment the committee finds that the board did not approve.
- A bank reconciliation that does not reconcile, or a missing statement.
- Any difference between the reserve schedule and the current reserve study.
Escalation is the committee's most valuable output, more than the budget draft. A board that hears about a reserve shortfall in July has options, including a phased plan and an early conversation with the membership. A board that hears about it in November has a special assessment. The planning side of that conversation is covered in our guide to special assessment planning.
Frequently Asked Questions About the Budget and Finance Committee
Does our condominium budget committee have to post notice and open its meetings?
Yes. Section 718.112(2)(c)4. applies the board meeting rules to a committee that makes recommendations to the board regarding the association budget, so the meeting needs adequate notice posted at least 48 continuous hours in advance identifying the agenda items, and unit owners may attend. The same rule applies to cooperatives under § 719.106(1)(c).
Does the same rule apply to an HOA finance committee?
Usually not. Section 720.303(2) reaches a committee only when a final decision will be made regarding the expenditure of association funds, or when the body approves architectural decisions for a parcel. A recommending finance committee falls outside that text. Check the bylaws, which often impose an open-meeting requirement the statute does not.
What level of financial report does our association need?
It depends on total annual revenues: cash receipts and expenditures below $150,000, compiled from $150,000 to just under $300,000, reviewed from $300,000 to just under $500,000, and audited at $500,000 or more. An HOA with at least 1,000 parcels must prepare audited statements regardless of revenue.
How long do we have to deliver the annual financial report?
A condominium must deliver it within 21 days after completion but no later than 180 days after the end of the fiscal year. An HOA's outside deadline is 120 days after the close of the fiscal year. Management companies serving both kinds of communities sometimes apply one deadline to the other, so confirm which chapter governs.
Can the finance committee approve payment of invoices?
It should not. Approving a disbursement is a final decision about spending association funds, which changes the committee's legal character in both chapters and removes the board from a decision it is responsible for. Have the committee review disbursements after the fact and report exceptions to the board.
Can we move money out of reserves to cover an operating shortfall?
In a condominium, reserve funds may be used only for authorized reserve expenditures unless the use is approved in advance by a majority of the total voting interests. That is a vote of the owners, not the board. Treat any proposal to borrow from reserves as a question for counsel before it reaches the agenda.
Contact Hamilton Mikes
Hamilton Mikes advises boards and finance committees on budget adoption, reserve funding and the statutory reporting obligations in Chapters 718, 719 and 720, and reviews committee charters and financial procedures. Call 239-594-7227 or visit our Budgeting and Financial Reporting page.
Statutes and authorities referenced
- § 718.112(2)(c)4., Fla. Stat. (committee making budget recommendations is subject to the board meeting rules)
- § 718.112(2)(b)5., Fla. Stat. (remote participation by board and committee members)
- § 718.112(2)(e), Fla. Stat. (14 days' notice of the budget meeting with a copy of the proposed budget)
- § 718.112(2)(f), Fla. Stat. (reserves; reserve funds may be used only for authorized reserve expenditures absent a majority vote of the total voting interests)
- § 718.112(2)(g), Fla. Stat. (structural integrity reserve study)
- § 718.111(13), Fla. Stat. (financial reporting tiers; report within 21 days after completion and no later than 180 days after fiscal year end; members' vote for a lesser report; no consecutive years)
- § 719.106(1)(c), Fla. Stat. (cooperative board and committee meetings; budget meeting notice)
- § 720.303(2), Fla. Stat. (HOA board meetings; application to committees)
- § 720.303(6), Fla. Stat. (HOA annual budget and reserves)
- § 720.303(7), Fla. Stat. (HOA financial reporting tiers; audited statements at 1,000 or more parcels; 120-day outside deadline; no lesser report in consecutive fiscal years)