Budgets, Reserves & Inflation from a CPA’s Perspective

By Wayne E. Carlsen, CPA

Inflation – the nasty word that everyone is aware of. It is now the time to start paying extra attention to your monthly actual to budgeted amounts-to-determine what line items are exceeding the budget for planning for the 2023 budget. This includes the funding of your reserve fund components that will more than likely be significantly higher than your preceding study.

The reserve study is an invaluable and integral part of the budgeting process as it provides necessary information as to how much of the total assessment needs to be allocated to the reserve funds. The reserve study also includes what the anticipated reserve expenditures are estimated to occur for the coming year. The board should not only be comparing the ctual-to-budgeted numbers in the operating fund but should also be comparing the budgeted reserve expenditures to the actual amounts spent, to avoid overspending from the reserves. Obviously, if you overspend each month, by the end of the year it will result in the reserve funds being underfunded, and the reserve funding will need to be made up at some point in time.

Remember, the purpose of a reserve study is to set aside funds for future major repairs and replacements of the common area components. It is not meant to include regular annual maintenance items such as roof maintenance, irrigation repairs, or tree trimming. Because of this, I highly recommend that a minimum dollar threshold be established for amounts to be included in the reserve study and even more importantly,

I highly recommend that a minimum dollar threshold be established for amounts to be included in the reserve study and even more importantly, for amounts charged to the reserves.

for amounts charged to the reserves. By underfunding your reserves, you are only fooling yourself and “kicking the can down the road” when eventually assessments will have to be raised for yourselves or future owners, or even worse, a special assessment levied in order to maintain the common areas.

Get together with your landscape professionals, reserve specialist, committee members, and manager to assure you are getting a complete and accurate budget and reserve study for the benefit of all the members of your association.

Wayne E. Carlsen, CPA, is Partner and Co-founder of Brabo & Carlsen, LLP. Mr. Carlsen is a CPA who specializes in auditing and tax planning. His areas of expertise range from for-profit and non-profit sectors with a concentration in country clubs and CIDs. He is also a member and Past Treasurer and Board Member of CAI-CV. Wayne can be reached at (760) 320-0848 or by email at wayne@brabo-carlsen.com.