Changing Financial bylaws for Hemlock Farms Today

By Ann Marie Drake

 

Hemlock Farms has grown tremendously within the past 50 years. Beginning with the number of homes, along with the number of members, the services provided, and the types of employees and management needed to provide the services. The use of technology has changed our work, how we do it, and the way in which we communicate with one another. These changes also play a role in how we manage our financial information and financial reporting today.

 

Hemlock Farms has professional staff to manage the day to day needs of the organization. Policies and procedures used by Management have been updated over the years, based on current standards. It’s time for our financial bylaws to be updated so that they can work with our policies and procedures, and our codes, and state laws that are in place.

 

The Dues formula was developed many years ago. It is very specific and designed to budget the annual dues each year, for member’s use of facilities based upon the revenues and expenses of the Association, and the lot type (improved or a home, versus an unimproved or vacant lot, versus an adjacent or unimproved lot near another lot with like ownership requirements). Should the Association want to add new amenities or services, both the Finance Committee and the Board need to have the ability to update the formula to include new details. The User-friendly Guide to the Budget process is what drives the Association budgeting process. The timeline has worked well for Hemlock Farms over the years, and the bylaw needs to be updated to work with the Budget Guide.

 

The current bylaw on Payment of Bills does not recognize any other form of payment besides a check. Back when this bylaw was created, checks were physically brought to monthly board meetings for signature and approval. Today, we have the ability to pay online or by ACH means which would be more efficient and save money. In the revised bylaw, there is no change to transparency, as management will still provide a monthly list of Bills paid, and no change to signature requirements so the proper people are reviewing and signing off of items purchased. Management has a Purchasing policy and a Board adopted Budget that guides this process.

 

Cash and Investment accounts for Hemlock Farms have grown dramatically over the years, and the bylaw for this should be further clarified to differentiate between the two. The Investment policy details how the Association can invest funds and the bylaw should work in conjunction with this policy. There is no change to FDIC requirements for either Cash or Investment funds. For transparency, management is required to provide a schedule of Investments to the Board (and the Finance Committee) on a monthly basis.

 

The Association has a Capitalization policy and a Reserve fund policy, and several source funds are kept for the replacement of assets. The bylaw needs to be updated for transparency and the understanding that multiple funds exist. By adding language that- unexpended funds from capital projects shall remain in the capital fund of origin- will improve controls and safeguard fund balances.

 

The existing bylaw predates the institution of CIF or Capital Improvement Fund. This needs to be updated to work with PA law and work with the Association codes on CIF. The idea that “no expenditure for the purpose of a capital project shall be included in any budget” does not make any sense in today’s world when costs for pre-construction project exploration may require engineering, survey costs, and architectural costs. All of these costs are services that are provided by professionals and costs can add up. We have to have a place for these costs in our budgets and a clear guide from which the board may act with regard to these items. In addition to this, we’re adding transparency to this bylaw by requiring overages on capital items to be reported to the board. The old bylaw has no guidance in the event that a capital project goes over budget.

 

The bylaw revisions further clarify Borrowing by specifying that only “internal” borrowing needed to meet operating expenses can be made by management and will be reported to the board. The Use of Funds section was added to address how we can pay for those pre-construction professional fees mentioned above, and what happens in the event that a project goes over budget. The idea that these costs can be paid directly out of the CIF fund agrees with PA law. The idea that the Board may authorize an additional 10% overage to come from the CIF fund is reasonable, legal, and complies with PA law. In the event that a board uses this option, it will save members’ dues money. Should a project go over budget by 20% or more, it provides guidance to include repayment of borrowing which will safeguard fund balances.

 

In addition to the above, it should be noted that both our Attorney and our Auditor have reviewed the bylaw revisions, so members can be certain that changes are in compliance with PA law and GAAP, and align with how community associations operate.

 

Changing times means our bylaws need to keep up with current standards of operation.