Florida Statute 718.111(13): Everything You Need to Know About the Florida Condominium Association Year-End Financial Reporting Requirement

As it is January once again, it is time for condominium associations to produce their year-end financial reports. As discussed in our post on accounting records , every condo association must produce a year-end financial report of some kind. The type of financial report required depends on the annual revenues and/ or the size (i.e., number of units) of the association. This blog post will review the specific requirements outlined in the Florida Statutes and the Florida Administrative Code (FAC) relating to the preparation and distribution of the year-end financial report, provide guidance on contracting for or completing the reporting requirements, and discuss voting to waive the year-end reporting requirement.

The Year-End (“YE”) Financial Report

An association that operates fewer than 50 units, regardless of the association’s annual revenues, shall prepare a report of Cash Receipts and Expenditures.
An association with total annual revenues of less than $150,000 shall prepare a report of Cash Receipts and Expenditures.
An association with total annual revenues of $150,000 or more, but less than $300,000, shall prepare Compiled Financial Statements (“Compilation”).
An association with total annual revenues of at least $300,000, but less than $500,000, shall prepare Reviewed Financial Statements (“Review”).
An association with total annual revenues of $500,000 or more shall prepare Audited Financial Statements (“Audit”).

Report of Cash Receipts and Expenditures

Must report cash receipts and disbursements from each of the Association’s operating and reserve accounts.
Must report cash receipts by classifications at the association’s discretion (e.g., Maintenance Fees, Special Assessments, Late Fee & Interest, Fines, Rental Income).
Must report cash expenditures by the following classifications: Security, Profession and Management Fees, Taxes, Recreational Facilities, Refuse Collection and Utilities, Law Care, Building Maintenance, Insurance, Administration/ Salary and Reserve Contributions by Reserve Account. While these classifications are specifically listed in the statute, they are not all inclusive and the association may add any additional classifications they feel are relevant.

Per Rule 61B-22.006 of the Florida Administrative Code:

Compilations, Reviews and Audits must be completed on an accrual basis according to Generally Accepted Accounting Principles (GAAP). Further, Reviews and Audits must be completed by a Certified Public Accountant (interestingly, a CPA is not specifically required for Compilations).

This report must include the following financial statements:

Accountant’s or Auditor’s Report
Balance Sheet
Statement of Revenues and Expenses
Statement of Changes in Fund Balances
Statement of Cash Flows

Notes to the financial statements must include the following reserve funding disclosures:

The beginning balance in each reserve account.
Total additions to each reserve account.
Total amounts expended or removed from each reserve account.
The ending balance in each reserve account.
Amount required to fully fund each reserve account, or pool of accounts (if using the pooling method ), over the remaining useful life of each asset.
How reserve items were estimated (typically by a reserve study).
The date the reserve estimates were last made.
The association’s policies for allocating reserve fund interest (i.e., interest held in a separate reserve account, applied pro-rata to each reserve account, or included in the reserve pool as is the case when using the pooling method).
Whether reserves have been waived during the period covered by the financial statements.
Any developer converter reserve accounts.

Notes to the financial statements must also include the following other disclosures:

How incomes/ expenses are allocated to unit owners (typically by a unit owner’s percentage ownership in the common elements).
The purpose and amount of each special assessment (if any) and how the funds were used.
The expenses related to limited common elements that are charged to specific unit owners.
Disclosures relating to guarantees pursuant to Section 718.116(9), F.S (see the FAC for more details on these disclosures).

Report of Cash Receipts and Expenditures must be completed using a cash basis and must include the reserve funding disclosures, special assessment disclosures and limited common element disclosures listed above.

NOTE: For all YE financial reports, the FAC has specific guidelines for multicondominium associations.

Required Timeframe for Completion and Distribution

Within 90 days of fiscal YE (not calendar YE though most are one and the same) the association must have completed or have contracted for the preparation of the required YE financial report. Within 21 days after the financial report is completed, but not later than 120 days after the end of the fiscal year, the association must mail or hand deliver a copy of the financial report (or a notice that the report is available upon written request) to each unit owner. This must be done without charge to the unit owner. Note that this particular Florida Statute does not allow for electronic distribution (e.g., email, via website) of the financial report.

Completing The Year-End (“YE”) Financial Report

A CPA must complete Audits and Reviews per the FAC. Any qualified accountant may complete Compilations though I would still recommend a CPA. These services can be very expensive ($1,000 – $6,000) so be sure to obtain competitive bids for your YE financial report. Further, be sure that any CPA or accountant the association hires has experience with condominium associations.

If your association’s fiscal year corresponds with the calendar year (January – December), I strongly recommend contracting with a CPA in November or December to ensure the CPA will have time to complete your association’s financial report within 120 days of year-end (tax season typically keeps CPAs very busy). Contracting with a CPA early also helps to ensure the association obtains the best price (CPAs often increase prices for rush projects).

Boards of Directors or associations’ management companies often complete the Cash Receipts and Expenditures report. This report is relatively easy to complete if your bookkeeping has been well kept and you know the rules discussed in this blog. That being said, it is my experience that management companies do not accurately complete this report (particularly the disclosures). Be sure to review your Cash Receipts and Expenditures report in detail before disseminating to the community. We have templates for the Cash Receipts and Expenditures report. Please send me an email if interested.

Waiving the YE Financial Reporting Requirement

Florida Statute Chapter 718.111(13)(d) allows condo associations to “waive down” their reporting requirement for three consecutive years. What this means is that the membership of an association that is required to have an Audit may vote to complete a Review, Compilation or report of Cash Receipts and Expenditures instead. Likewise, the membership of an association that is required to complete a Review may vote to complete a Compilation or a report of Cash Receipts and Expenditures instead. And so on. It is a common misconception that associations may vote to waive the YE financial reporting requirement all together. This is not allowed.

A majority vote of a properly called meeting of the association’s membership must be obtained in order to waive down the YE financial reporting requirement. This means that a quorum of unit owners must be present at the meeting (either in person or by proxy) and at least 50% of those owners present must vote to waive down the requirement. As a quorum is required to hold the association’s annual meeting, I recommend including the vote to waive down the financial reporting requirement at the annual meeting . This will save the Board the hassle of obtaining two quorums in one year and will save the Association money on printing, envelopes and postage. Specifically, the association may consider including language similar to the following on the limited proxies that are mailed to the membership for the annual meeting:

WAIVER OF YEAR-END FINANCIAL REPORTING REQUIREMENT

I cast my vote to waive the requirement for a > financial statement as required by Chapter 718.111(13) of the Florida Statutes and provide in lieu thereof a > in accordance with Chapter 718.111(13) of the Florida Statutes and 61B-22.006 of the Florida Administrative Code.

YES ________ NO ________

This vote is only effective for the current and subsequent fiscal years (e.g., the vote to waive the 2013 reporting requirement must take place in 2012 or 2013).

Per FAC Rule 61B-22.006, the minutes of the meeting during which the waive down vote took place must reflect the number of votes cast to waive the requirement as well as the type of YE financial report that the association will prepare.

I hope this overview has been helpful. If you have any questions, please feel free to comment or reach out via email.

We are pleased to offer year-end financial reporting services (Audits, Reviews, Compilations and reports of Cash Receipts and Expenditures) to all Florida condominium associations through our management and consulting firm, VERA Property Management. Feel free to contact us directly for a quote.

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a full-service community association management and consulting firm.