CAI-NJ Nov. 2021(w)

FINANCIAL HEALTH... from page 15.

However, as noted above, you need to dig a little deeper. It is also important to review whether or not there are any interfund balances present in the finan- cial statements. To continue the example above, the board also noted an interfund balance of $200,000 due from the replacement fund to the operating fund. The presence of this interfund means that at one point in time, the replacement fund borrowed money from the operating fund, and the monies have not yet been repaid. As seen in this example, interfund balances can have a significant impact on how you interpret your financial health. At first glance, it appears $500,000 would be available for the project, when in reality, only $300,000 was actually available after repaying the $200,000 owed to the operating fund. 2. Loans: Similar to interfund balances, a loan can cause the replacement fund balance to differ from the cash and investment balances. When an association utilizes a loan to fund a project, they are essentially paying a bank (via interest) to allow them to pay for a project with money that they have not yet collected from the unit owners. Doing CONT I NU E S ON PAGE 18

In theory, the two figures noted above should mirror each other. However, it is not uncommon for there to be a discrepancy between an association’s replacement fund balance and replacement fund cash and investment balances. Identifying and understanding these differences is essential to gaining a full understanding of your associa- tion’s financial health. Two of the more common causes of these differences are discussed below: 1. Interfund Balances: Interfund balances essentially rep- resent “receivables” or “payables” amongst the funds. They will indicate if one fund owes money to another fund. Looking at the cash and investment balances alone may not tell the whole story. To give an exam- ple, an association is planning to undertake a large capital project. They review their most recent audit and find that there is replacement fund cash of $500,000 reported. The most common initial assumption is that all $500,000 will be available to spend on the project.

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