Florida Condominium Financial Reporting Requirements: Is Your Association Compliant?

By: Maggie Nolan, Esq.

Annual financial reporting is one of the key components that keeps condominium associations afloat. Required by Section 718.111(13) of the Florida Statutes, the annual financial report provides a summary of an association’s financial condition and helps ensure transparency for unit owners. Financial reports are generated at the end of the fiscal year or as otherwise indicated in the association’s governing documents. The type of report required depends on the association’s annual revenue, and failing to comply with statutory requirements can have significant consequences. This article explores what must be included in a financial report, the reporting methods available and the deadlines every Florida association should know to ensure compliance with the Florida Statutes.

What Must Be Included in a Florida Condominium Financial Report?

In order to provide accurate information, a financial report must contain the following:

1. the actual revenues collected from the previous fiscal year;
2. the actual expenses paid on behalf of the association from the previous fiscal year; and
3. reserve disclosures.

Actual revenues collected by an association consist of assessments, interest, insurance proceeds, and any other source of income acquired by the association.

Expenses paid by an association include annual condominium fees paid to the Division of Florida Condominiums, Timeshares, and Mobile Homes of the Department of Business and Professional Regulation (the “Division”), insurance costs, as well as any expenses incurred while maintaining the association.

Finally, a financial report contains a reserve disclosure. A reserve consists of the money in an association’s budget designated for capital expenditures and deferred maintenance. A reserve disclosure shows the changes made to the reserve funds during the prior fiscal year. Reserves disclosures include: (i) the balance at the beginning of the fiscal period; (ii) any assessments and additional amounts; (iii) amounts expended or removed; (iv) the balance at the end of the fiscal period; and, (v) the amount necessary to fully fund the reserves.

Which Type of Financial Report Is Required?

The annual revenue of an association determines the type of financial report to be prepared. Associations generate reports based on a cash basis or an accrual basis depending on the annual revenue. Section 718.111(13) of the Florida Statutes identifies the various methods of financial reporting available to associations:

• If the annual revenue is less than $150,000, then a report of cash receipts and expenditures is prepared;
• If the annual revenue falls between $150,000 and $299,999, then a compiled financial statement is prepared;
• If the annual revenue falls between $300,000 and $499,000, then a reviewed financial statement is prepared; and
• If the annual revenue is $500,000 or greater, then an audited financial statement is prepared.

* Note – Reviewed and audited financial statements must be prepared by a certified public accountant (CPA).

Sometimes an association may qualify for one method of financial reporting but decide to prepare its report using a different method instead. For example, based on its annual revenue of $400,000, an association may be eligible to prepare a reviewed financial statement but decide, however, to prepare a compiled financial statement to save money. While an association may do so, there are limitations to consider.

An association may use a higher level of financial reporting only if it receives approval from the board of directors. Likewise, an association may use a lower level of financial reporting subject to a majority vote of the voting interests of the association, although the vote cannot be exercised in consecutive fiscal years. When given the opportunity to determine which level of reporting to use, an association should exercise caution. Though certain methods are more cost-effective than others, it is important to complete your financial report using a method that produces an accurate reflection of your association’s financial position.

When Must a Financial Report Be Completed?

A financial report must be prepared and completed within 90 days of the fiscal year end, or within the date as otherwise stated in the association’s bylaws.

Once completed, a copy of the report, or written notice that a copy will be delivered upon request, must be delivered to each unit owner no later than 180 days after the fiscal year end. Delivery may be made via U.S. mail, hand delivery, email, or fax. If a unit owner requests a copy of the financial report, the association has five business days upon the written request to deliver a copy of the report to the owner. Compliance with the delivery requirements must be shown by an affidavit executed by either an officer or director of the association.

Failure to comply with the statutory requirements can result in consequences. A unit owner can file a complaint with the Division if they fail to receive the report or notice within the designated time period. As a result, the Division will require the association to deliver a copy of the completed financial report to the unit owner and to the Division within five days of receipt. If an association fails to comply with the Division’s demand, it cannot use a lower-level reporting method for two fiscal years. Therefore, it is important that your association adheres to these requirements for each fiscal year.

Bottom Line

Maintaining a strong financial position, and consequently completing a detailed financial report, is critical to condominium association management. Financial reports allow an association to operate with the best interests of the unit owners. Without organized finances, an association loses its capability to effectively serve its members. Therefore, it is important to ensure that not only your association’s financial report is completed on time, but that it also contains the statutorily required information.

Those seeking counsel on financial reporting for condominium associations may contact me at maggie.nolan@henlaw.com for further assistance.