Strengthening Your HOA’s Financial Systems: Accounts Payable Essentials

What is Accounts Payable? 

Accounts Payable (AP) is the money organization owes to vendors or suppliers for goods and services received but not yet paid for. It sounds simple enough. You purchase a good or service, receive an invoice, and then pay by the due date. However, there are several considerations to ensure that the AP function runs efficiently, accurately, and minimizes opportunities for error or fraud. 

AP in a Homeowners’s Association (HOA)

In a Homeowner’s Association (HOA) or condo association, Accounts Payable typically includes invoices that need to be paid to vendors such as professional service providers (accountants, lawyers, HOA management), landscaping companies, contractors, maintenance service providers, and utility companies. Board members are responsible for safeguarding the funds of the community, and any time funds are leaving an organization, you need to pay close attention. 

Here are three key considerations board members should focus on to build a robust AP system: 

1. Proper Internal Controls

2. Process Automation 

3. Vendor Management & Compliance

1. Set up Proper Internal Controls

“Internal controls” is accounting jargon for creating rules and procedures to ensure financial accuracy and prevent fraud. In the accounts payable system, there are two main controls to establish. 

1. Separation of Duties 

2. Dual Sign-off 

Separation of Duties

Separation of duties means that multiple people are involved in completing tasks within the AP process and each one has a specific role. This is particularly important when funds are being disbursed from an organization.

In your HOA, you’ll want to make sure that the person responsible for bookkeeping does not also have check-signing authority. This separation helps ensure transparency and accountability, preventing any single person from recording an illicit payment and then authorizing the corresponding disbursement.

Dual Sign-Off

Another safeguard to implement is requiring dual sign-off on outgoing payments and invoices. This simply means that two people must review and sign off on a payment for the funds to leave the association's bank account. Again, this helps prevent fraud by making sure a single person cannot control outgoing payments and also helps limit error by ensuring two sets of eyes review all payments. 

2. Process Automation 

To improve efficiency and accuracy of your association’s AP, consider using software to automate and streamline the process. AP software provides several benefits, including digital invoice importation, built-in controls, payment initiation, and synchronization with your accounting system.

Import Bills & Invoices: AP software can automatically upload invoices and even convert paper invoices into digital ones. This reduces manual data entry, reduces errors, and saves time.

Build Custom Approval Processes: AP software helps implement your internal controls. You can set specific approval rules, assign approvers, and create workflows to move invoices through a custom approval process that fits your associations’ needs. 

Payment Execution: AP software integrates with your bank to process payments and offers multiple payment options such as ACH, credit card, check, or wire transfer. This allows you to choose the most appropriate payment options based on factors like cost, timing, or vendor requirements. 

Sync with Accounting System: It’s crucial to choose AP software that syncs with your accounting system. This minimized manual data entry, which saves time, minimizes errors, and helps reconcile bank and vendor balances quicker. 

3. Vendor Management & Compliance 

Another critical aspect of an AP system is managing vendor information to ensure accuracy in payment processing. Correctly managing and tracking vendor data also streamlines annual 1099 filings and ensures compliance with IRS regulations.

When onboarding a new vendor or service provider, it’s essential to collect W-9 information immediately. The W-9 form is used to gather the Taxpayer Identification Number (TIN) of entities required to file an information return, such as a 1099. This should be your first step when setting up vendors in your AP software. You’ll also need to collect the vendor’s bank or payment details.After vendors are entered into the system, it's important to schedule an annual review of their information to ensure everything remains up to date. 

Efficiently and accurately tracking vendor information and payments is critical to maintaining compliance with IRS regulations and 1099 filing requirements.

Conclusion

Creating a strong accounts payable system for your HOA or condo association requires focusing on critical areas such as internal controls, automation, and vendor management. By establishing separation of duties and requiring dual sign-offs, you can protect against fraud and minimize errors. Automating the AP process with software enhances efficiency, reduces manual work, and ensures smoother payment execution. Proper vendor management—such as collecting W-9 forms and conducting regular reviews—keeps payments accurate and ensures compliance with IRS regulations.