What’s Your Association’s Variance (Tool)?
Budget and year-end closing time is over and we are several months into the new fiscal year. Boards and Managers can start reviewing the year-to-date variance monthly to monitor the Association’s operating income and expense. Variance is the difference between a budgeted amount and the actual amount received or incurred. How can the Association develop an additional tool for controlling and planning revenues and costs as the year progresses? Remember, budgets are just estimates. A useful analytical tool for use in conjunction with your budget comparison income statement is a Variance Analysis Detail Report, which can be developed by the Manager and/or Treasurer with the Association accountant and then included in the Treasurer’s or Manager’s monthly report.
Developing your Variance Tool
Using the Association’s most recent monthly financial, start with the budget comparison income statement and export it to an Excel schedule. Once in Excel format, save it with a name that is descriptive, such as “VarianceToolMarch2015.” Next, set up the working schedule. Set the page orientation to landscape to make room for the detail of the variances to be analyzed. Off to the right of each line item that is over or under budget, set up underlines to add descriptions that will explain details.
Using your Variance Analysis tool
In understanding the “why” of a particular line item that has a certain variance, review a general ledger that is printed from the beginning of the fiscal year through the most recently completed financial used to analyze the variances. The year-to-date general ledger, available from your accountant, shows detail of transactions for a particular account. Focus on detailing out each of those line items that have variances that need explaining. Items equal or close to budget may not need more than a quick review for reasonableness. According to Condominium Accountant Luis Lavandeira, CPA, “Focus on actual versus budget and the contracts in place, then focus on remaining life versus funds available and priority of projects and, finally, focus on cash flows projection to estimate the balance needed to complete.”
Once these steps are completed, the accounts with variances that need detailing or researched and followed up will be obvious. Remember, this tool is analytical. It has been created to list the accounts and the reasons they are over or under budget. The notes should address particular items that need to be researched and followed up with. Now that you have gone through all of the trouble to set up this tool, don’t forget to use it every month!