The failure of associations to properly prepare budgets is even more surprising because the process is highly regulated. Most association bylaws specify budget requirements. The Cooperative Act, Condominium Act and Homeowners' Association Laws require budgets to be prepared in accordance with generally accepted accounting principles. The Division of Land Sales also regulates condominium association budgeting.

The difficulties appear concentrated at the top of the budget, the income side. Traditionally regulators, critics, and drafters have focused upon expenditure line items. That may be because what is to be done with funds generally is the focus of the budget process. Frequently associations believe there is little that affects income, other than the amount of assessments.

Nevertheless, most associations have more than one income source. In addition to assessments, nearly all associations generate significant interest income. Another significant source of income may be attorney's fees and costs collected from unit owners. Associations may also have coin machine income from pay phones, laundry equipment, vending machines, and other items.

The failure of budgets and financial statements to show all income sources may result in significant consequences. Practical as well as legal implications arise by improper budgeting and reporting. Of particular significance is interest and attorney fee income. Often associations undertake drastic financial belt tightening only to discover that these two categories have balanced the budget.

The problem appears to be most acute in associations with considerable collection or litigation efforts. Many associations acknowledge that they recover a large portion of the monies expended for collections. Therefore, without realistically anticipating attorney fee income, budgets cannot balance.

The Condominium and Cooperative Acts have historically limited fining efforts, prohibiting liens based upon fines and requiring a type of due process hearing right. Homeowners' associations are becoming increasingly aware that in 1995 the Florida legislature limited fining in the homeowners' association contest. Fining procedures were adopted as part of the Homeowners' Association Laws in the Florida Not For Profit Corporation Act, and can be found in §617.305 Fla. Stat. (1995).

Because of the hue and cry over homeowners' associations seeking to fine, the statutory requirements are summarized as follows:

1) An association's "governing documents" must provide that the association may levy fines.

2) The fine amount must be reasonable, not exceeding $50.00 per violation.

3) Fines may be levied against a member, tenant, guest or invitee.

4) The association must provide notice to the person sought to be fined at least fourteen days before imposing the fine.

5) The person to be fined must be given an opportunity for a fining committee hearing.

6) The fining committee must have at least three members appointed by the board of directors; however, each cannot be an officer, director, or an employee of the association, or the spouse, parent, child, brother, or sister of an officer, director, or employee.

7) The fining committee must approve a proposed fine by a majority vote.

Each step must be followed or a fine may be subject to legal challenge. See July - August, 1995 Memorandum to Clients.

Homeowners' associations should note in particular the fining committee membership requirements. The strict membership limitations are intended to provide an "independent" tribunal. While this requirement may pose some difficulties in locating appropriate volunteers, the legislature intended for the restriction to eliminate any member-perceived bias. Committee composition requirement may alleviate conflicts if an officer, director or employee were to be fined. Some homeowners' associations may have to amend their governing documents to provide authority to levy fines.

Committee membership restrictions may create practical problems. Committee members may not be knowledgeable about association problems and may not be interested in punishing their neighbors. Because committee members, unlike directors, do not owe a fiduciary duty to the association, there is no assurance that the committee will act diligently. Perversely, associations which have striven to fairly and uniformly enforce restrictions may discover that the fining committee has undermined enforcement efforts.