Understanding variance reports

What the numbers on the page mean

Every line on a variance report shows three numbers: what the budget projected, what actually happened, and the difference between them, usually labeled the variance. A positive variance on a revenue line is good news, the association took in more than planned. A positive variance on an expense line is bad news, the association spent more than planned. The report exists to make that difference visible line by line instead of buried inside one bottom-line total.

California's Civil Code lays out one detailed example of what a board should look at monthly, including a comparison of actual operating revenues and expenses against the budget.

"The current year's actual operating revenues and expenses compared to the current year's budget."

Source: Civil Code Section 5500, State of California

This is California statute, not a national requirement. Check your own state's HOA or condominium law and your governing documents to see what your board is actually required to review each month.

A variance is not automatically a problem

Some variances are real overspending. Others are only timing. Most associations recognize assessment revenue in the month it is billed, not the month it is collected, so a delinquent owner can make the revenue line look exactly on budget on paper while the bank balance lags behind it.

Whether your association's board reporting runs on this billed-when-earned basis or on a strict cash basis varies by association. Confirm with your CPA which one your own statements use before you read a variance as good or bad news.

That is also why a favorable variance on the income side does not guarantee the cash matched it dollar for dollar. Net income and cash in the bank are two different numbers, and a board that treats them as the same one can be surprised later.

What counts as a big variance is not a fixed number

No statute or accounting standard sets a universal dollar amount or percentage at which a variance becomes something the board must formally discuss.

That threshold, if one exists at all, comes from your association's own governing documents or a board-adopted financial policy. Check there before assuming a rule of thumb applies to your community.

The fund a variance shows up in also changes what it means.

"The operating fund pays for the things the community uses today: landscaping, utilities, insurance premiums, management fees, payroll, pool chemicals," while "the reserve fund pays for the things the community will need tomorrow: roof replacement, asphalt resurfacing, pool resurfacing, elevator modernization."

Source: Operating Fund vs. Reserve Fund, Common Interest Community Standards Council

A landscaping line running over budget in the operating fund is a this-month question about cash. A reserve contribution running short in the reserve fund is a longer-horizon problem, since that fund exists to pay for major repairs years from now, not this month's bills. Treat the same dollar amount differently depending on which fund it lands in.