Financial Operations

Government Requirements and Budget

Fundamental to the success of each House Corporation is a strong focus on its financial affairs. Leadership by a knowledgeable and capable person to oversee the financial management can go a long way to assure financial health. This person would typically be the corporation's treasurer. His responsibilities include developing appropriate financial plans and strategies, budgeting, accounting, tax filing, record keeping and establishment of necessary internal and external controls and review procedures.

Books and Records and Government Reports
Each House Corporation must maintain accurate books and records of all financial transactions and safeguard all original legal documents including deeds, contracts, leases, securities, etc., copies of loan documents, insurance records and tax returns. The timely preparation of budgets and financial statements is vital to provide for the proper management of the financial affairs of the corporation. The timely filing of tax returns is critical to comply with laws (and to avoid substantial penalties). It is the responsibility of each House Corporation to obtain an exempt organization federal identification number and annually file IRS Form 990. The penalty for failure to file is severe.

Annual Budget
Every well managed organization needs a financial plan. This normally takes the form of an annual budget. It needs to be prepared with the participation of House Corporation members and chapter officers to integrate rent and expense expectations. In preparing the House Corporation's budget, numerous considerations are important to evaluate: trends in chapter size, in financial discipline, in House Corporation rent, and in House Corporation expenses and in competitive influences, together with the House Corporation's long-term goals.

Rent charged to the chapter must be based on market values and costs, both short and long term. Several formulas for rent calculations can be found in Appendix C. Most campuses have fraternities that charge members far too little to live in the houses because House Corporations provide "subsidies" to chapters through sub-market rents. We expect our housing to be top quality. Thus, we should be prepared to charge top rent and, accordingly, be one of the high rent fraternities on the campus. When the need for reserves is fully evaluated and appreciated, the reasonableness and fairness of high rent is justified and supportable. At the very least, do not get trapped into subsidizing the poor management of the chapter by discontinuing rent.

Often there is much concern about not being competitive in our rent charges because our high rent will put the chapter a competitive disadvantage in rush. There is surprisingly little merit to these concerns; they should not be the driving force in our rent decisions. If a financially sound level of rent for the House Corporation appears to put the chapter at too high a rent level in relation to other houses in terms of what they must charge members for rent, a meeting of the house corporations on campus may be appropriate to try to increase house corporation rents campus-wide.

The amount of rent and its payment terms should be clearly set forth in a Chapter Lease (see the Appendix) between the House Corporation and the chapter. Collect the rent as early in each year, semester or quarter as is financially feasible. The lease should clearly set forth the financial responsibilities of the chapter for ordinary repairs and maintenance as distinguished from the House Corporation's responsibilities for capital improvements.

House Notes
Each House Corporation should require, in addition to rent, the timely payment of chapter members; house notes for every undergraduate member and pledge living in or out of the house. The house notes cover the "wear and tear" on the public areas and these funds should be set aside for later renovations or redecoration expenses. These notes (usually $15-$25 per month per member/pledge) should be held by the House Corporation treasurer and payments tracked and reconciled regularly to insure accuracy of accounting.

Financial Reserves
Reserves are critical to the viability of fraternity housing. Reserves are needed for three principal reasons: (1) regular capital improvements/replacements, (2) major renovation every twenty (20) years and replacement in sixty (60) years, and (3) coverage of short-term operating deficits caused by low chapter manpower. Capital replacement reserves (roof carpeting, heat and cooling plant, furniture, appliances, etc.) should be set aside at the annual rate of 1% to 2% of the market value of the property; while major renovation and replacement reserves should be set aside at the annual rate of approximately 3% of the market value of the property. The market value should be re-determined every five years and is best based on replacement cost for purposes of reserve calculations.

The short-term operating deficit reserves should be set aside at an annual rate of 10% of the annual rent charged by the chapter before adding on the operating reserve and continue to be charged at least until one year's rent in total has been set aside. Each reserve account should be maintained as separate funds in the accounting records and in separate bank/investment accounts to make the administration of them simple and to allow for continual focus on their status. Interest should be added to each fund.

Capital Improvements and Funding

In concert with the House Corporation's long-range planning, capital improvements should be planned and be integrated into the annual maintenance and improvement goals. In forecasting the life span of various components to a house, the following schedule may be helpful:

Electric 20 years
Roof 15 years
Plumbing and Heating 15 years
Brick Tuck pointing 10 years
Windows and Doors 10 years
Kitchen Equipment 8 years
Air Conditioning 5 years
Furniture 3 to 5 years
Carpeting 3 to 5 years
Painting and Decorating 3 years

Capital Funding

Funding for routine annual building and mechanical repairs can be provided either through the annual budget or through the reserves previously established. Funding for major property renovations and/or new structures would typically be forthcoming from outside fund raising activities which could take the form of capital campaigns, loans from financial institutions, or the Fraternity.

The 10 Specific Commandments of House Corporation Financial Management

  1. Manage the shelter as a profit-making real estate investment that will appeal to the market served long-term.
  2. Have the House Corporation set up its own budget as to what it requires for rent prior to any meeting with actives. The rent figure is non-negotiable.
  3. Fix the rent so as to allow for payment of mortgage, taxes, insurance (fire and liability), maintenance, repairs and reserves.
  4. Establish cash reserves for replacements, major repairs and chapter financial crises.
  5. Collect all House Corporation funds from the chapter prior to or on the first day of each semester or school term.
  6. Have dual signatures on all safe deposit boxes, checking and savings accounts. There's safety in numbers. This should also be required on all colony or chapter funds.
  7. Be sure the chapter has an active chapter or financial advisor.
  8. Insist upon monthly meetings and reports from the chapter in areas such as finances, rush, scholarship and property repair. Obtain and review all chapter budgets and monthly financial reports.
  9. Request of the Central Office the dates of visits by chapter consultants to the chapter and get all reports on the chapter. Request that all chapter consultant reports be forwarded to the House Corporation's president.
  10. Develop successor House Corporation financial management. This will assure the current Treasurer's knowledge and efforts will provide the much needed continuity to the Corporation's financial leadership.

Did you find this information useful? Do you feel you can improve upon it? Are you an expert in another area? Join the site and edit or create new resources for Phi Kappa Tau.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License

SSL configuration warning

This site has been configured to use only SSL (HTTPS) secure connection. SSL is available only for Pro+ premium accounts.

If you are the master administrator of this site, please either upgrade your account to enable secure access. You can also disable SSL access in the Site Manager for this site.