How do we account for an Insurance Claim?

Insurance claim accounting can be a source of frustration for Associations (management companies) and their auditors. It is not that the accounting is complicated, it is getting all the information and piecing together the pieces to the puzzle.

Segregate income and repair expenses in separate accounts for each claim.

This is not required by GAAP, but preferred presentation is to separate income and expense as it gives transparency for the Board and auditor. Alternately, prepare a sub-schedule or worksheet of each claim. Without this segregation, there is the potential that the auditor may not be able to issue an audit opinion and/or material internal control comments will be included.

• Record insurance proceeds received as income, not netted to expense
• Record unit owner deductibles as income, not netted to expense
• Keep repair expenses associated with the claim separate from repairs & maintenance expense and/or uninsured losses

Obtain insurance claim documents for each claim

• Proof of Loss, correspondence with adjustor, letters and check copies that accompany proceeds
• Board minutes, e-mail and/or directives

Reconcile each claim separately

• Compare proceeds and expenses to the estimated expenses listed on the Proof of Loss
• Obtain an explanation of differences – shortages in proceeds, excess expenses, etc.
• Ensure that you have authorization to NOT to file a claim or NOT bill a unit owner the deductible.
• If separate worksheet used, reconcile with the general ledger at the end of each month. This would be a summarized, rolling forward schedule until claim is complete.
• Final reconciliation should agree with Proof of Loss or Board directives