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Guide to HOA Financial Statements

Guide to HOA Financial Statements

  • Posted: Oct 28, 2022
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HOA Financial Statements

Managing the finances of a community association is one of the most difficult, and most important, responsibilities of an HOA board of directors. Preparing detailed HOA Financial Statements on a regular basis serves a multitude of purposes from providing insight for financial planning, promoting transparency between the board and residents, as well as being a requirement by law in some instances. The frequency of preparation may vary depending on state laws, community bylaws, and the size of the association.

If you are having trouble preparing community financial statements, the professionals at CSM are standing by to answer all your questions. We have years of experience working with thousands of residents across the United States.

 

What is an HOA Financial Statement?

Simply put, an HOA Financial Statement is an official record that details all the financial activities of the community association. Specific details that must be included depends on state regulations and community bylaws, but there are some basic details that should be included regardless of size or location:

The most common mistake that people make when preparing HOA financial statements is not adding enough detail. Every detail that can be added, no matter how small, can provide a more thorough insight and lead to better decision making. When in doubt, include it.

It should also be put into an easy to read format. These documents will be available to everyone in the community, most of which do not have advanced accounting degrees. For an HOA financial statement to be effective, it needs to be prepared so that anyone can understand the content. Making it too complicated alienates people and hinders community relations.

 

How Often Do Financial Statements Need to be Prepared?

There is no standard frequency that HOA financial statements must be prepared. It will depend on state regulations, community goals, and the size of the community. Of course, the more frequently statements can be prepared, the more helpful they will be for the board of directors. Smaller HOAs with simpler budgets can prepare monthly without much problem. Larger associations with more complicated budgets may opt to prepare statements quarterly or annually.

No matter what decision is made regarding frequency, it must be maintained. Straying from the regular schedule only causes issues between the board members and homeowners. It leads to a feeling of distrust. When dealing with financial information, it is best to be open and honest in as much detail as is appropriate.

For smaller, self-managed associations, if there is trouble getting financial statements completed on time, it is relatively inexpensive to hire an accountant as needed to prepare balance sheets. This ensures that all the information will be completed in a timely manner without taking time out of community volunteer’s busy schedules. It also means that the statements have been professionally checked and relieves some of that stress from the board members as well.

There are also a multitude of services available from CSM to help homeowner’s associations get organized and prepare their own financial statements. With the professional support of an experienced team along with state-of-the-art technology, even the most inexperienced association members will be able to navigate the complicated waters that is HOA financial management with ease.

 

What is a Financial Statement Used For?

The obvious answer is that detailed HOA financial statements can be used by the community association board of directors to adjust budgets, dues, and allocate money for maintenance and projects. The more detailed the statement, the more effective the HOA.

It is a requirement for any sort of financial planning. For starters, if records are kept consistently, association directors can look back on previous financial years to identify patterns that could affect the current budget and adjust accordingly. It is also imperative to keep track of money owed. If detailed records are not kept, it can be near-impossible to keep track of delinquent dues or know how much money is available to budget for community maintenance and new projects.

In some states, it is a legal requirement for HOAs to maintain and submit regular financial statements. Even if it is not required in your state, it is a good idea to keep detailed records anyways as they will be extremely beneficial for all other aspects of homeowner’s association management.

Most importantly, having detailed financial statements readily available to all HOA members can promote transparency between the board and the community. If the homeowners can see what their money is going towards, they will be more agreeable and open with the board of directors. It promotes teamwork throughout the community.

 

Where Should the HOA Financial Statements Go?

As with most things regarding HOA financial statements, it depends on state laws and community bylaws. Generally, there are three places that they need to be turned in:

  1. The HOA Board of Directors – the board of directors should receive a full, unedited report. They will need all available financial details in order to make informed decisions and plans regarding community maintenance and future projects.
  2. Community Members – to foster an open and transparent relationship, homeowners should also receive copies of HOA financial statements. These statements, however, should be altered to exclude sensitive information such as delinquent accounts. There is a difference between being sensitive and being secretive. If it will not cause an issue between community members, it should be included in the documents sent to community members. All HOA financial statements should be available upon request.
  3. State Department – if a homeowner’s association is organized as non-profit, an annual report must be filed with the Secretary of State. Failure to do so could result in losing their “Good Standing” status. This may not be applicable to all HOAs.

The more accessible financial statements are, the better. Some community associations even opt to put their financial information on their website to allow homeowners to view it at any time. Of course, not all information needs to be publicly accessible, but everything that can be included should be included. Transparent financial processes help to promote teamwork and positive community relations between homeowners and association board members.

 

Who Should Prepare Financial Statements?

This answer depends on the size of the community. Smaller, self-managed associations may have an elected treasurer, financial officer, or president that is responsible for compiling financial documents. In such cases, it is a good idea to use a professional accountant to ensure that HOA financial statements are prepared correctly before releasing them to board and community members. Remember, just because someone was elected treasurer, does not necessarily mean they have accounting experience. It is always best to hire a professional. Large homeowner’s associations have more complex budgets and will usually have a management company, such as CSM, that handles all financial data.

If statements are self-prepared by an elected community member, make sure that there is a backup of all financial records. In the unfortunate event that something happens and the preparer is no longer able to maintain their responsibilities, it can be difficult for the next person to learn their accounting methods or sometimes even gain access to the records.

Whether an HOA is made up of ten units or ten thousand units, it could be beneficial to hire a management company to ensure that everything is being run as efficiently and effectively as possible. When looking into property management companies, it is important to look for a company with a strong financial background. If the finances are not well kept, the entire community association becomes ineffective. Hiring a company such as CSM to provide financial management assistance not only makes life easier for the board of directors but can also give community members peace of mind knowing that all finances are being managed accurately and efficiently.

 

The Importance of HOA Financial Statements

To make a great plan, it is important to have all the information possible. Reliable, consistent, and transparent financial statements not only help the HOA board of directors make well-informed decisions but also support community health by allowing all community residents and stakeholders to be a part of the team. Keeping members in the dark only promotes mistrust and working with inadequate or no financial information can lead to dwindling reserves for community upkeep and new projects.

Creating an effective HOA is as simple as choosing an accounting process that works for your team, keeping detailed records, and communicating openly and freely with the community about all financial information.

 

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Condo HOA Loans / Your Trusted Community Association Financial Resource

Condo HOA Loans / Your Trusted Community Association Financial Resource

  • Posted: Oct 17, 2022
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Condo HOA Loans

Your Trusted Community Association Financial Resource

 

 

Don’t go it alone. Whether your Community requires Conventional or Private Lending, CondoHOALoans can assist you in obtaining the necessary funds for Projects, Reserves, or Cash Flow.

When your Community Association works with our Law Firm to facilitate and secure financing, your Community will also have the optional benefit of receiving 100% FREE Delinquent Account Collection Services.

Not sure if financing is right for your Association? Download the Association Funding Options Infographic and take our Free Financial Health Survey to find out.

Click on the Ad below and Download the pdf.

 

 

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“Why does our HOA need a lake management company?” -Allstate Resource Management

“Why does our HOA need a lake management company?” -Allstate Resource Management

  • Posted: Oct 09, 2022
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Sometimes, aquatic management is viewed as a frivolous or unnecessary expense for a community. “My lake looks fine, why should I pay to have someone take care of it?” Unfortunately, that assessment is rarely made taking into account the whole water body.
Most people that live on lakes also see them differently than someone who maintains them. The difference is homeowners tend to look “at” the water, where as waterway managers look “in” the water. Too often people put off lake maintenance until they see a problem and weed populations have already become established. Long term management at that point becomes more expensive and time consuming, with total elimination of the problem almost impossible.
An important fact that many overlook is that the lakes on their property serve another purpose other than a nice view. They are actually man made stormwater retention areas . When communities are built, the lakes are carefully designed to hold a certain amount of stormwater. Water bodies filled with weeds no longer have the correct capacity, potentially causing neighborhood flooding during storms. Algae is another constant nuisance in South Florida lakes. Because of our warm waters and long sunny seasons, algae can spread very rapidly and unpredictably.
As a property owner or property manager, it’s valuable to have a company that will respond to these unexpected outbreaks. Every lake matures differently, and it takes a combination of experience and expertise to maintain a healthy balance as changes occur.
Allstate Resource Management’s staff is always there to answer your questions and works to ensure excellent results in any lake management situation.
Contact us today on how we can help your community lake!
Direct: 954-382-9766
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HOW TO KEEP MONTHLY ASSOCIATION MAINTENANCE FEES LOW

HOW TO KEEP MONTHLY ASSOCIATION MAINTENANCE FEES LOW

  • Posted: Sep 22, 2022
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HOW TO KEEP MONTHLY ASSOCIATION MAINTENANCE FEES LOW

by Enrolled Agent Steven J. Weil, Ph.D., EA, LCAM, Royale Management Services, Inc.

The answer to keeping association maintenance fees low is NOT to defer necessary maintenance or waiving reserves.  To keep postponing repairs is an act of sheer folly.  It is simply an artificial way to keep maintenance fees low that often backfires when the piper finally has to be paid by a special assessment.

The only thing owners hate more than a maintenance fee increase is a special assessment that becomes necessary because the budget does not adequately cover the ongoing operating and maintenance costs.

As a reminder, there are two parts to every budget: the operating budget and the reserve budget.

  • The operating budget should include all necessary regular and recurring expenses that are expected in the coming year, no matter how large or small, such as repairs, maintenance, up keep, payroll, utilities, supplies, insurance and administrative costs.
  • The reserves are designed to accumulate funds for replacement and renovation of major building systems and components that wear out over time. Statutes make it mandatory that reserve budgets include estimated expenditures for roof replacement, building painting and pavement resurfacing at a minimum.

What should go into a reserve budget?  Aside from what the law requires, a good reserve budget also covers other large capital items that will wear out and need to be replaced over the life of the association, such as elevators, windows, common area air conditioners, docks, generators, balconies, et al.  Other common area reserve items might include a pool upgrade, clubhouse renovation, landscaping and other amenities.

The tricky part of the budgeting process is to balance what is required with the often competing interests of those who want the lowest possible maintenance increase with those who are willing to pay more for better services, better amenities or other improvements.   The board is charged with the upkeep maintenance and operation of the association and amenities as provided for in the governing documents. Any change to what is provided for in the governing documents should be approved by an owner vote. This includes both increases and decreases in services and changes to facilities.

Projected estimates for the reserve budget should take into consideration the cost to replace each item, prorated over the years of its estimated life.

A common mistake in estimating this value is the failure to take into account the rise in replacement costs that occurs over time.  Cost estimates as well as remaining useful life should be evaluated annually. Reserve planning can be done with the assistance of association vendors, or a professional engineer could be hired to perform a Reserve Study.

Some of the costs of running an association can be managed.  Controllable expenses — those over which the board and or management have some control as to the amount and timing — include accounting, bank fees, repairs, supplies, office expense, labor costs, preventive maintenance, management, legal, landscaping and janitorial.

Over the years, however, non-controllable expenses have become the largest part of most association budgets.  They include utilities, contract services, electric, water, garbage, cable, loan payments, licenses, fees and insurance (property, liability, wind and Directors & Officers). Although boards and management work hard to keep these costs as low as possible, it is often difficult or even impossible to get competitive bids for such items as insurance. The costs of utilities and water are often controlled by monopolies or governments; and while conservation can help, it does not eliminate or substantially reduce these costs in the short run. Long term contracts may also lock in such things as elevator maintenance costs, cable TV, and other expenses.

In addition to the increases in these expenses, over the years as association property ages, the cost of maintaining it increases. While putting off maintenance may help cash flow and reduce expenses today, it also means that those expenses will be higher down the road.

Reserve funds cannot be used for purposes other than those intended without a majority vote of approval by the owners in advance. Thus, there is sometimes a reluctance to list in the reserve budget certain capital items that might be considered non-essential and could be postponed.  This can be a mistake, forcing a special assessment when these capital items need to be replaced.

It’s best to keep in mind that one good way to maintain property values is to ensure that the association has a reserve budget that covers necessary renovation and replacement of major components and assets and that the reserve budget is properly reviewed and funded each year.  Under Florida law, condominium associations are required to include a “fully funded” reserve schedule in the proposed budget and to fully fund reserves unless they are waived or reduced by a vote of the owners.

 

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Delinquencies are starting to pick up so, Comply with Changing State Association Collections Laws Using Axela Technologies

Delinquencies are starting to pick up so, Comply with Changing State Association Collections Laws Using Axela Technologies

  • Posted: Apr 26, 2022
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Easily Comply with Changing State Association Collections Laws Using Axela Technologies

Are your community association’s collections in compliance with changing regulations?

Community association collections laws are changing. For many years, condominium associations and homeowners’ associations (HOAs) had a lot of freedom when it came to handling unpaid assessments. Community associations were able to pursue home and unit owners who fell behind in a variety of ways, because few state regulations interfered with the association’s right to collect overdue assessments. They were largely free to levy late fees, interest, collection costs, and legal fees against the delinquent home or condo owner. Condominium and HOA management firms, when acting as agents for their association clients, were similarly able to offer a collections process as part of their routine service offerings for their clients. This could include issuing warning letters, demand letters, and other collection notices, or even recording liens.

To say those days are over is an understatement. Although there are no federal regulations in place, many states now have condominium or HOA association collections laws that are designed to protect delinquent home and condo owners. While this type of consumer protection is really important, it’s created an unintentional side effect: community associations are more regulated and challenged than ever before when it comes to collecting the fees and assessments that are the lifeblood of their association.

Compliance 1

Community Association Collections Laws Vary by State

Make no mistake, these state laws must be obeyed and the consequences for violating them can be severe. Some states, like Florida, now require additional notices to be sent for certain types of collection activities, delaying the whole process. Other states, such as Texas, have such rigid requirements that many association management companies would rather pay a small fortune for an attorney than seek out cost-effective collections options, believing this is their best option to avoid risk.

Then you have states like Maryland where community association management firms are actually expected to acquire and maintain collection agency licenses in order to send out bills on behalf of their association clients. This is a huge burden being to place on management companies and creates yet another layer of risk. Maintaining a collection agency license requires extensive knowledge and practice of the current community association collection laws regarding the collection of delinquent fees from HOA and condominium unit owners–management companies should not be expected to shoulder that responsibility.

Compliance 2

Choose an Industry-Specific Collections Partner

Axela Technologies is licensed and insured in every state that we service.  Maintaining that knowledge of association collections law is a sacred duty that we take to heart so we can best serve the industry. We even offer indemnification to the associations and association management firms that retain our services to collect from their delinquent homeowners. This concept is so important, it merits serious consideration for any association management firm that wants to focus on delivering service excellence to its association clients without risking being sued for violating a state collection law.

Keeping up with the law changes in your state can be tedious and difficult. Let a specialized HOA and condo association collections agency handle that worry for you. Talk to one of our condominium and HOA delinquency collection experts to learn how best to collect those overdue fees and assessments while keeping your association management business and your association clients safe from the risk of handling collections without a license.

Compliance 3

 

Get your free collections analysis today and start working with one of our many HOA and condominium association collections experts.

Axela Technologies handles all collections on a merit-based system. We’ll help you make sure you aren’t putting your association at risk by violating federal or state consumer protection laws for your condominium or HOA.

 

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Corey Parshall is the founder of Parshall Tree Care Experts, a full-service tree company offering reinvented solutions to outperform and challenge the industry

Corey Parshall is the founder of Parshall Tree Care Experts, a full-service tree company offering reinvented solutions to outperform and challenge the industry

  • Posted: Dec 03, 2021
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Corey Parshall is the founder of Parshall Tree Care Experts, a full-service tree company offering reinvented solutions to outperform and challenge the industry.

They deliver services to residential, commercial, municipal, and utility clients in Michigan and Florida! With a desire to break stereotypes and bring the tree service industry into the 21st century, Corey designed a business with unparalleled service.

Entering the market, Corey saw opportunity in the outdated practices that ensnare other companies. He understood the pitfalls in the tree service industry and decided to do his part to change it. He saw under-serviced clients and poor service in general. Using his entrepreneurial spirit, he started his own company to address these problems. Leveraging changes in technology, Parshall Tree Care aims to challenge themselves with creative ways of thinking, always looking to push the industry further.

Corey’s biggest challenges are the unknowns. In the early stages of running his business he experienced a lot of trial and error, discovering this was the most expensive way to learn and grow. Rather than bleeding money, Corey started investing in resources to grow his team instead. He found mentors that could help with problem-solving and educate the team. Before he knew it he had a clear roadmap that prevented him from constantly having to relearn everything.

 

With a mind focused on the positive, Corey believes your goals are within reach. A negative outlook can erode your confidence in taking calculated risks, while a positive outlook brings opportunity. Corey has noticed that when he keeps a positive mindset relationships line up, doors open, and he is generally luckier as an entrepreneur. By overcoming his biggest obstacle of thinking small, he found great success by intentionally setting unobtainable goals just to see what he and his team can achieve. Corey pays attention to fears that creep up when goal-setting. To him, fear is a communicator that action is needed to reach the desired opportunity.

For anyone interested in starting their own business, Corey recommends setting outrageous goals. He recommends anything considered to be a “good goal” should be multiplied by 1000 because you will probably underestimate rather than overestimate. Low expectations lead to boredom and if your business is boring you’re more likely to give up. Once you have a plan set, Corey suggests finding mentors, even if you have to pay for them. Learning from the experience of others saves you time and money in the long run.

Success, to Corey, is building a team that includes his family. In doing so, they find freedom from being tied down by that which is out of their control. He finds financial freedom knowing he and his family enjoy a better quality of life, and he has a legacy to share with generations to come. He loves sharing his success with his team as they experience the same freedom. At the end of the day, Corey’s dream is to see the entire tree service industry revolutionized—that they can leave a generational impact and improve an outdated industry.

Corey is so grateful to his staff for everything they do to help carry out the company’s mission, and to his clients who trust him to provide his service. He knows he can’t make a difference in the tree industry without either piece missing. This company isn’t about Corey Parshall, but the Parshall Tree Care Experts revolution. Parshall Tree TV, a free educational platform, is the latest division of the company.

 

Parshall Tree Care Experts

also have plans to grow their new offices in Ohio and Indiana, then expand toward the eastern US to Florida. But Corey’s ultimate goal is to be known as the industry leader in the tree service community.

Corey Parshall
Founder
Parshall Tree Care Experts
corey@parshalltreecare.com
877-250-2060
http://parshalltreecare.com

 

 

 

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There is plenty of time to let the community members know what the new monthly assessments will be for the coming year.

There is plenty of time to let the community members know what the new monthly assessments will be for the coming year.

  • Posted: Dec 02, 2021
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Budgets: Boards How are you doing?

Most community associations have their budget meeting in the month of November for the upcoming year.  By doing it in November there is plenty of time to print new coupon books and let the community members know what the new monthly assessments will be for the coming year.

In terms of notice, in a condominium the budget must be sent to the owners at least 14 days before the budget meeting.  In an HOA, The association shall provide each member with a copy of the annual budget or a written notice that a copy of the budget is available upon request at no charge to the member.

Don’t forget that in a condominium, in addition to annual operating expenses, the budget must include reserve accounts for capital expenditures and deferred maintenance. These accounts must include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000.

Condo boards need to be well aware of the reserve requirement.  To be clear, the Board MUST send out a budget that includes fully funded reserves.  That is all they are required to do.  However, if they want to, they can give the owners the opportunity to vote for an alternative budget such as a budget that contains no reserves or partially funded reserves.  Remember that if a majority of a quorum of owners does not vote for a budget that does not contain full reserves, fully funded reserves shall go into effect.

In a post Champlain Towers world, I think things may be a little different this year.  I think lots of Board members will want to have fully funded reserves in their budget.  They don’t want to be short millions of dollars when the time comes, and it will, for millions of dollars in repairs.

Delinquencies are starting to pick up as well.  So, make sure you have a line item in your budget for “bad debt.”   For example, if your assessments are $6,000.00 per year and you’re pretty sure that 5 owners won’t pay  a dime, you should put $30,000.00 as an line item in your budget for bad debt.  That way you collect enough money to pay the bills.

Keep in mind that electricity prices are expected to rise 18%.  Also remember that some of your long term contracts may have clauses requiring automatic rate increases every single year.  F I still get the same question all the time…who passes the budget; the board or the unit owners? The answer is…the board and only the board.  Food prices are going up, the cost of materials are going up, electricity is going up, the cost of labor is going up, and worst of all, insurance rates for condominiums are simply skyrocketing, with some associations complaining that their rates have tripled.  So, all this means in no uncertain terms, that condo assessments are about to go up as well.  It also seems pretty clear that it will become extremely difficult if not impossible to waive reserves starting next year.  Yes, it’s about to get a lot more expensive to live in a condominium, especially if you were kicking the can down the road and always waiving reserves.  I don’t envy condo boards at their next budget meetings where they will be forced to tell the members of their community that their monthly assessments are about to go up, in fact way up.  Buckle up everyone in a condo, you’re in for a bumpy ride going forward.

 

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ARE CONDO FEES BAD?

ARE CONDO FEES BAD?

  • Posted: Oct 29, 2021
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ARE CONDO FEES BAD?

by Steven J. Weil, Ph.D., EA, LCAM, President

Royale Management Services, Inc.

 

Your maintenance fees cover many of the same things you would need to pay for as a homeowner.

What’s included?   As a condo owner, it’s useful to know how your maintenance fees are determined. No one is profiting from these fees. They are determined by the board of directors who are elected by the owners and charged with responsibility for operating the association. They represent your share of the common expenses as agreed to in the governing documents.

What you pay is determined by estimating the costs for operation and maintenance for the budget year. These costs include controllable costs — those over which the board can exercise control, e.g., wages of association employees, improvements, along with the cost services offered to owners and residents — as well as non-controllable costs, e.g. insurance, water, garbage collection, electricity, repairs, and existing long-term contracts such as bulk cable agreements.

Each year the board and management review the prior year’s costs and do everything in their power to project the cost for the coming year. These costs become the budget’s expense line items; and once they are calculated, any income from other sources (such as laundry and outside rental income) is taken into account. The total projected expenses are then reduced by the outside income, and whatever is left becomes the maintenance for the coming year. After that, it’s a simple matter of calculating each unit owner’s share of this amount based on the formula set forth in the governing documents.

 

In many associations, non-controllable expenses make up the majority of the expenses, with insurance often being more than a quarter of the total expenses. Add to this, utilities (which varies), long-term contracts, and required repairs and upkeep, and you can see that the expenses the board can control can be limited often to less than 20% of the total expenses.

The board must also fully fund reserves based on the current replacement cost of reserve items. Reserves may not be waived or reduced by the board. They can, however, be reduced or waived by a vote of the owners. Reserve funding is added to the cost of the maintenance fees already calculated and becomes part of the regular maintenance payment.  Reserves cover the wear and tear on items with a useful life of more than one year, such as roofs, painting, and paving, along with other major items that will wear out over time.

Each association’s budget is different. Accordingly, maintenance fees generally reflect things that are unique to each association. For example, associations with 24-hour security personnel, bulk cable contracts that include the internet, and expensive-to-maintain lobbies will have higher maintenance fees than those that provide fewer services and amenities.

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