The three things you need to know to help protect Association funds are how should the Association’s funds be held, accounted for, and insured?
· The Association’s funds should be held in bank accounts that are in the name of the Association. Even if the management company is the signer, there cannot be any commingling of Association’s funds with management’s or other Associations. – This practice not only ensures that your funds are mixed with those of others it makes it possible to reconcile the Association’s income and expenses via their individual bank account activity.
· When handling Association funds the use of Generally Acceptable Accounting Practices is essential to safeguarding funds. In this case the use of GAAP helps protect Association funds through separation of accounting duties; which means separate people pay the bills, collect income, and reconcile bank statements.
The self-managed community has a difficult time meeting this practice which is probably why they are more susceptible to thefts and should consider having an accounting firm oversee the Association’s fiscal responsibilities.
· The Association’s funds should be accounted for through the monthly delivery of a comprehensive financial statement that includes a balance sheet, Income and Expense Statement, Check Register, Detail General Ledger, and invoice Copies. Having all of this information provides the Association with the ability to conduct in-depth monthly review of income and expenses or engage the services of an Auditor.
Overall the more management personnel and Board Members that are involved in the handling of funds, reporting, and review reduces the possibility of collusion and increases the opportunities to catch theft early.
· Fidelity Insurance protects Associations funds for theft, fraud, wire transfer, etc.– the value of coverage should be at a minimum as defined within the governing documents. If the documents are silent the recommended minimum is 3 times monthly income plus reserves for condominiums and villas or one time the annual income plus reserves for Homeowner Associations.
· Why should an Association have Fidelity coverage?
o No matter the trustworthiness of the current Board/Trustees these members will change and a less trustworthy person could be elected. Establish today the practice of Fidelity Coverage to protect the Association in the future.
o Fidelity coverage can protect the Association from a monetary theft from a management employee or if the management company’s coverage is not sufficient or lapses.
o Fidelity coverage will protect the Association if a Board Member were to falsify invoices or inappropriately divert association assets to themselves or others.
I am hopeful this assists your Community Association with protecting your funds.