Email Mike Email
Residential Real Estate
Jan 3, 2017

The Importance Of Protecting Your Association’s Money

Sponsored Content provided by Mike Stonestreet - Co-Owner/Founder, CAMS (Community Association Management Services)


One of the most important responsibilities of a property or condominium association board of directors is protecting the association’s funds.  In doing so, it is important for the board of directors and management company (if you are professionally managed) to understand the necessary internal controls and available insurance coverages to properly protect the association in the event of embezzlement or misappropriation of funds from a board member, officer, committee member or management company.

Self-managed associations and those that utilize a professional management company may use similar, but not identical, internal controls and insurance coverages. Internal controls may include - but are not limited to - one person depositing the assessments and other revenue, while someone else approves invoices and writes the checks.  Ideally, a third person would receive and reconcile the monthly bank statements and prepare financial reports to the board of directors.

The monthly financial reports should include: a balance sheet; income and expense statement; general ledger; check register; an accounts payable report; aging assessment (delinquency) report; and copies of the monthly statements for each bank and investment account.

One bank statement should be sent to the management company (or, if self-managed, to the treasurer or bookkeeper) and the duplicate, to a board member who does not have authority to sign the checks or make any type of transfer or withdrawal. Many banks now offer statements by e-mail, which could be sent to more, if not all, board members, as well as the bookkeeper and management company.

A lock box system allows owners' payments to be mailed or transferred directly to the association's bank accounts. This reduces the chance that the association's money will be deposited into the wrong account. While it may seem obvious, never sign blank checks. If your association is professionally managed, require a check register report showing check numbers, payees and amounts. As proof, require the bank to return canceled checks or provide electronic images of the canceled checks along with the monthly statements. When reviewing the check register, you want to make sure the check numbers are in numerical sequence.
 
Segregate your association's reserves to ensure those funds are used only for their intended purpose of deferred repairs or capital expenditures. It is good practice for the board of directors to approve all reserve expenditures in a duly called board meeting. This will document the approval of these usually large expenditures. Principle risk-free investments are recommended.
 
Do not give one board member or bookkeeper total control over reserve accounts.  It is important that self-managed associations update the bank account signature cards annually to ensure an active board member can access the funds if necessary.
 
Another important part of protecting your association’s funds is making sure proper insurance coverages are in place. Fidelity and crime insurance coverages differ for self-managed associations and those with a third-party bookkeeper or professional management company. 
 
For self-managed associations, obtain fidelity coverage on the board members, officers and other volunteers, such as the finance committee, in an amount that equals or exceeds the association's reserve and several months of operating funds. When you purchase directors and officers (D&O) liability insurance, a portion provides a fidelity insurance bond on the board members, but it may not be sufficient. 
If you are professionally managed, the company’s coverage should include fidelity and crime, as well as an endorsement for “employee theft of client property.”
 
Fidelity insurance is just as important as carrying adequate property and liability insurance and should be part of every association's common expenses. Similarly, fidelity coverage for the management company is not usually included in the base policy and requires the purchase of a managing agent rider. Even with coverage through the association's insurance carrier, the board should require evidence that the management company carries its own fidelity coverage, which would provide the first line of recovery in the event of a theft by one of its employees.
 
If you are professionally managed and have board members that are also signatories on bank accounts, the association should have its own fidelity insurance to protect the board, while the management company also should have fidelity and crime insurance, as well as an endorsement for employee theft of client property. 
 
A final recommendation to protect the association’s funds is to make it a policy to have an independent accountant review the books at the end of each year.

Mike Stonestreet is a 28-year veteran of the professional HOA management industry who has achieved one of the highest education-based designations in the field, that of Professional Community Association Manager (PCAM). Community Association Management Services (CAMS) has been a leading association management company since its inception in 1991. CAMS is a trusted provider of management services for more than 265 associations throughout North Carolina, South Carolina and Georgia. To find out how CAMS can benefit your community, call 910-256-2021, email [email protected], or visit www.CAMSmgt.com.

 

Other Posts from Mike Stonestreet

Cams300pxx250pxblockadjune2018[1]
Ico insights

INSIGHTS

SPONSORS' CONTENT
Dane

A Simple Approach To Difficult Conversations

Dane Scalise - GriffinEstep Benefit Group
Drewsmith copiersplus headshot

A Little More Communication, A Lot More Cohesion

Drew Smith - Copiers Plus
Jc300 dsc 2735

The Primary Way Families Break the Cycle of Poverty

JC Lyle - Wilmington Area Rebuilding Ministry

Trending News

Galleria Property On Wrightsville Ave. Sold For $37.5M

Cece Nunn - Aug 10, 2022

Leland Town Center Lands New Tenant; Lowe’s Begins Construction

Johanna F. Still - Aug 10, 2022

Pipeline Poke Headed To Autumn Hall

Elizabeth White - Aug 10, 2022

Rachael Ray, Emeril Lagasse To Appear At GLOW Event

Justin Williams Pope - Aug 10, 2022

New Biz Creations In Cape Fear Region Continue Strong Trend

Johanna F. Still - Aug 9, 2022

In The Current Issue

Film On Rebound; New Horse Enters Race

New soundstages in Wilmington are set to be constructed toward the end of the year – marking activity that appears hasn’t happened since the...


Beach Equipment Rentals Sizzle

For some beachgoers, their perfect day is lazing on the shore, soaking up rays. For others, it’s water sports or maybe biking alongside the...


Schools Face Nursing Shortage Crises

The pandemic-induced havoc on hospitals around the country still ricochets across systems today. A dire trend accelerated and emerged: a sho...

Book On Business

The 2022 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

Trying to Grow a Business?
2020 Health Care Heroes
2020 WilmingtonBiz 100