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Subject: Property Management Owns Bank Accounts?
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AndrewG5
(California)

Posts:3


05/14/2019 9:29 AM  
I'm new to the forum and apologize if this question has been asked as I could find a search function.

I'm also new to my HOA board as a first time owner in a 32 unit building and was surprised to see our bank account is under our property management company.

I have a few questions that more experienced people may be able to help with...

1. Is property management owning the bank account a common practice?

If this is a common practice:

2. What are the advantages of property management owning the bank account?

2a. Why doesn't the HOA own the bank account?

Any other thoughts and comments would be helpful!

Thanks!!!
AugustinD


Posts:1886


05/14/2019 9:47 AM  
I saw this in my old HOA for awhile. The HOA terminated the property manager for various reasons. A few years later, the property manager was charged with embezzlement from several HOAs, via using this bank account. I am no expert, but I would have zero interest in a HOA that let the property manager control funds in this way. Just being able to follow and audit the HOA's "books" would seem incredibly cumbersome.
RichardP13
(California)

Posts:3781


05/14/2019 10:05 AM  
I believe you have a misunderstanding of how banking with a HOA and management company actually work. It is also a question you should have answered by your management company.

As a owner of a management myself here is where we do.

The operating accounts of all our HOA's are held by one bank of our choosing, at which we have a relationship manager assigned. We have a signature card done for all HOA where two officers are signer on the account. The account is set up as follows:

ABC HOA
c/o DEF Management
our address
city, state, zip

The statements come to us so we can handle the reconciliation on a monthly basis. The bank statement are included in the monthly financial packets as well as stored on their free web portal.

The advantages of having the operating accounts all at one bank is volume. We are able to offer lockbox services, ACH and online bill paying at no charge to all of our clients.

Again, this is only for operating accounts. Reserves accounts are generally held at the choice of the HOA for various reasons. They may be with investment banks, money markets. The only thing we do is reconcile the accounts against their statements, which in some cases we rarely see. Reserve accounts are hands off to a management company.

Been there, Done that
NpS
(Pennsylvania)

Posts:3583


05/14/2019 10:08 AM  
Bank accounts should always be in the HOA's name. It's your money.

PM employees should not be the only authorize signers on the accounts. Designated members of your Board should always be signers. In the event of a falling out with the PM, you should always have a means to withdraw funds from your account.

PM should never be able to commingle your funds with their own funds.

Your checks should require 2 signatures. That can be 2 PM employees, 2 Board members, or some combination. Banks typically won't take responsibility if a check has only 1 signature on it, but you should install that policy anyway.

Best of luck.

Sikubali jukumu. Read all posts at your own risk.
JohnC46
(South Carolina)

Posts:8556


05/14/2019 10:54 AM  
Our monthly dues go to a bank lock box. The money is then transferred to our MC. The MC pays our invoices (bills) with checks reading:

ABC HOA
c/o Management Company
address
city, state, zip

The MC makes monthly deposits to our two Reserve Funds which are held at local banks. The BOD Pres and Treasurer have signing (withdrawal) power over these two accounts. Our MC can only make deposits to these accounts. The MC cannot withdraw from these accounts. MC gets a monthly statement from the banks for inclusion in our Monthly Financial Reports.

Our BOD signs no checks. We get a monthly 30 page financial report right down to listing every check written and to whom. If the BOD were to notice any irregularities, we could freeze the lock box account. The safeguard is the BOD understanding and paying attention to our Monthly Financial Reports.

No matter what safeguards are put in place, a cheater will cheat you.



RichardP13
(California)

Posts:3781


05/14/2019 11:39 AM  
None of my Board members sign checks either. But, my software allows for designated board members to approve invoice which are attached prior to payments being made. There is no excuse for an association to know what is happening with THEIR money.

Been there, Done that
AndrewG5
(California)

Posts:3


05/14/2019 12:59 PM  
Thanks for all the replies!

To be clear, the bank account is set up under our name, but it uses the PM address as stated by someone above. However, it seems like there would be an annoying task to change Bank info if we chose to change PM. Has anyone run into this issue?

I believe we may be changing PMs, does anyone have advice or insight about the change management process around this?

Also, lockbox services seem to be great for accepting payments via regular mail. I don't believe we are receiving any payments other than HOA dues, which we should move to all be digital... what else would a lockbox service be used for?
RichardP13
(California)

Posts:3781


05/14/2019 1:05 PM  
Only for received payments from homeowners, nothing more.

Been there, Done that
RichardP13
(California)

Posts:3781


05/14/2019 1:06 PM  
If you change management companies, you will be changing bank information also. A one-time headache.

Been there, Done that
JaredC
(Texas)

Posts:214


05/14/2019 1:06 PM  
I would not worry about the banking situation being an issue if you ever switched property management companies. That's your new PM's problem and they likely deal with it all the time. No big deal.

Our HOA banking is setup exactly the way Richard mentioned. I wouldn't have it any other way. It is just way to convenient for all parties involved.
JohnC46
(South Carolina)

Posts:8556


05/14/2019 1:11 PM  
Posted By RichardP13 on 05/14/2019 1:05 PM
Only for received payments from homeowners, nothing more.




Same here. Dues only. Each owner has a specific account number under our master lockbox collection system such as HOA Name, Acct #1234. We do receive other payments, such as lawyer collects some back owed dues, but they get paid to the HOA via the MC.
AndrewG5
(California)

Posts:3


05/14/2019 1:13 PM  
If we changed PM and the new PM was responsible for making the changes, then we are still paying the additional cost for the new PM to make these changes even if we aren't spending the time...

Are there any other headaches people have faced when changing PMs?

Thanks for all the help as I want to make sure I have a good understanding of things before suggesting anything to the board
JaredC
(Texas)

Posts:214


05/14/2019 1:24 PM  
It really is a non issue. The new PM's have to do all sorts of things like filing a management certificate, create general ledger accounts and add balance forwards, change banks and signature cards, etc. We've switched PM's three times in the last 15 years and not a single one of them charged us an onboarding or setup fee. This really is normal business for them.
BillH10
(Texas)

Posts:384


05/14/2019 2:42 PM  
Andrew, if you are changing management companies, I suggest the following regarding financial information, at a minimum:

All association bank accounts are fully balanced and reconciled.
All requisite local, county, state, and filings have been performed.
All current accounting system information can be uploaded to the new company accounting system.
The present management company is to turn over to the HOA every paper and electronic record they possess which pertains to the Association.

Others who have done this more times than we will likely have other thoughts and suggestions. My thoughts pertain to the financial records only.

We do not normally charge an intake or upload fee when taking on a new client. However, after we signed the contract with one of our current clients we found:

The former management company would not release financial records on anything but printed Excel spreadsheets. This is a very small condominium community so manually entering the information into the accounting system was less trouble than attempting to scan the data into something useable. If there had been more than 25 units and more than a few vendors, it would have been a tedious chore.

Once we had everything loaded, the accounts would not balance or reconcile. It took hours of analysis of bank statements, assessment payments and vendor invoices before we found the discrepancies.

The association was not current with Comptroller of Public Accounts and had not been for three or four years. Federal income tax returns had not been filed for the same period.

In this case, once we learned the magnitude of the 'mess', in addition to mileage incurred in travel to state offices for filings and direct costs from the state Comptrollers office, we negotiated a hourly project management fee with a 'not to exceed' cap to put everything in order.
JaredC
(Texas)

Posts:214


05/14/2019 3:30 PM  
To add to what Bill said think of these things:

1) Why are we changing PM's?
2) What are good things about our current PM we would like or new PM to do too?
3) What are bad things we expect the new PM to fix?

Time for a moment of truth: No PM is perfect.

It really is important for everyone to understand the reasons for changing and why. We've moved to new PM's that did a lot of great things but not some of the things of previous PM's that were also great. In the end the choice was made from an "overall benefit" perspective.
JohnC46
(South Carolina)

Posts:8556


05/14/2019 4:40 PM  
Posted By JaredC on 05/14/2019 3:30 PM
To add to what Bill said think of these things:

1) Why are we changing PM's?
2) What are good things about our current PM we would like or new PM to do too?
3) What are bad things we expect the new PM to fix?

Time for a moment of truth: No PM is perfect.

It really is important for everyone to understand the reasons for changing and why. We've moved to new PM's that did a lot of great things but not some of the things of previous PM's that were also great. In the end the choice was made from an "overall benefit" perspective.



I agree. No PM is perfect.
GenoS
(Florida)

Posts:3132


05/14/2019 4:42 PM  
Posted By AndrewG5 on 05/14/2019 1:13 PM
If we changed PM and the new PM was responsible for making the changes, then we are still paying the additional cost for the new PM to make these changes even if we aren't spending the time...

Are there any other headaches people have faced when changing PMs?

Thanks for all the help as I want to make sure I have a good understanding of things before suggesting anything to the board.

We had significant problems switching banks when we hired a management company in January. Truth be told, half of the problems were caused by our board. The entire board was essentially inattentive to our bank accounts and the president at the time was functionally illiterate. The new PM opened an operating account and a reserves account for us in late December in preparation for the January 1 switch. These accounts were at their preferred bank. No notice was ever provided to the board that this was happening. It's quite possible the board was informed of this and ignored the information.

The old bookkeeper was not informed of these new accounts and since "seed money" was expended to initially fund those 2 new accounts, the financial statements for December 2018 (and subsequently the FY 2018 financial review) was not able to be completed since there was no bank account reconciliation.

Subsequently the old bookkeeper had transmitted information regarding our 4 reserve accounts (at 4 different banks) to the new PM but the new PM's bookkeeper assigned to us never saw that information. We had no reconciliation of our reserve accounts for January, February or March. Over $750,000 was unaccounted for. Not missing (thank heaven) but totally unaccounted for since none of the board had access to any of the 4 accounts. Past boards came and went and the signature cards hadn't been updated in several years. None of the officers on the signature cards even lived here anymore. The Treasurer would not or could not re-gain control over those accounts to even change our address to "c/o New Management Company".

We finally got it all straightened out in April. Our new PM should have made the transition easier for us but they did not. Again, half the problems were our own doing due to clueless board members, but even so, the new PM should have been able to hold the new board's hand in getting all this straightened out, but they didn't.

At the end of April they fired the bookkeeper that had been assigned to us. Turns out ours was not the only HOA in the county that had problems with her.

So beware that in theory the changeover to a new PM and/or a new bank SHOULD be easy and painless, simple screwups and non-feasance can result in near chaos.

Richard hits the nail on the head:

"There is no excuse for an association to not know what is happening with THEIR money."

Good luck to you, Andrew. Don't take your eye off the ball. Or the money
NpS
(Pennsylvania)

Posts:3583


05/14/2019 6:03 PM  
Posted By GenoS on 05/14/2019 4:42 PM
Past boards came and went and the signature cards hadn't been updated in several years. None of the officers on the signature cards even lived here anymore. The Treasurer would not or could not re-gain control over those accounts to even change our address to "c/o New Management Company".



We do not change authorized signers with every change in Board members. If someone leaves the Board, we might keep them on as a signer. We do make sure that we have at least 2 homeowner signers on every bank account.


Sikubali jukumu. Read all posts at your own risk.
JohnC46
(South Carolina)

Posts:8556


05/15/2019 5:55 AM  
We have always changed signature cards to the existing President and Treasurer.
I am talking about our Reserves. Our dues go to a bank lock box then to the MC's Account. We do have what would be a "paper account" in our name on the MC's system. We get a Monthly Financial Report that is over 30 pages long.

Thus, in reality, we do not have a checking account as our monies flows through the MC's business. The MC uses personalized checks that show the HOA's Name but the MC's address. If we need something paid we call the MC and direct them to cut a check to so and so and the reason for it but we rarely need to do this. Our budget is $90K a year so not a very complex one. We could easily self manage but no one has been willing to do the work required.

I more view our MC as our Bookkeeper rather than an MC.

At one time we did have a BOD Checking Account that had about $1K in it to be used for miscellaneous stuff. We got rid of it due to lack of usage.


NpS
(Pennsylvania)

Posts:3583


05/15/2019 7:36 AM  
Posted By JohnC46 on 05/15/2019 5:55 AM
The MC uses personalized checks that show the HOA's Name but the MC's address.



If your HOA's name is on the check, then the bank account must belong to your HOA. Your HOA owns the funds in that account, not your MC. The address on the check is a mailing address which makes sense based on your description.

Sikubali jukumu. Read all posts at your own risk.
RichardP13
(California)

Posts:3781


05/15/2019 9:07 AM  
I always update signature cards for an association, possibly once a year for association as that is the term of officer.

All banks that I have used require articles of incorporation, minutes, corporation number from association before an account setup. The also require photo id of the officers signing on the accounts. All banks I have used also require officers of the corporation to be on the signature cards, not members of the Board or members of the community.

I ran into a situation where a bank didn't allow officers of a HOA to be a signer of their account. The only signers were the owner of the management company and his wife. When they terminated their contract with MC, they didn't have access to their funds. It took three months and a couple thousand dollars in legal fees to get them. Board members need to know for sure after a transition they have access to THEIR money and statements. They also need to know that it doesn't change in the middle of a contract as the case above happened.

Been there, Done that
JohnC46
(South Carolina)

Posts:8556


05/15/2019 3:25 PM  
As Richard said:
Board members need to know for sure after a transition they have access to THEIR money and statements.

I do not see us changing MC's but if were ever to do so, I would want a transition plan agreed on by the BOD and the new MC long before the actual transition so things flowed smoothly.

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