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Subject: Board access to HOA bank accounts
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JohnT38
(South Carolina)

Posts:81


08/08/2019 2:19 PM  
I've read where a lot of HOA boards have their president and treasurer authorized on their HOA bank accounts. From what I've read there are a lot of good reasons to do this. In our case, no one on the board has access. I brought this issue up and the response from the president was:

"Personally, I don’t want my name on the accounts—I don’t need one more liability with this job.
We can ask for a copy of each month’s statements for Treasurers to review."

Anybody have any thoughts on this subject? For me it seems like common sense that someone from the board should be authorized and that we owe it to our community to ensure that no fraud or erroneous payments are occurring.

GenoS
(Florida)

Posts:3123


08/08/2019 2:36 PM  
It should be possible to arrange for "read-only" access to the bank accounts. Multiple persons can be authorized to look at the monthly statements while only a very few would be actually authorized to initiate transactions against them. Regardless, all board members should have timely access to the monthly financials which usually include copies of the bank statements that need to be reconciled with the other financial reports.
JohnT38
(South Carolina)

Posts:81


08/08/2019 2:44 PM  
Thanks Geno. The read only option is good to know. Currently, we get a spreadsheet from the management company at our monthly board meetings. A spreadsheet would be easy to manipulate if someone wanted to steal. Having a copy of the monthly bank statements would help.
GenoS
(Florida)

Posts:3123


08/08/2019 2:49 PM  
Posted By JohnT38 on 08/08/2019 2:44 PM
A spreadsheet would be easy to manipulate if someone wanted to steal. Having a copy of the monthly bank statements would help.

Absolutely. We went for 4 months at the beginning of this year without any bank statements for the 3 banks where we have our reserves (over $700k). During that time I stressed to everyone I spoke to that our reserve funds were probably not missing, but they were certainly unaccounted for. That turned out to be the case an the money was still in those accounts when we finally started getting the monthly statements again, but not having the actual bank statements is a cause for concern. We weren't even getting a spreadsheet summary from our bookkeeper. I wasn't really worried..... but I was worried anyway. Actual bank statements all the way.
CathyA3
(Ohio)

Posts:338


08/08/2019 3:05 PM  
I'll think some more about this tonight, but here is what occurs to me right now:

* if you're a self-managed HOA, I don't think you have a choice. Those with a manager have a more leeway, and the manager and board can act as checks and balances on each other - this mitigates risk as long as folks keep their eyes on the books each month.

* We've done it both ways. Our operating and initial reserve accounts were set up back when the developer was in control, so no homeowner board member had their name on the accounts. This is still true today. Last year we had to open a second reserve account to stay within insurance limits. I actually opened the account myself. I was the president but had spent part of my career at a major brokerage firm and knew my way around finance, so it made sense for me to handle it.

* You can set up the accounts to require multiple signatures for various transactions. That way no one director can take off with the money.

* You may want to take into account how knowledgeable a director is and how comfortable he or she is with money matters. You should also think twice if you know something about the director's personal situation that causes you to question their ability to resist temptation. Hopefully you won't run into something like this - but I think that no matter how honest a person tries to be, dangling temptation in front of someone having money troubles is kind of cruel as well as unwise.

* One issue with having board member's names on the account is that you have to keep up with changes as people move onto and off the board. It's a bit of a nuisance.

* Re: liability, it goes with the territory, I think, and there are things you can do to address it. I assume the HOA will be carrying enough D&O insurance as well as fidelity insurance to protect against employee dishonesty. I also beefed up my personal insurance when I was elected to the board - maybe overkill, but I want to sleep well at night.

So in general, I think the answer is that it depends on your community's needs and on the individuals on the board of directors. With proper safeguards, having board members' names on the account shouldn't present unusual risks.
MarkM19
(Texas)

Posts:371


08/08/2019 3:19 PM  
JohnT,
I wish that everyone would start their Posts with a few answers like.

1) How many Homes or Condos
2) Self Managed or with a PMC
3) Home much are your dues?
4) What are your reserves?
5) How long have you been on this board?
6) How old is your association?

A lot of times we are all trying hard to assist with your issues. If we have the above information it keeps us in the right lane. It can all change based on the actual facts. I have seen it many times over the years. After 20 replies the poster tells us something that totally changes the direction of our comments.
GenoS
(Florida)

Posts:3123


08/08/2019 3:31 PM  
Posted By CathyA3 on 08/08/2019 3:05 PM
* One issue with having board member's names on the account is that you have to keep up with changes as people move onto and off the board. It's a bit of a nuisance.

And it can develop into something more than a nuisance. When we were chasing down statements for our reserve accounts, two of them had been opened a number of years ago and the 2 directors' names on the accounts had left the community. The banks wouldn't even let our current officers and directors change the names on the accounts or even the official mailing address unless those original people were present to sign off on it. We eventually got it straightened out but to say it was "a bit of a nuisance" is an understatement.

It's something to stay on top of from year to year as your board changes.
JohnT38
(South Carolina)

Posts:81


08/08/2019 3:31 PM  
Great feedback Cathy! We are not self managed and do have appropriate insurance coverage for the board. Your point about being knowledgeable of the person on the account is well taken. Geno's suggestion on having read only access may be the way to go. It just seems odd to me that these accounts are not reviewed by the treasurer. Bad people can work for good management companies and it seems prudent to me that there should be another person who's guarding the hen house. As it stands for 16 years we've just assumed that the MC's rep is handling our money legitimately.
TimB4
(Virginia)

Posts:16411


08/08/2019 3:46 PM  
John,

We put all our board members on the signature card for the bank.

However, only the treasurer usually accesses the account (online, deposits, etc.).

If you don't want your name on the account, simply tell the board that.
NpS
(Pennsylvania)

Posts:3572


08/08/2019 4:07 PM  
Posted By GenoS on 08/08/2019 3:31 PM
Posted By CathyA3 on 08/08/2019 3:05 PM
* One issue with having board member's names on the account is that you have to keep up with changes as people move onto and off the board. It's a bit of a nuisance.

And it can develop into something more than a nuisance. When we were chasing down statements for our reserve accounts, two of them had been opened a number of years ago and the 2 directors' names on the accounts had left the community. The banks wouldn't even let our current officers and directors change the names on the accounts or even the official mailing address unless those original people were present to sign off on it. We eventually got it straightened out but to say it was "a bit of a nuisance" is an understatement.

It's something to stay on top of from year to year as your board changes.


We developed an approach that avoids the problem of BOD member changes - by using Officer positions.
- Our organizing docs allow the BOD to create Officer positions.
- Lets say A resigns from the BOD and B takes her place.
- We make A a non-Board member Officer.
- As an Officer, A is still a fiduciary.
- A is covered under our D&O and fidelity insurance coverage.
- A is no longer involved in the management of the HOA.
- So long as the BOD continues to have confidence in A and A continues to live here, the bank accounts remain unchanged.

Sikubali jukumu. Read all posts at your own risk.
JZ2
(Florida)

Posts:43


08/08/2019 4:18 PM  
John,

I advise all of my Association clients to have each of the officers as authorized signatories on their accounts, and that dual signatures be required for any check over a modest amount, e.g., $50.00 or $100.00 or whatever the client is comfortable with.

Each Board member should also have electronic access to all Association bank records.

Just a quick Googling of HOA (or Association) theft will give you all the reasons....
JohnT38
(South Carolina)

Posts:81


08/08/2019 4:18 PM  
Mark,
I apologize if my post didn't provide the fundamental information needed to answer my question. I'm not sure how the questions below will help with this question but I have answered them below:


1) How many Homes or Condos
166 Condos and 22 patio homes.

2) Self Managed or with a PMC
We have a full service PMC

3) Home much are your dues?
Monthly dues are $280 for condos and $75 for patio homes.

4) What are your reserves?
Approximately $500,000 ( We are underfunded which is another story...)

5) How long have you been on this board?
1 1/2 years. I'm the V.P.

6) How old is your association?
Since the early 1980's.

To be clear, this is not a case where I suspect anything wrong is being done. It's a general question on how other HOA communities handle their accounts and prevent potential issues from arising. I readily acknowledge I have much to learn which is why I posted the question and appreciate this site greatly.
NpS
(Pennsylvania)

Posts:3572


08/08/2019 4:53 PM  
Good suggestions from Cathy.

A few more:

* Bank statements should be mailed directly to a BOD member. Not hard for a dishonest PM to send you something that started as a Bank statement, but has been cut and pasted.

* Even if you set things up for 2 signatures, the boiler plate in many banking agreements shifts all liability for only one signature to the HOA. Many banks will process a check with only one signature.

* If possible, make sure you have a couple of people on your BOD who know how to read financial statements.

Sikubali jukumu. Read all posts at your own risk.
JohnT38
(South Carolina)

Posts:81


08/08/2019 4:55 PM  
Thanks to everyone above for the EXCELLENT suggestions and comments!
KellyM3
(North Carolina)

Posts:1418


08/09/2019 8:54 AM  
All directors should receive regular monthly bank statements.

No directors should have check writing authority when there is an independent management company handling the monthly cash flow backed by an independent annual audit.
MarkM19
(Texas)

Posts:371


08/09/2019 11:07 AM  
Kelly,
I agree that they should not be able to write checks. I do think that 2 board members should be on the accounts to co sign Reserve fund checks. This just requires an signature card from the Reserve bank with all members listed. Usually the President and the Treasurer would sign most of these type of checks.
GenoS
(Florida)

Posts:3123


08/09/2019 7:02 PM  
Posted By NpS on 08/08/2019 4:53 PM
* If possible, make sure you have a couple of people on your BOD who know how to read financial statements.

That should go on the list of suggested questions to ask prospective board members, whether they're running in an election or seeking appointment to fill a vacancy.
EdC5
(Florida)

Posts:93


08/10/2019 5:34 AM  
I'll add my 3¢ as a CAM. I've worked for management companies, and in most cases the MC wrote checks and the board really didn't have access to the association's bank accounts (even though 99% of the time the president and treasurer were signatories on the accounts). I did manage one association (on-site and hired directly by the association) where the officers (7 out of 16 directors) were signatories but *I* had online access to the accounts and not the officers.

Edward J Cooke, CMCA, LCAM
NpS
(Pennsylvania)

Posts:3572


08/10/2019 9:48 AM  
Posted By EdC5 on 08/10/2019 5:34 AM
in most cases the MC wrote checks and the board really didn't have access to the association's bank accounts (even though 99% of the time the president and treasurer were signatories on the accounts)


If they are signers, they have access to the account. Those BOD members can go into the bank and get a bank check. Although it may be rare, there are times when a BOD needs to take control from a poor performing MC.

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

Posts:8550


08/10/2019 9:56 AM  
Our MC collects all dues (via a lock box bank) and writes all checks. If a BOD Member needs money he must request a check from the MC. Each BOD Member gets a monthly 20-30 page Financial Report right down to the penny. The BOD has a Drop Dead Password for the Lock Box account meaning we can shut off the MC by activating the Drop Dead Password.

Our two Reserve Funds are funded each month by the MC. The MC gets a monthly statement on each to include in his Monthly Financial reports to us. The MC cannot withdraw any money from either Reserve. The funds have the Pres and VP as co-signers.

Could our MC nick/cheat us? Yes. Cheaters cheat no matter the system in place to stop them. How would we know? By paying attention to the Monthly Financial Reports.
GenoS
(Florida)

Posts:3123


08/10/2019 2:03 PM  
Posted By NpS on 08/10/2019 9:48 AM
Although it may be rare, there are times when a BOD needs to take control from a poor performing MC.

We did exactly that a couple of months ago. I mentioned elsewhere that we didn't have control over 3 of our reserve accounts. The signers on those accounts were long gone and none of the officers or directors had the logon info to access them online. Our previous bookkeeper transferred the info required for online access to our new PM at the start of the year. The new PM's bookkeeper swore she couldn't find it, and so we were shut out of our own bank accounts for a few months. During that time they were unable to provide us with full and accurate monthly financials because they didn't have access to the accounts for reconciliation, either.

We finally had a few past and present board members take 2 whole days to visit the banks and get everything squared away. The day after we did that, the new PM's bookkeeper "found" the online passwords. We fired the PM first chance we got after that. While that wasn't the only reason we fired them, it was the last straw. The new PM opened new bank accounts in our name at the end of December before their contract with us officially started. They never told anyone here they were going to do that, nor did they inform us about them until February. In retrospect, that was the first straw.
SteveM9
(Massachusetts)

Posts:3296


08/10/2019 5:27 PM  
Each BOD Member gets a monthly 20-30 page Financial Report right down to the penny....... Could our MC nick/cheat us? Yes. Cheaters cheat no matter the system in place to stop them. How would we know? By paying attention to the Monthly Financial Reports.


Bernie Madoff defrauded people for over 20 years with elaborate fake reports with lots of pages. Very,very smart, wealthy people lots tons of money. Why? No verification by another party. People simply thought the paperwork was real.

If your bank was sending you statements directly and you noticed they didnt match the reports the MC was giving you, you would know something was up.
NpS
(Pennsylvania)

Posts:3572


08/10/2019 6:30 PM  
How many of you spend any time thinking about fidelity (theft) insurance?

Let's say you have $400k in the bank. Your MC has $5M in insurance. Maybe you think you're covered.

Think again. If your MC has 100 clients with an average of $250k in the bank each, that's $25M that's potentially at risk.

One of the best ways for a PM to avoid detection is to move money among the different accounts as needed to keep you and other HOAs fooled.

By the time that these thefts bubbles up to the surface, the PM could have stolen $10M already. The $5M insurance isn't going to cover it all.

Sikubali jukumu. Read all posts at your own risk.
JoyceR2
(Virginia)

Posts:156


08/12/2019 9:09 PM  
It would seem that any association would know their accounts which should be part of the financials monthly. In no case should any management company of individual be able to open, close or move funds to or from existing accounts without an approved motion by the board recorded in the minutes. There should be limits to account access to withdraw funds etc. The fewer the better. My opinion is no more than (2). If a full time manager, there should be restrictions on how much they are allowed to spend without board approval. Any approval should be in the minutes with the amount & the specific accounts in motion. Petty cash funds also should have a specific amount by a recorded motion, reason & who is authorized. If you intend to protect, specify this info legally in the official minutes. Short cuts & poor oversight are not options.
FrankG8
(Georgia)

Posts:1


08/13/2019 5:12 AM  
I personally believe that at least one member of the board should have access to all bank accounts. Especially if you are using a property management company to manage your property and receive fees from owners and disbursing funds. Whether it's the President, Vice President, and/or Treasurer. We have all heard about the nightmares that HOA boards have had with regards to permitting the Property Manager/or company to receive funds and write and sign checks for disbursements. Then you have one bad apple and the HOA loses tens of thousands of dollars.
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