If you have purchased a home or condo, you are likely paying a monthly fee to your association. Typically, these HOA fees...
What to Know About Opening an HOA Bank Account
Both smaller and large associations have their respective obstacles to overcome when it comes to managing money, whether it’s figuring out how to battle outstanding assessments or knowing how to navigate the payment of a loan. It’s important that administrators are familiar with their community’s banking practices, and know how to keep their operating funds safe and accessible while still taking care of their reserve and operating funds.
The Two Types of Bank Accounts an HOA Should Have
Typically, an HOA opens two financial accounts: an operating (or checking) account; and a reserve (or savings) account. An operating account is a financial fund that’s used to pay for the services that carry out everyday functions of a community.
These accounts are typically opened by the management company on the association’s behalf, but the Board members should be listed as signers and updated when there is a Board change. Services that are usually covered by an operating account include:
- Contracted services, including landscaping, general maintenance of common areas, security, and property management
- Insurance and taxes
- Utility expenses, including plumbing, heating, and cooling of common area buildings
- Office expenses, including postage and office supplies
- Accounting and legal fees
A reserve account is a savings fund that’s set aside by the association to meet future costs of upkeep and any unexpected costs that arise around the community. For these accounts, it’s important for boards to make sure they are adding or subtracting money from them periodically, or they risk the funds being escheated to the state if there has been inactivity for a period of time. In California, Boards are required to have two signers on the reserve account and any transfers over $10,000 also require two board members to authorize.
Unexpected costs that are covered by reserve accounts include:
- Roof replacement on common area buildings
- New pump at the community pool
- New playground equipment at association’s tot lot
- Painting of common area buildings, such as the community clubhouse
- Major landscaping projects
- Construction and major renovations
Managing Your HOAs Finances & Accounts
In general, an HOA’s accounts should be accessible by both the board and the managing agent. Most HOAs have a treasurer who has some expertise in financial matters, and some larger associations have an entire finance committee. Someone from the board should look at bills, monthly reports, and establish limits on payments. Additionally, regardless of how many accounts there are, there should be a system of checks and balances when it comes to making financial decisions.
Most accountants say that at least two people should be required to sign off on withdrawals that entail any amount of money over a certain amount. In many cases, two people should be required to sign checks — a board member and the manager, or the president and the treasurer.
If you’re looking for an experienced HOA management company to help you with your finances and accounting, APS Management can help. Take a look at our HOA management services or contact us for a consultation.