Handling HOA bank accounts is one of the most important financial responsibilities a board will ever take on. These accounts hold all the funds, including dues and reserves, that belong to the entire community. Board members must understand how to monitor and safeguard these accounts to prevent fraud and other financial crimes.
What are HOA Bank Accounts?
Homeowners associations work with money on a day-to-day basis. These associations collect regular dues, levy special assessments, and charge fines for violations. As part of their dues, homeowners also contribute to the association’s reserves. Given how much money is involved, the use of HOA bank accounts is necessary.
Most communities rely on an HOA checking account or two. These accounts house the association’s liquid funds in a secure place. Most associations maintain two bank accounts: an operating account and a reserve account.
The operating account holds the funds used to pay for operating expenses. These are expenses that the HOA incurs on a regular basis. Examples include maintenance fees, insurance premiums, and utility costs.
In contrast, the reserve account holds the reserve funds, which are money the association sets aside to cover major repairs and replacements in the future. This account is for more irregular or larger expenses. It can also cover emergency costs.
Who Has Access to the HOA Bank Account?
In general, access to HOA bank accounts should follow one basic rule: separation of duties. No single person should control everything. By imposing clear limits, the board can protect the association’s money and the people handling it. Here’s what type of access each person should have to the HOA or condo association bank account.
HOA Treasurer
The treasurer usually has the highest level of financial access and oversight. While roles can differ, the treasurer usually has:
- Full view access to all operating and reserve accounts,
- Authority to review statements and reconciliations,
- Check signing authority, often with a second signature requirement above a set dollar amount, and
- Ability to approve transfers between accounts, subject to board policy.
The treasurer should not be the only signer and should not be the only person reviewing statements. Even if the treasurer is hands-on, another board member should still independently review monthly bank statements.
Board Members
Other board members may also exercise financial access, but not unlimited control. In general, they should only have:
- Read-only online access to bank accounts,
- Copies of monthly statements are included in board packets, and
- Ability to review reconciliations and supporting documents.
They generally should not have independent signing authority unless the board formally designates additional signers. Many associations authorize two or three officers as signers so that there is backup if one person is unavailable.
Accountant or Bookkeeper
The accountant or bookkeeper typically handles the day-to-day recording and reconciliation of transactions. Their access often includes:
- Online access for transaction downloads,
- Authority to prepare checks or initiate payments, but not release them without approval, and
- Ability to reconcile accounts monthly.
They should not be the sole person approving payments and reconciling the same accounts. If they prepare checks or ACH payments, a board member or manager should approve and release them.
HOA Manager
If the association hires a management company, the manager’s access will depend on the management contract and the board’s internal controls. Common authorities include:
- Ability to initiate payments to approved vendors,
- Access to bank portals for balance monitoring and transaction review, and
- Limited transfer authority between operating and reserve accounts, with board approval.
Many associations require dual control for online payments. For example, the manager initiates the payment, while a board member approves it through the bank’s online system.
Managers should not be the only signer and should not reconcile accounts without an independent board review. Even in fully managed communities, the board retains the final say on decisions.
Internal Controls for HOA Bank Accounts
Board members should implement strict measures to limit access, promote transparency, and control disbursements. Here are the best strategies to use.
1. Assign Multiple Authorized Signatories
Every check should have at least two signatories to avoid one-person control. Some associations designate three signatories, with at least two signing every check or authorizing withdrawals. That way, they can keep each other accountable. This is especially important for disbursements of large amounts.
As for online banking, board members can access account and activity information, but it is never a good idea to give everyone the authority to make transactions. Online banking makes it easier nowadays to transfer funds with just a few taps, making it almost impossible to stop transactions midway through.
2. Set Approval Thresholds
Disbursements should require approval when they exceed a specific amount. For example, managers may issue petty cash or anything below $500. Payments above that threshold must go through the proper channels for approval.
3. Implement Segregation of Duties
It is imperative to separate responsibilities and divide them among two or more people. The person who has access to make withdrawals should not be the one to reconcile bank statements. Otherwise, they can doctor the statements and present them as factual to the rest of the board.
4. Secure Original Statements
When reconciling bank statements, boards should obtain the original copies directly from the bank. Delivery may take more time, but it helps ensure accuracy. Of course, accountants can reconcile bank accounts using online statements, but it is still good to confirm the figures once the original copy arrives.
5. Check Online Accounts
Monitoring bank accounts online is good practice, but boards are not expected to do so daily. Instead, check the online account at least once a month, depending on the association’s size and budget. Generally, the larger the budget, the more often boards should check. This is because cash flows in and out more frequently.
6. Review Financial Statements Regularly
To ensure everything is in order, board members should review their financial statements thoroughly. Bank accounts may tell one story, while the financial statements tell another. Regular review will help the board catch any discrepancies early on.
7. Obtain Fidelity Coverage
Despite the best of intentions, internal controls can only go so far. To further protect the association, obtaining fidelity insurance is necessary. In fact, in Virginia, condominiums are even required by law to maintain a fidelity bond or employee dishonesty insurance policy (Section 55.1-1963). This policy helps cover any losses the association incurs if a board member, manager, or employee commits fraud or theft.
A Combination of Efforts
Managing HOA bank accounts can be tricky without the proper controls and parameters. At the very least, board members must segregate duties to avoid giving one person full command over the association’s finances. Implementing the other strategies will strengthen the association’s position and avoid financial crimes.
National Realty Partners is a leading provider of HOA financial management services in Virginia. We can help your board manage and enforce the rules. Call us today at 703-435-3800 or request a proposal online!
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