Protecting Association Assets

The Board of Directors has the important task of protecting the assets of the Association, as well as facilitating the operation of the Association. Many Boards elect to hire a management company to aid in both of these areas. However, Boards must be sure to find the right management company and, also, to periodically check up on the management company to adequately protect the Association. This is important because the management company handles the finances for the Association, which requires extra care on the part of the Board of Directors.

Most management companies and property managers are honest and hardworking. However, as many have recently discovered, occasionally one bad apple causes distrust in the entire industry. While this is not a reason to dismiss the benefits of a management company, it only reminds us to take care in the selection of and the relationship with the management company.

What follows are suggestions for protecting the Association’s assets when using a management company.

1. The management company and your property manager must be properly insured, licensed and bonded. They must provide you with evidence of the insurance and bonds.

2. Periodically investigate your property manager and management company. You will need their permission to pull credit reports beforehand, but if they want to keep your business they will likely not object.

3. Keep Control of the Funds. All accounts MUST be in the sole name of the Association. Make sure the bank has the Board’s signature cards on file and that bank statements are sent to the Board directly from the bank with copies to the property manager.

a. Operating Funds. There are a couple of ways to set up the operating fund for the Association. One is to require that a Board member sign every check that is paid out of the Association’s accounts. The other is to set up a dollar figure above which the property manager is required to obtain a board member’s signature on the check. The bank must be made aware of any arrangements made. The bank will follow your instructions—they are required to.

b. Reserve Accounts. Never let the property managers sign checks out of or be able to withdraw from the reserve accounts. In fact, never let just one Board member sign checks out of the reserve accounts. Always require two Board members’ signatures on the checks that are written out of the reserves. In addition, ask the bank if you can limit any transfers between accounts so that no online or telephone transfers can be made by anyone but the Board members.

4. Make sure the property manager has adequate insurance to cover your Association in the event of embezzlement, fraud or other activities which may cause the Association a loss. Require the management company to provide proof of any insurance and bonds that are carried, and require proof that the premiums are paid up to date.

5. Make sure the Association has appropriate insurance coverage to cover any embezzlement, fraud or other similar activities involving association funds. The policy should include wrongful acts of officers of the Association, the Board of Directors, and the property manager.

6. Have a review each year with a periodic audit. Hire an accounting firm to perform a full audit and require that the firm use the documents provided by the property manager and the documents the Association received on a monthly basis from the bank on its accounts to double check that the amounts match. Any engagement letter signed should be between the Association and the Accountant and he or she should report to the Association as well as the property manager.

7. Insist on a monthly financial report from your property manager. Included should be copies of the bank statements received by the management company. These should be compared to the statements sent directly to the Board by the bank. Remember to always check the bank statements from the bank within five days of receipt and to look for any discrepancies or problems so that you may bring those to the attention of the bank.

A property manager can be a valuable asset to an Association; however, it is important to maintain the proper checks and balances.

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