When you’re keeping our HOA funds secure, you have to consider all of your funds; both operating and reserve. How do you ensure you have adequate protection against theft and fraud? Today, we’re talking about some things you can do to protect that money.
Setting Up a Bank AccountMost HOAs need to make sure their actual bank accounts are set up properly. Many times, they go out and get a nominal commercial savings or checking account. They need to be set up properly as custodial trust accounts, which is what Minnesota law requires. So, the first thing you want to do is discuss with your banker what these accounts are and how are they set up.
Include a Positive Pay SystemWhen you talk to your banker, ask if there is a positive pay system or a positive pay service that’s available for you to use. That basically means you can upload to your bank all the processed checks you have distributed to vendors. Then the bank knows which checks have been issued to vendors. If something gets cashed that hasn’t been run through that system, it will be flagged for fraud. That way, the bank knows that the check came through and was processed, but they don’t know if you actually wrote the check. This is a great feature that most banks offer.
Fraud Protection AlertsFraud protection or fraud alerts are also prudent. Sometimes it’s included in an analyzed account. Make sure there’s some protection, including periodic reviews and thresholds that are overseen by a banker electronically or manually. They can set triggers that might indicate fraud based on the size of checks that are written or the periodicity of checks. They will know how many go through every month, and if that suddenly spikes, they can contact you.
Protecting Against TheftTheft of money is a concern for HOAs, and you need to make sure the insurance agent handling your HOA’s master policy includes a fidelity bond. This doesn’t cost much to have, and $50,000 or $100,000 will likely cover your association. It covers theft in case a board member or an agent or a manager takes funds. It covers that loss and broadly protects the association from a loss of funds.
Reconciling Bank AccountsA good practice that your agent or board can do is a monthly reconciliation of your bank accounts. Any good management company with the appropriate software should be able to do this for you. Basically, they print out the reconciliation statement from the accounting software and check off the checks that have been processed and are still outstanding. The balance of the software statement should match your bank statement. This is the earliest indication of potential fraud.
Bank Account TransparencyAllow board members to have view/access to your bank accounts. By giving them this access, you’re not opening the door for them to make transactions, but they can see for themselves how the reconciliations look. They can see the costs and expenses and make sure they’re accurate. Some management companies don’t allow the board to view the bank account. I think it’s best to allow the board open access. You’re a team, and the boards and agents are incentivized to help each other and successfully manage the association.
Limit the Number of SignatoriesIf you have an agent managing and processing checks on behalf of the board, you don’t need a lot of signatories on the bank account. Limit it to the president and treasurer, and then the agent designated by contract. That limits the number of people who can actually sign and authorize checks. That helps the bank too because they do check the signatures.
Lock Box for CashA lock box is also a good practice. If owners pay by cash, that’s a problem, especially if you’re managing for a board of directors. Hand out a receipt if they do, but then you still have a deposit problem. Have a lock box deposit capability, or provide services like ACH or online bill pay so there are no cash transactions necessary.
These are all good tips for keeping your HOA tips secure. If you are looking for a good company to help with HOA property management in Minneapolis, please contact us at 33rd Company Property Management.