Electronic banking in a two signature world

Prior to paying the bill, approve the invoice.

Set up a procedure through a Board resolution.

Yes, it can be that simple.

Our bank charge is $3 per month.
We also use checks and a two signature system.
However, there are items that can be paid electronically and we have established a resolution allowing those items to be paid that way. Note: This is limited to our normal bills.

copies of bank statements are attached to the treasurer's report as a safeguard to ensure others can also see what electronic payments have been made.

I will point out that the two signature requirement for most Associations is an internal check and balance. It is not fool proof and (in my opinion) only keeps the honest people honest as anyone who has access to the Associations online banking and transfer funds and live happy until it's discovered. Hence the reason Larry points out to have bank statements reviewed at each meeting (allows such actions to be discovered earlier).

Typically those Associations with two signature requirements only mentions that all, or checks over a certain amount, issued must have two signatures. I have never seen governing documents requiring that all expenses be paid by check. So, utilize technology with appropriate oversight and when checks are issued, get two signatures.

TIm

We have a two signature requirement and I like it. Quite frankly, I wouldn't trust anyone blowing smoke up my rear end while telling me, "It's fine. Trust me." Requiring two signatures is added protection against one person stealing the money. It's a no-brainer.

Our account is with one of the big six and we were told that they do NOT take any responsibility for any checks requiring two signatures, bank policy. She said we could still do it if we wanted to, but if one got through without both signatures, they would not be responsible for it. Just an fyi for you to confirm with your own.

thanks folks, for the answers and opinions.

I am trying to move our little HOA into a very open/transparent operation, and honestly, I think e-banking is more transparent (or can be) than what the last board had (they issued atm/debit cards for "incidental" purchases, and wrote two signer checks for standard bills (insurance, stamps, etc.).

We are finding that those ATM cards got used for a lot of odd activities, and none of it is in any minutes. Apparently, they just charged things, and gave the treasurer the receipt.

My plan, if the board will buy it, is to switch to an E-bank. And, each meeting, our treasurer can bring a report of what checks need to be issued, to whom, how much, and why. Board votes to issue them, and then we go to the website and do it. Nothing gets written without a board vote and notes in the minutes as to what got done (we don't have many checks to write, honestly. Insurance 1/year, supplies for road maintenance each quarter, contract work, and maybe Postage Stamps). Most of our bills can be predicted, brought to the meeting openly, and approved.

the good news would be that our bookkeeper, treasurer, and president would all be able to see the bank account at any moment, via password. So, we'd have three people to tempt, or at least two people mad that the third didn't include them in the theft.

Brian,

Stop it! You're killing me! I am ROTFLMFAO! A board vote to buy postage stamps! (Yes, I know. Those paper checks do not deliver themselves.) And another vote to approve writing a check for expenses that were already approved when the budget was adopted. That board must be proud of itself!

Larry

I second that. Talk about overkill.

Thanks, Tim. already being done. Debit cards are being taken back and destroyed (against our by-laws, at least, how they were being used), and we'll go back to things the way they were, before our little rogue board started changing the game for their benefit.

and the new board will go overboard a bit this year, in being very transparent and painstaking in how we do business. Just to show that we aren't "the same old board".

Oh my, this is eye-opening. I've been in the process of looking for ways to improve my HOA's financial safeguards, to present at our February meeting. One frequently recommended practice is the two signatures on taking money from reserves... but if the bank won't verify that, it's useless. Not permitting wire transfers is another (I don't even know how wire transfers work, much less whether our funds are transferred that way). Not giving the property manager the permission or ability to take money from reserves is another. I'm pretty sure our manager can do it.

So what is a good set of policies for protecting against fraud and misuse of funds, for an HOA that has a management company?

OK, thanks. I see what you mean.

Tim

Have you live and/or been on a Board that utilized a MC?

All

We pretty well let our MC run the financial show. We make our quarterly dues payments to a bank lockbox. We get monthly financial reports from the MC and the bank. We have a password with the bank that can stop payments to the MC with one phone call.

Our reserves are held in a different bank and the MC has no access to it other than a monthly report of such which they incorporate into our monthly financials.

No matter what system(s) one puts in place, a good thief can steal. Cheaters cheat and the good ones are near impossible to stop. I say the best safeguard is to spend your time personally reviewing/verifying your financials. If need be, make a few phone calls to see if payments are up to date. As an example, our largest monthly out lay is for landscaping and that provider would be on the phone to the BOD in a heartbeat if a payment was missed.

Do we put more trust in our MC than many recommend? Yes we do. Unless you want to do it all yourself, sooner or later you have to trust someone.

Tim

Whether a HOA is managed or self-managed, fraud can and does exists.

I have a more unique perspective than most here on this site. I have been a homeowner, a committee member, a board member, a board president and a property and now an owner of a property management firm. I have seen the good, bad and the ugly.

Ultimate responsibility rests with the Association and its Board members. I've read most of the article you attached and know some of the companies involved. Unfortunately, they are only telling part of the story.

This is for HOA's utilizing a management firm:

Operating accounts are opened through the bank(s) of the MC's choosing. The reason is the more accounts and money the more services and products they can provide to benefit the HOA. A couple that come to mind are ACH and lockbox. Operating account are ALWAYS opened under the Association's name in care of the management company, and separate account numbers are assigned to each association they may manage.

Reserve accounts, per California Civil Code, are controlled by the Associations. Funds from the dispensed from the reserve account require two signatures, whether of not the bank checks. They can be held by any bank of their choosing. Statements would go to the management company and a board member.

The days of two person signing checks is past. There is new and better technology available to associations in paying their bills. Again, its a recommendation, as the Board makes the FINAL decision. There are software companies that integrate with management software that will allow the association to approve ALL invoices prior to checks being cut. If their is a disagreement with the invoice, it is pulled from further processing.

I had gone to Board meetings where the Boards signed the checks. Out of 40 checks to sign they MAY have looked at one invoice. Financials were approved without any questions, turns out some that approved NEVER looked at, let alone, understood. You can lead a horse to water, BUT, you can't make them drink.

After I left the Board as president, I became Finance Chair. Didn't go over well with the management company at all. They didn't like being questioned about their sloppy accounting procedures. Problem was the Board didn't want to get involved.

Case in point. When I left the Board in 2012, our delinquencies were down to $60K and heading downwards with good collection policies in place. As of Dec 2015, they are $280K. Beginning of 2015, they said they collected $24K from a delinquent homeowner through escrow. They removed the amount from their mickey mouse spreadsheet, BUT the money NEVER got into the bank account. Bring the information to the Board and it falls on deaf ears.

California has rules that state the associations are to review the financial statements, which would include bank statements for both operating and reserve account on at least a quarterly basis. How many really do that?

Bottom-line, if you choose to look the other way, you have no one to blame but yourself and D & O or Fidelity insurance shouldn't cover you.

Address?

Larry,

Obviously, my response was tongue in cheek.

I do believe that everyone on this site has agreed that the 2 signature requirement is an internal control only and, at best, keeps temptation at bay for the typical honest person.

Every negative thing that has been said about it is true. Invoices may not get looked at by the second signatory, checks may even be signed ahead of time without an invoice simply to meet the requirement, minimize time and still get the bills paid in a timely manner.

However, if it is only partially used (as John does for their Reserve funds) and it removes temptation from one person - isn't it worth it. What's the harm in having it?

And yes, I have seen banks cash checks with no signatures especially with the incorporation of technology of ATMs and scan/deposit at home.

Tim

Tim

As most CCRs state, the ultimate responsibility for the affairs of the association rests with the Board of Directors.

As John pointed out, at some point in life you have trust someone. If you try and micromanage everything, you will have a lot of sleepless nights. You also lose the cooperation of your team. If an HOA can't devote the time to really managing the association, MC's are a real benefit to them.

That said, and this is from experience, there are some bad MC's and some really bad MC's. Some where money and power are their driving force. But at the end of the day (someone I know really hates that phrase) there are some really good ones that will take their real life experiences to ensure that any association they manage doesn't have the same experience they had.