Separate accounts for operating and reserve funds in Arizona?

A question has been raised in our HOA whether it is ok to keep operating and reserve funds in the same bank account and just account for them separately on our books. Does anyone know if there is law or regulation forbidding this in Arizona?

Personally I think this is an extremely dumb idea, but it would help to know if there is relevant law or regulation.

We are an HOA in Arizona and organized as a non-profit corporation under AZ law. We file a federal 1120-H HOA return.

Guy,

I know of nothing in Arizona law that would prevent having separate bank accounts for different funds. My association has long done just that.

I am an advocate for keeping multiple accounts. For example, if you place all your funds in just one account and give a management company access to that account you are inviting embezzlement. I suggest funding operating accounts with only sufficient funds to get the bills paid for the next month or two; the funds do not get replenished until whoever is drawing funds from the accounts presents receipts for the expenditures. If the funds are misspent your loss will be small enough to absorb but such a meager amount is not tempting enough to steal in the first place.

My association exists primarily for road maintenance in a rural area of large parcels. We have about 300 miles of dirt roads to maintain and we own our own equipment. We found that the old routine of getting approvals and signatures created major delays in getting things done. We opened up a separate checking account for our road manager's use only and issued him a debit card. We put six to ten thousand dollars in his account; he uses it to purchase fuel, parts, tires, and service. The immediate access to the funds allows us to continue working instead of waiting for approvals or for paper checks. At the end of the month, the road manager is required to provide receipts for all expenses before we transfer funds from our general operating account into the road account. We have been doing this for about 7 years without any problems.

In reading your post for a second time, though, it appears that you are suggesting just the opposite: putting all funds in one account. I think this is a bad idea even if reserves and operating funds are accounted for separately. One big pile of money is more tempting than several small piles and this is an important consideration if a management company has access to your accounts. Also, by having just one big account you lose the ability to invest the capital funds in CD's or other interest-bearing investments.

I agree accounts should be separate. My question was whether any law required them to be separate. It would be convenient if I could tell the proponent of having a single account that AZ law didn't allow that, rather than trying to convince him it was a terrible idea even if it was allowed.

We're self-managed and do not use a management company. I can certainly see the safety in separating the funds if a management company is used.

GuyS(Arizona): Some jurisdictions try by legislation to compulsorily segregate reserve funds. Widely this gets defended as trying to sanctify the integrity despite short term whimsicals. It may be believed this facilitates owners to target long term renewal issues.

If segregated Reserve withdrawals are illegal other than reserve funded major repairs, there may be an (illusory)greater ability for diligent buyers/lenders/realtors/ estopelling certificate reliers etc to make corresponding decisions.

Reassurances can be pretty flimsy.