Internal Financial Controls

Our condo bylaws are specific on signatures of checks.

* It does not mention wires. It is acceptable to assume that check/wires are interchangeable wording?
* I recently asked the treasurer to check if old board members were still a signature for bank accounts. The answer is that no board is a signature. Only the management company. Is this normal? Considering I bylaws.
* How would you handle payments below the $5k threshold given the bylaws below

* How have others handled internal financial controls?

Bylaws:
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e) The depository of the Association shall be such bank or banks as shall be designated from time to time by the Directors and in which the money of the Association shall be deposited. Withdrawal of money from such accounts shall be only by checks signed by such persons as are authorized by the Directors. The Directors may contract with a Managing Agent to provide that the Managing Agent shall collect assessments from Unit Owners and other moneys of the Association and disburse Association funds pursuant to the terms of such contract; provided however all employees of the Managing Agent handling or responsible for Association funds must be covered by fidelity insurance as set forth below in subparagraph (g)

The signature of two (2) officers of the Association or in the event a Managing Agent is employed, the signatures of at least two employees specified in the contract, shall be required to sign any check in excess of Five Thousand Dollars ($5,000).

Three (3) authorized signatures, one (1) of which must be of an officer of the Association, shall be required for any checks in excess of Ten Thousand Dollars ($10,000).

All reserve funds of the Association shall be kept in a separate bank account and all checks written on such account shall be signed by at least two (2) officers of the Association and one (1) employee of the Managing Agent. If there is no Managing Agent, then the signatures of two (2) officers shall be sufficient.

You should not use checks and wire transfers interchangeably. Your bylaws clearly outline payments are to be made by check. Your bylaws certainly were drafted at a time when wire transfers were very mature banking procedure so I can't see where your bylaw is obsolete.

Your bylaws on signatures are very clear that active board members' signatures are required or those of the property management team on checks. Yes, this is normal.

Payments below $5,000 should be handled directly by the property management once approved by your board of directors.

My board's internal controls are that no board member EVER touches direct cash or issues checks on the HOA accounts. We are required to hire a property manager. The PM's books are audited annually by a third-party accounting firm.

* How have others handled internal financial controls?

Tim,

Some HOAs are designed to fully "firewall" organizational funds from being directly handled by resident board members. It has served our community well since 1986.

No issues in 36 years of the HOA existence. We inherited the by-laws so it's always been our normal operation. In all honesty, it's never the best situation to not possess full control but my experience is that we're likely to encounter unethical and incompetent board members who spend foolishly than have a vetted property management firm steal from the HOA.

We're also a master association, which are nowhere near as nimble as condo or townhome boards. I think that helps as well.

A number of folks chimed in a few weeks ago about managers and MCs signing checks, saying no big deal, since the directors had view-only privileges of the accounts and could monitor withdrawals closely. As long as the MC had a separate bank account for each HOA/COA, I guess I buy this. (Some MC's in the past have commingled the funds of multiple HOAs in one massive checking account. As a layperson, I cannot see the wisdom in working with such an MC. I do not care how much the MC claims commingling funds saves the HOA money by, say, improving efficiency.)

This is how we operate. Our MC signs all checks. They use the same bank for their accounts but each account has a separate account number. Our MC can only make deposits to our reserve account. They can not withdraw from nor make transfers from.