Checks - one signature or two?

ThomasP13 (Ohio)
Posts: 87

Posted:

We're bringing the Treasurer function back in-house for our self-managed association. We like the concept of requiring two signatures on the physical checks we need to write, but wonder if we're creating a situation of unnecessary complexity where we might need a check immediately for some emergency, but both people weren't available. It's our understanding that malfeasance on the part of the Treasurer would be covered by our D&O policy, right?

KerryL1 (California)
Posts: 14,550

Posted:

I don't think D&O covers "malfeasance," but, maybe misfeasance?

SheliaH (Indiana)
Posts: 6,964

Posted:

Has you read the policy? If not, do that first (This is an assignment for the ENTIRE board).

After reading the policy, have a chat with the policy carrier and the association bank for ideas on internal controls regarding finances. Consulting a bookkeeping or accounting company would also be a good idea.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

DouglasK1 (Florida)
Posts: 2,046

Posted:

Sounds like a good question for your insurance agent.

Escaped former treasurer and director of a self managed association.

DouglasK1 (Florida)
Posts: 2,046

Posted:

I'll add that many banks won't even enforce a dual signature requirement.

Escaped former treasurer and director of a self managed association.

BillD16 (Texas)
Posts: 971

Posted:

If you’re asking “Does our D&O insurance cover embezzlement?”, I think you need to read the policy *very carefully* to understand just what your coverage does.

Re the ‘two signatures’ idea: can you look at the past year or two of financial reports and get a feel for how many checks you’ll be needing to write each month? It (sorta) sounds like a fine idea but I suspect that a practical implementation would require a lot of discipline on the part of your Board.

I’ll be interested in what other people here have to say about it.

BillD

HOA Board ex-President
Austin, Texas USA

“You can’t put too much water in a nuclear reactor”

TimB4 (Tennessee)
Posts: 21,059

Posted:

I was treasure for a self managed association.
We had a two signature requirement.

Any Board member and the Treasurer
OR
Any board member and the president
would satisfy the requirement.

I had no issues.

It just takes planning.

Note: all board members were residents. If you have a lot of non-resident board members, this requirement could be an issue if not planned well.

ThomasP13 (Ohio)
Posts: 87

Posted:

We write a handful of checks each month. All but one utility is automatically withdrawn, so checks are for ad-hoc work that's been invoiced.

Reading the policy and talking to the agent is on the todo list.

SheliaH (Indiana)
Posts: 6,964

Posted:

If Thomas had googled the topic, he would have found some interesting comments on the subject (maybe he did, I dunno). Generally, two signatures isn't something that's enforced by the bank. If both people signed signature cards, either could sign checke, so it's more of an internal control.) If a bank allows it, it'll likely cost more in fees and we know how much banks love fees!

On the other hand many businesses have one person make the deposits and another write the checks. The person who writes the check may also be in charge of preparing the books and make sure they're accurate (although that may also create another set of problems). Son you have a third person keep the books.

Oh, you also purchase employee dishonest insurance and perhaps limit the number of checks that are written every month - as Bill suggested, you may not have dozens of checks to worry about.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

AugustinD
Posts: 3,698

Posted:

A CPA's review of my former COA's books turned up a strong suggestion to have a two-signature requirement for checks over a certain amount. I think the threshold was somewhere between $1000 and $5000.

CindyT5 (Florida)
Posts: 4

Posted:

Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By CindyT5 on 03/22/2022 7:09 AM
Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

Banker CintyT5, thank you for posting this. The posts here saying banks do not care about any two-signature requirement troubled me. After reading your post, I feel better.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By CindyT5 on 03/22/2022 7:09 AM
Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

If you don't allow your management company to write the checks, who's going to do this task?

ThomasP13 (Ohio)
Posts: 87

Posted:

Quote:

Posted By CindyT5 on 03/22/2022 7:09 AM
Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

Thanks for this contribution.

I'll mention that one piece of our process I think we're going to adopt is that the Association president is going to do the monthly reconciliation of the books; that's the oversight piece.

I support two signatures. We have a meeting with our credit union in a couple of hours, so we'll see what the rep says.

MaxB4
Posts: 3,513

Posted:

Thomas

I'll mention that one piece of our process I think we're going to adopt is that the Association president is going to do the monthly reconciliation of the books; that's the oversight piece.

Really, good luck with that!

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By MaxB4 on 03/22/2022 11:06 AM

Posted By CindyT5 on 03/22/2022 7:09 AM
Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

If you don't allow your management company to write the checks, who's going to do this task?

Aha. The $64 question.

BillH10 (Texas)
Posts: 1,217

Posted:

I was the Treasurer of an association in California before a corporate relocation to Texas in the late 90s.

We had a two signature process which caused the Board and management company a great deal of angst as the other signatory and I had teams nationwide and travelled constantly. Every bill required a review by the President, and her signature, then mine. If we were both in our homes the same days five times a month it was uncommon. We could not convince the majority of the Board to modify the process, or eliminate it entirely.

No association with which we have been associated or managed in Texas has felt compelled to have a two signature check signing requirement.

Consider the following:

1. If you feel you must implement a two signature system, do not implement it for the recurring expenses such as the utilities, landscaping service, pest control and other such service providers. Pay as many as possible through an automatic debit initiated by the provider, have the management company write checks for the remainder. If something does not look or smell right, have the Treasurer review the invoices and debits to the checking account.

2. What is the big deal about writing a check in excess of some amount? One of our clients is installing new exterior lighting on the property, the bid is in the $18,000 range. The Board has approved the expenditure. When the invoice arrives, I will send a note to the Board and write the check. If there is a change in the amount compared to the bid, I will notify the Board but, frankly, almost all contractors tell us when they will think they will exceed the bid amount and provide the reasons why. The Board will know if the increase long before the invoice arrives. What would a two signature check accomplish in that situation other than to put overhead on the MC and someone on the Board.

3. Tell me how in the world someone on the Board is going to write the checks without access to the accounting system. Will they have a checkbook and send a copy to the MC or bookkeeper for input to the system? What is to prevent them from writing a check to Costco for a new computer or a case of wine?

4. In the same vein, how is the President going to reconcile the bank accounts without direct access to the accounting system, and why would you do this? If something does not balance, then what? Will the person attempting the reconciliation have access to the records to identify a discrepancy? Will that person be authorized to input the correcting entries? If not, who will, how will that be done, and who must approve the correction?

It may be appropriate to implement some type of financial controls, such as comparing checks written to approved expenditures. Do not create a massive administrative burden on anyone in the process. Frankly, a two signature check system is an overhead on the MC and the individuals involved and accomplishes little.

I send a list of every check written every month, and a copy of the bank statement, to each of our clients in the monthly financials.

If there is something which stands out, I provide an explanation and, occasionally, a copy of the invoice if there was an unusual expenditure, such as a plumbing emergency, which did not go through the normal bid/Board approval process. Even then, the Board would have been informed as to the expenditure before the check cleared.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By BillH10 on 03/22/2022 4:23 PM
I was the Treasurer of an association in California before a corporate relocation to Texas in the late 90s.

We had a two signature process which caused the Board and management company a great deal of angst as the other signatory and I had teams nationwide and travelled constantly. Every bill required a review by the President, and her signature, then mine. If we were both in our homes the same days five times a month it was uncommon. We could not convince the majority of the Board to modify the process, or eliminate it entirely.

No association with which we have been associated or managed in Texas has felt compelled to have a two signature check signing requirement.

Consider the following:

1. If you feel you must implement a two signature system, do not implement it for the recurring expenses such as the utilities, landscaping service, pest control and other such service providers. Pay as many as possible through an automatic debit initiated by the provider, have the management company write checks for the remainder. If something does not look or smell right, have the Treasurer review the invoices and debits to the checking account.

2. What is the big deal about writing a check in excess of some amount? One of our clients is installing new exterior lighting on the property, the bid is in the $18,000 range. The Board has approved the expenditure. When the invoice arrives, I will send a note to the Board and write the check. If there is a change in the amount compared to the bid, I will notify the Board but, frankly, almost all contractors tell us when they will think they will exceed the bid amount and provide the reasons why. The Board will know if the increase long before the invoice arrives. What would a two signature check accomplish in that situation other than to put overhead on the MC and someone on the Board.

3. Tell me how in the world someone on the Board is going to write the checks without access to the accounting system. Will they have a checkbook and send a copy to the MC or bookkeeper for input to the system? What is to prevent them from writing a check to Costco for a new computer or a case of wine?

4. In the same vein, how is the President going to reconcile the bank accounts without direct access to the accounting system, and why would you do this? If something does not balance, then what? Will the person attempting the reconciliation have access to the records to identify a discrepancy? Will that person be authorized to input the correcting entries? If not, who will, how will that be done, and who must approve the correction?

It may be appropriate to implement some type of financial controls, such as comparing checks written to approved expenditures. Do not create a massive administrative burden on anyone in the process. Frankly, a two signature check system is an overhead on the MC and the individuals involved and accomplishes little.

I send a list of every check written every month, and a copy of the bank statement, to each of our clients in the monthly financials.

If there is something which stands out, I provide an explanation and, occasionally, a copy of the invoice if there was an unusual expenditure, such as a plumbing emergency, which did not go through the normal bid/Board approval process. Even then, the Board would have been informed as to the expenditure before the check cleared.

Here, Here and then HERE!

LetA (Nevada)
Posts: 2,679

Posted:

Quote:

Posted By MaxB4 on 03/22/2022 11:06 AM

Posted By CindyT5 on 03/22/2022 7:09 AM
Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

If you don't allow your management company to write the checks, who's going to do this task?

Writing the checks is one task, signing them is another. As a BOD I get en emil from accounting to approve invoices. That approval E signs my saved signature on each check. It takes two BOD
to approve invoices i.e sign the checks. So Yes, It is always a good practice to require two signatures on each check.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By LetA on 03/22/2022 4:45 PM

Posted By MaxB4 on 03/22/2022 11:06 AM

Posted By CindyT5 on 03/22/2022 7:09 AM
Lessons from a banker:
1. Don't do business with a bank who doesn't support 2 signatures required. It is often the most essential fraud deterrent.
2. More than 1/3 of the losses taken by an organization or company are insider jobs.
3. If you cannot have a two-signature for the checks, require that each invoice be approved by at least 2 board members. Even better, review the invoices at your regular monthly meeting (assuming you have one) and have awareness of what is being authorized to be spent.
4. DO NOT permit the management company to have authority to write your checks.

If you don't allow your management company to write the checks, who's going to do this task?

Writing the checks is one task, signing them is another. As a BOD I get en emil from accounting to approve invoices. That approval E signs my saved signature on each check. It takes two BOD
to approve invoices i.e sign the checks. So Yes, It is always a good practice to require two signatures on each check.

From CindyT5,

1. Banks don't require 2 signatures any longer, so I guess don't do business with banks.
2. Losses can occur on both sides, no one is immune.
3. We utilize a web portal that allows approval of non auto pay bills, such as utilities and insurance. Many of board don't meet on a regular basis and if they do, many do it via Zoom or virtual.
4. 3 and 4 don't jive

ThomasP13 (Ohio)
Posts: 87

Posted:

Turns out our credit union does support two-sigs, so that's what we went with.

We're completely self-managed now, and just brought all the Treasurer duties back in-house.

Our desire to accept whatever friction two sigs causes is the result of considerable abuse beforehand and working to get responsible processes established that will be passed down to whoever follows.

It's a handful of checks each month, at most. And we can always change it if we need to. But for now, it's the message we're sending to the 20 owners here that we're serious about taking care of their money.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MaxB4 on 03/22/2022 5:12 PM

1. Banks don't require 2 signatures any longer,

Signs on the net are that many or most banks no longer enforce a two signature requirement. But this is not to say that HOAs/COAs should not have a two-signature requirement, and perhaps especially for large checks. From a 2019 web site:

Are Dual Signatures a good internal control requirement?

Yes. An important internal control related to cash disbursements can include requiring two authorized signatures on all company checks generally over a specific amount that has been set by management or the board directors. By requiring two signatures, the company is verifying that both signers agree that the payment is proper and reasonable. The requirement of two signatures reduces the likelihood that one will write improper checks to themselves or writing checks to a fictitious company.

Are banks looking at your checks to verify that the dual signatures are on the checks?

No. Many companies are under the assumption that banks will be reviewing the checks and verifying that checks have two signatures, as required by the company. Banks are not looking for dual signatures–they process certain information from the check including verifying that there is an allowed signature but will not be looking past the first signature. Banks consider dual signatures to be an internal arrangement within the company between those authorized to sign checks and do not want the liability for verifying two signatures.

Should dual signatures still be required if the banks are not checking for dual signatures?

Yes. Continue to require dual signatures but know that it is your responsibility to verify that the internal control steps you have in place are working. There are several ways do this: the person who mails the checks can verify that two signatures are on the checks or the person doing the bank reconciliation can review the canceled checks or go on-line to verify that the dual signatures were done as required.

See https://www.otcpas.com/advisor-blog/dual-signatures/

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Posted By ThomasP13 on 03/23/2022 2:28 AM
Turns out our credit union does support two-sigs, so that's what we went with.

Trust, but verify.

Have you tested the bank's system to refuse a check without two signatures? Likely it will go right through. Why? Checks processing is automated, its a computer processing it, not a human.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

A bank may indeed process checks without two signatures. Even our checks that we paid extra for with the two signature could go through.

However, that is not what should be concerned about. It is basically for record keeping and proof. Someone may ask to see a copy of the checks. It will show the checks were signed with the two signatures. If there are not two, then can prove who is writing checks on their own.

Former HOA President

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Posted By MelissaP1 on 03/23/2022 7:14 AM
A bank may indeed process checks without two signatures. Even our checks that we paid extra for with the two signature could go through.

However, that is not what should be concerned about. It is basically for record keeping and proof. Someone may ask to see a copy of the checks. It will show the checks were signed with the two signatures. If there are not two, then can prove who is writing checks on their own.

If you need to "prove" that, your HOA has bigger communication problems.

Again..... trust but verify. It could be a bank, an internal procedure, etc. If you dont regularly verify things, people will not follow procedures.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By SteveM9 on 03/24/2022 6:17 AM

Posted By MelissaP1 on 03/23/2022 7:14 AM
A bank may indeed process checks without two signatures. Even our checks that we paid extra for with the two signature could go through.

However, that is not what should be concerned about. It is basically for record keeping and proof. Someone may ask to see a copy of the checks. It will show the checks were signed with the two signatures. If there are not two, then can prove who is writing checks on their own.

If you need to "prove" that, your HOA has bigger communication problems.

Again..... trust but verify. It could be a bank, an internal procedure, etc. If you dont regularly verify things, people will not follow procedures.

Well said. There is no system that will stop a cheater. Cheaters cheat and will find a way around any system.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

How better to trust and verify by making sure the copies of the checks are properly signed? If I see a check not having 2 signatures and it made it through the bank, I'd be fit to be tied.

Former HOA President

JackG8 (Virginia)
Posts: 26

Posted:

These days, I'm not sure it matters whether you require two signatures. Most banks allow online checks to be mailed out by the bank to vendors, just by signing into the account, from what I would hope to be a signatory on the account. Personally, I don't like the idea of bank disbursed checks, since some banks aren't even posting copies of those checks on your bank statement, but instead just debiting your account for an amount.