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Proper Financial Control for a Kansas City HOA | KC Property Management Advice

Tom Sedlack - Wednesday, November 15, 2017

The title of this blog – Proper Financial Control for a Kansas City HOA – sounds like a mouthful, but it means is your HOA agent properly managing the funds in your HOA accounts? Typically, HOAs will have two accounts; an operating and reserve account. You need to have faith that your management company is following proper accounting security procedures, cash handling procedures, and preventing fraud. It’s not surprising that every so often, you hear about a property manager running off with hundreds of thousands of dollars out of an HOA’s reserve account. It’s a sad story when you hear it, but it can be controlled with a company that uses proper trust accounting controls and follow through.

HOA Finances: Controls and Protection

A good property management company can prevent fraud and misappropriation within your HOA by opening proper custodial trust accounts. Find a local bank that is chartered in the state. You need an actual office and not a bank that’s out of state. The reserve account should be a savings account. You don’t want checks to easily transfer back and forth from that account. With our reserve accounts, there are no transactions except by and between the operating and reserve account. It’s a one way conduit. No external checks out of the reserve account, and transfers are not occurring. The reserve is solely used with the operating checking account. This is important because when you audit and reconcile the balances against your software, you should have a perfect balance between the bank account and the operating account software. We provide those to our HOA board members. You’re auditing yourself as well as the opposite accounts. So, when you’re auditing the operating account, you’re also checking the reserve account. You can easily flag fraud during the audit.

HOA Finances: Handling Checks, Cash, and Access

Check handling duties and cash handling duties need to be divided between several people. The employees printing the checks should not be the same as the people who sign them. Officers and directors may be able to sign checks, so they shouldn’t be able to print the checks. There should be two signatures required as well. One should be a board member and the other might be an agent.

Access to your bank accounts should be restricted, but HOA board members should have view access. You don’t want the boards to have check writing privileges without the agent, but current board members should be able to view the bank accounts. It will help you notice unauthorized transactions.

HOA Finances: Lockboxes and Electronic Checks

Bank lockbox processes need to be in place. If your HOA still predominately operates by writing checks, the lockboxes should be secure. It could be a lockbox or an onsite scanner so your agent can scan checks. There should be a shredding policy if paper checks are being used. This is an important security protection. ACH processing is always preferred. Electronic processing of dues and fees is more secure. You don’t want things flying through the mail. Converting those checks to electronic is also a benefit and a way to reduce fraud.

HOA Finances: Positive Pay

Positive pay is when the management company or the agent writing the checks uploads separately to the bank a list of all the checks that they have written, with the check numbers. The bank looks at that and makes sure there aren’t checks being cashed that aren’t on the list. You’re sending the bank all this information so they can help you keep everything in order. It will flag unauthorized transactions. 

Remember that bookkeepers and property managers should not have the same privileges. They should not sign checks. Typically, HOA management companies will have a property management bookkeeper and a corporate Tom Sedlackbookkeeper who takes care of audits. You want a separation of power and authority so one party doesn’t have too much control.

If you have any questions about controlling your HOA finances, or you need help with Kansas City KC HOA management, please contact us at 33rd Company® Kansas City. We’d be happy to help you out.


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