The sheer mention of fiduciary responsibility may deter some homeowners from volunteering for board service, but it shouldn’t. Handling the association’s finances is one of the board’s most important duties, and it doesn’t have to be complicated.
Fiduciary duty means protecting assets, budgeting responsibly, planning for the future, investing wisely and observing laws and regulations that affect association resources. Fiduciary duty requires the board to ensure that the assessments you pay are used properly to maintain the community and cover insurance, contracted services, utilities and other needed materials and services. The board is obligated to make ethical and legal decisions that best serve the entire association.
Board members fulfill their fiduciary duty by:
- Establishing and adhering to a budget. A good budget is developed through an objective, step-by-step process based on historical data and careful research.
- Reviewing financial statements regularly. The statements include a balance sheet, budget comparison report, income report, check registry and more.
- Putting policies in place to reduce the risks of fraudulent activity. These include, for example, requiring two signatures on checks, not signing blank checks and sending payment only when an invoice is received.
- Hiring an accounting firm to perform an annual audit. An auditor will look for missing check numbers, missing bank statements, duplicate payments, payments to unfamiliar vendors or suspicious journal entries.
- Adopting an investment policy. A good investment policy protects principal, liquidity and yield.
- Conducting a reserve study and updating it regularly. A reserve study identifies the expected remaining life of each major component, estimates the cost to replace it and the amount that should be saved on a monthly or annual basis.