Fiduciary duty as defined by the Business Dictionary is: A legal obligation of one party to act in the best interests of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property.
There are four main tools that help boards keep their accounting transparent: Online Tools for Board Business, Online Bank Account Access, Online Review and Approval of Bills and Financial Reports.
Online tools for Board Business
A board only web-portal or online access to your community’s accounting system will allow a board to view up to the minute financial information like delinquent owner account balances. I’ve seen where a board member doesn’t pay assessments for an extended period of time (maybe why they joined the board). With online access all board members will see what is happening and be able to confront the delinquent board member. Note: you won’t see all of the financial reports if you get this access as they have to be closed out by the accounting staff to avoid confusion.
Online Bank Account Access
One of the most common ways theft at communities is perpetrated is by hiding what is really happening by not supplying bank statements. Make sure you get your bank statements as part of your monthly financial reports. Even better is to work with a bank that provides online access for the entire board to view the bank account and see real time deposits and checks paid. This access will also allow the board to run bank statements for prior periods. Some banks specialize in working with community associations and makes this access easy to implement. Also, make sure to choose a bank with no monthly maintenance fee (they are out there). Note: if working with a management company or specialist community bookkeeping company the Board will have view only access to the bank accounts and not the ability to move money around. This ensures any changes made are recorded and your financial reports are accurate.
Review & Approve Bills Online
One of the ways that fraud occurs at a community is when someone writes checks without permission or to phony vendors. The best way to prevent this is to use a better accounts payable process. Use a system that takes bills, scans them and post them online for your review and approval. If you are using a manager they will approve the bill first, then one board member can approve all bills like the Treasurer for added transparency you can add a second board member to approve bills over a certain dollar amount like $500. If you are a self-managed community you can have a second board member approve all bills like the President.
You can also set it up so all board members can have logins to see bills that have been approved and those pending approval. An additional benefit is this will make audits by your CPA less time consuming and cheaper as you can give them a login to view bills as well. Watch this video to see how it works.
A red flag goes up for me when I hear a board is not receiving financial reports. They may receive them infrequently or may not receive the reports at all, they may have errors or you may not get any explanation or answers to questions. One of the main tools a board needs is timely financial reports.
One tip is to get financial reports more frequently like monthly. Another tip is to email the reports to the entire board for greater transparency. Ask that your report package includes a comparative Income & expense report which will show you when you’re out of budget. This report makes it easy to spot unbudgeted expenses which can start a conversation among the board as to why. If you are not currently getting timely or accurate financial reports you need to change the way you do business. Look into a service like Community Financials for help.
Using transparency tools for your accounting is like having x-ray vision. If you are professionally managed you may be already using these tools. If not ask if the manager knows about them and any plans to incorporate in their service. Maybe the manager can partner with a financial management company to do the accounting and you can get these features or maybe it’s time to look for another manager. If you are a self-managed community you can look into a service that helps provide greater transparency to your condo community or homeowners’ association bookkeeping and financial management. Greater transparency will protect the association’s funds and help the board uphold its fiduciary responsibility.