How Many Bank Accounts Should HOA Have

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Among all other posts of the Management Committee or the Board of a Home Owners Association (HOA), the Treasurer’s role usually is the most critical and demands for a lot more attention. This is because the Treasurer is held to be the custodian of public money, the cumulative funds of all owners in a residential community / home owners association / housing society. 

Also, typically there are various financial compliances which the Treasurer has to oversee. These compliances depend on the law of the land, and vary across countries.

Also, money management is typically the least enjoyable part of running a residential community or a HOA.

There’s actually a lot to it – making sure that invoicing is happening perfectly on time for collection of maintenance changes or assessments, dealing with outstanding maintenance dues / assessments (defaulters), vendor payments, participating in budgeting exercises and a lot more in between, including managing the HOA bank accounts. 

To make things simpler to manage, following a few ground rules usually helps.

In this blog we are going to talk about those basic ground rules, and that is about the number of HOA bank accounts you should be having for managing your Community funds.

“How many Bank Accounts does the Association hold?”

Please make that your first question, if you have just taken charge to supervise the Finances of an HomeOwners’ Association – as a Treasurer / Board Member / Community Manager etc.

The answer should be no more than 1-3 per Association.

If as an Association you feel that multiple HOA bank accounts are required, then you should have a very strong reason for it. As managing such multiple HOA bank accounts can be a huge problem going ahead. Let us delve into a bit of details.

Reasons why multiple bank accounts should be considered:

If you are opting for multiple bank accounts, then it should be because of any of the following reasons:

1) Structuring of Operating Fund and Reserve Fund

2) Possible Diversification against Bank Defaults

Typically you can do with only 2 HOA bank accounts:

1. The first one would be your operating account – The money in this bank account would be used to take care of the day to day operations and expenses for the home owners association or resident welfare association.
2. The other account you would need is to park the Reserve Funds – Reserve fund is nothing but the savings of the community or home owners association, which would be used not as part of regular expenses. This fund would be touched for large future projects, any unplanned large expenses, etc. Examples can be painting of the buildings, construction of a new play area, repair of a large portion of a wall which might have collapsed due to a natural calamity, etc.

That’s it.

It is surprising how many Associations have as many as 5-10 Bank accounts, each having some funds, though frequent Transactions happen from 1-2 of these bank accounts only.

Some homeowners associations end up opening multiple bank accounts as they end up creating too many segments to manage their accounts – meaning separating reserve funds into different accounts, each named for different types of reserve fund requirements, or opening multiple operating accounts, each named for different types of operating expenses. Some HOAs, management committees, or resident welfare associations even open multiple bank accounts to just leverage the different benefits or offers which are given to them by the banks to get the HOAs to open a bank account with them.

What are the drawbacks of so many HOA Bank Accounts?

1. Bank Reconciliation is the most important Monthly Book Closing Activity. It is not only done by the Accountant, but also by the Internal Auditor. Each Bank Account should be reconciled with the Books of Accounts. So, greater the number of Bank Accounts, greater the time and effort of Bank Reconciliation. Even if no transactions have happened in a Bank Account, it has to undergo the reconciliation process (to ascertain zero transactions took place).

2. Each time the Board Changes, Signatory change must be done for all these Bank Accounts. If signatory change is missed for any of the Bank Accounts, funds in those Accounts get locked.

3. Rarely Used Bank Accounts create opportunities for misuse. An active cheque book that’s relatively unused and less stringently monitored, can invite opportunities for financial misappropriation.

So, the first day in office for a Treasurer should be to take stock of the Bank Accounts! Sunset redundant Bank Accounts, and ensure any new Bank Account opening follows a Due Diligence process – Passing a Board Resolution being just one of them.

What other Banking Best Practices does your Association follow?