Seven Steps to Success — Best Financial Practices For Your Association

BY Anthony L. Emma Jr., CAM / Published August 2023

Every board member faces the responsibility to safeguard the financial well-being of their association. Implementing key accounting and financial practices is critical to mitigating both internal and external risks. The seven steps below represent a proven methodology for sound financial management.

1. Dual Controls/Separation of Duties

Associations should ensure that either their management company or internal personnel maintain dual controls and separation of duties for all accounting functions. Most notably, these accounting activities need to include accounts payable, accounts receivable, check writing, and bank reconciliation; and all should be performed by separate individuals within the organization. This practice not only eliminates the opportunity for theft but also ensures a much higher level of accuracy and efficiency.

2. Positive Pay

In concert with your bank, associations can deploy positive pay as an additional level of security. Positive pay is designed to ensure any payment from your accounts is both supported by the appropriate documents and/or authorization and is not a fraudulent item. This practice minimizes the opportunity for theft and ensures a much higher level of accuracy and efficiency. This process also ensures that all checks are reviewed and approved by an individual not involved in the check-writing process, which will also help eliminate the possibility of fraud.

3. Written Policies and Procedures

It is imperative that associations and their management companies develop written policies and procedures that govern all aspects of the duties,
processes, and responsibilities of their accounting function. All property management professionals need to adhere to the structure outlined in these policies and procedures to ensure the highest level of accuracy,
efficiency, and security. Policies and procedures should be reviewed regularly or with any material change in personnel. Additionally, the association board should review all policies and procedures at least annually to refine or clarify any process.

4. Distribution of Financial Reports

Board directors need to ensure the timely production, distribution, and review of all association financial reports for the end of each month, quarter, and year, in accordance with Florida law. This financial package should contain bank reconciliations (including bank statements and copies of checks), income statements, balance sheets, and a detailed general ledger reflecting any and all supporting detail of funds coming into or leaving the association bank accounts.

5. Experience / Longevity

When choosing a management company or an association manager, associations should consider the experience, longevity, and knowledge of their personnel. Their reputation and integrity as a fiduciary should be well documented, in addition to the professionalism of their accounting team. Ask for references and be diligent when reviewing their credentials.

6. Crime Insurance

As part of a complete insurance package, associations and/or their management companies should include crime insurance as protection against possible exposure to claims. This provides another level of assurance regarding the accuracy and security of both the management company and the association’s fund activities.

7. External Review

All association records, financial statements, and internal controls should be reviewed annually by the appropriate professionals. This external and independent review process adds an additional layer of protection for both the management company and association.

Initially there may be a cost associated with adding these additional layers of security and protection. Now is the time to identify any deficiencies and structure your association budget accordingly.

Remember the board of directors has a fiduciary responsibility to protect and preserve the assets of the association.

As a result, instituting policies and procedures that incorporate these seven steps will help ensure the safety and soundness of your organization.

Anthony L. Emma Jr., CAM, CEO | Managing Partner, Element Financial Solutions

Expert Reserve Services Inc.

Anthony L. Emma Jr., CAM, is CEO | managing partner of Element Financial Solutions, a full-service financial and accounting and residential property management firm. Anthony earned a bachelor’s degree in finance from Bryant University and holds a community association management license (CAM) as well as a certified general contractor’s license in the state of Florida. Element has extensive knowledge of and experience with property management processes, investment services, facilities management, construction, appraisal, and valuation services. Element understands the distinct characteristics of association and property management. Licensures and designations underscore the team’s comprehensive grasp of the regulations and statutes governing associations. For more information, call 239-315-7000, email aemma@elementfinancialsolutions.com, or visit ElementFinancialSolutions.com.