HOAs Must Have Controls and Follow Proper Procedures For The Use of Reserve Funds

A prudent board of directors should have a dual signature requirement for withdrawal of funds over a specified minimum dollar amount (or for distributions outside the amount set forth in its budget) from any of its accounts. When it comes to funds that are on deposit in an association’s reserve account, such safeguards are not only prudent, but they may also be mandated by state statutes that impose limitations on the ability of association directors to access and spend the association’s funds that are held in reserve for specific limited purposes. The controlling state statutes and/or the association’s governing documents will define reserve accounts or funds to include any monies that the association’s board has identified for use to defray the association’s reserve account requirements and funds received and not yet expended or disposed of from the resolution of a construction or design defect claims or lawsuits. Typically, the withdrawal of funds from an association’s reserve accounts requires the signatures of a least two board members, or one member of the board of directors and one officer of the association who is not a member.