Protecting the community association's operating and condo reserve funds is a fundamental responsibility to not just the treasurer, but all board members. Taking on fiduciary duties means protecting the community association's financial interests and its members, ensuring that funds are not only correctly allocated, but managed and invested in everyone's best interests. 
Here, we have outlined how to produce reliable financial planning to assist Kansas City board members in fulfilling their duties. 

 1. Understand the board's obligations and options

There are many ways to invest in operating and condo reserve funds. Boards should be diligent in looking into the right investment products based on the community association's investment policy and reserve fund requirements. Since protecting all assets is the primary concern, boards will usually invest in the money market accounts for liquid funds and CDs for longer-term investments. 

2. Find the right financial institution

  • Do your research and look at multiple sources when scoping out a bank's rating. This helps gauge how predictable and stable its rate will be. 
  • The best choice will be one with extensive experience in working with community associations. 
  • Understand what is needed to open an account, complete a transaction and whether directors need to physically visit a branch to sign paperwork (due to frequent board turnover). 

3. Know the basics

The key strategy for managing reserve investments and operation funds are different. The key is ensuring that the community association's liquidity needs are fulfilled while also maximizing interest yield and protecting the principal. 
The board should create an investment policy for condo reserve funds, should not one already exist. Making this policy helps support the reserve study and any expected capital improvements so the board can determine the ideal amount of liquidity required for their reserves. A standard practice a community association can take is to have 12 months of estimated expenditures and a 10 percent cushion of liquid funds available. Any remaining funds can be placed in longer-term investments. 
For operating funds, it is recommended to maintain three months of expected expenses in a checking account. The remaining or excess monies can then be invested in interest-bearing accounts. Long-term investments are useful in situations where your operating fund contains more than a year's worth of budgeted expenses. Make it good practice that anything less than one year's worth of budgeted costs should be kept liquid and accessible.

4. Review your investments regularly

Boards should regularly review their investment strategy - usually once per year. The best time to do this is when reviewing the annual budget process. Always keep in mind that these financial decisions have significant implications for the community association's bottom line now and into the future. 
Monday October 05, 2020