By Susan M. Hawks McClintic, Esq.
The new law effective January 1, 2019, which will likely have the greatest impact on most community associations is AB 2912 addressing association finances.
AB 2912 adds or amends Civil Code sections 5380, 5500, 5501, 5502 and 5806. These new laws add the following requirements:
- Associations must maintain fidelity bond/insurance coverage in a minimum amount equal to or exceeding current reserves, plus three months of assessments. The association’s fidelity bond/insurance must include computer fraud and funds transfer fraud. If the association uses a managing agent or management company, the association’s fidelity bond coverage shall additionally include dishonest acts by that person or entity and its employees.
- Any transfers greater than $10,000 or 5% of an association’s total combined reserve and operating account deposits, whichever is lower, are prohibited without prior written approval from the board.
- The board must review various financial documents and statements on at least a monthly basis rather than quarterly. These documents and statements include the check register, monthly general ledger, and delinquent assessment receivable reports. This review requirement may be met when every member of the board, or a subcommittee of the board including the treasurer and at least one other board member, reviews these documents and statements independent of a board meeting if the review is ratified at the board meeting subsequent to the review and that ratification is reflected in the minutes of that meeting.
As a result of this new law, the board may need to take the following actions:
- Include fidelity coverage in the budget and be sure any existing coverage meets the minimum requirements.
- Address fund transfer limitations in any management agreement and in other instructions and authorizations to management.
- Set up a board subcommittee to review financials monthly.