By Emily A. Long, Esq.
We have been immersed in the Novel Coronavirus pandemic in California for what is now approaching six months and, at this point, there is no foreseeable end in sight. Like all of us individually, well-functioning community associations are learning how to approach this time in history with greater flexibility and awareness of their various obligations and duties.
Despite the uncertainty of our current situation, community associations are well-advised to continue to perform their statutory duties, particularly those involving review of association finances. As you are aware, since January 1, 2019 and pursuant to Civil Code section 5500, an association board is responsible to perform an at least monthly review of financial documents and statements, including:
- current reconciliations of both the association’s operating accounts and reserve accounts;
- current year’s actual operating revenues and expenses compared to the current year’s budget;
- latest account statements prepared by the financial institutions where the association has its operating and reserve accounts;
- income and expense statement for the association’s operating and reserves accounts;
- check register;
- monthly general ledger; and
- delinquent assessment receivable reports.
Under Civil Code section 5501, this review requirement may be met when (1) 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, (2) the review is ratified at the board meeting subsequent to the review, and (3) the ratification is reflected in the minutes of that meeting. The board may use a resolution to ratify the review of the above-described financial documents; such resolution should be used at every monthly meeting and attached to the corresponding meeting minutes.
Keep in mind that the 2018 revisions to Civil Code sections 5500 and 5501 requiring monthly review of association finances rather than quarterly review, were made with the purpose of preventing fraud and embezzlement of association funds. In support of this purpose, boards (or board subcommittees) must continue to perform a thorough review and investigation of association financial records on a monthly basis.
The attorneys at Epsten, APC strive everyday to not only assist, but educate our clients. Please feel free to reach out to us for more information regarding this or any other community association legal issue.