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HOA Bank Account Reconciliation: What to Look for and Why it's Important

Spencer Brod Sep 23, 2022 1:00:51 PM

HOA bank statements are one of the most important tools for assessing the financial health of your organization. From budget allocation to discretionary spending, so many financial decisions come from your reconciliation.

For many HOA board members, understanding how bank statements integrate into the community’s financial statements is a confusing task, but we’re here to change that. Here is everything you need to know about HOA bank account reconciliation.

HOA Bank Account Reconciliation

The financial statements must agree to the bank statements when closing out the month's end. If any financial entry during the month was incorrect, the reconciliation process will identify these errors.  Once every transaction on the bank statement is confirmed in the HOA books and there is no variance, the bank reconciliation is complete, and the month-end is considered closed. 

What Are HOA Bank Statements?

HOA bank statements, or statements of account, are statements from the bank showing all deposits and withdrawals from each association account over a certain period of time. The most effective way to prevent fraud within your community association is to keep a close eye on bank statements.

Most associations have at least two accounts: an operating account and a reserve account. The operating account is for the regular costs of running a community association, while the reserve accounts for setting aside funds for future projects.

Reviewing bank statements on a regular basis is important because it is one of the few financial documents that is not prepared by the association board of directors or the HOA management company. Comparing bank statements with association financial statements is a good way for other HOA members to check the accuracy of financial statements prepared by the manager and/or treasurer.

What’s Included in an HOA Bank Statement?

It is important to carefully review every transaction to prevent potential fraud. A proper bank statement should include a timeline of all deposits and withdrawals into and out of association accounts. Each account should have its own statement. Here are some things you will find in your HOA bank statement:

  • Account name and number
  • Address
  • Statement period
  • Beginning balance for the period
  • Deposits, including checks, e-deposits, direct deposits, credits, etc.
  • Withdrawals, including payments (auto or not), electronic transfers, ATM withdrawals, over-the-counter withdrawals, bank fees, etc.
  • Interest earned
  • Ending balance for the period

Your bank statement should also include instructions on how to report fraudulent activity or errors in your statement. If you find errors you can’t reconcile or suspect fraud, contact your bank immediately. Typically, banks only give you 60 days to report such anomalies. Otherwise, your bank will assume the amounts are correct.

Who Should Review Bank Statements of an HOA?

Only a few people should have access to association funds. Usually, it is just the president, treasurer, and/or your HOA management company if you choose to use one. This leaves a lot of power in the hands of a few. If left unchecked, it could be an opportunity for fraud. It is important that all bank statements be sent to someone other than the members who have the ability to write checks. That way, they can act as an impartial inspector to make sure that nothing is missing within the HOA accounts.

How Often to Check Bank Statements?

Bank statements should be included with all other financial statements prepared at the interval as determined by your HOA whether it be monthly, quarterly, or annually. Ideally, you should check a bank statement as frequently as possible. Some banks offer online HOA bank services that allow for 24/7 access to association account statements.

If you are unsure of how frequently to check your bank statements, look at your governing documents or state laws. You may have provisions mandating how often you must perform an inspection. For instance, in California, according to the Civil Code §5500, an HOA board must review its bank statements on a monthly basis.

How Do I Get an HOA Bank Statement?

Understanding bank statements is the hard part, but requesting one is much simpler. There are a couple of ways you can get your hands on your HOA bank statement. Some banks automatically send monthly statements by mail. But, if your bank does not do this, you can always head there yourself to request a copy on the day.

Another way to see your HOA bank statement is to sign up for paperless statements. When you do that, you will stop receiving statements by mail. Instead, you can log on to your HOA bank account online and view your statement there. You can even download your statement — just make sure you save it in a secure location. This comes free of charge, of course.

What If There Is a Discrepancy?

Regular reconciling of your HOA bank account with the community financial reports is a surefire way to prevent fraudulent activity. Just make sure that all financial transactions appear on both records. If your HOA bank statements match the HOA accounting records perfectly, then you have nothing to worry about. However, if there is a discrepancy, you must take a deeper look.

Before suspecting illicit activities within your organization, you must first look into the clearing date. Some deposited or issued checks may not have cleared in the bank yet, which is why you can’t find them in your HOA bank statement. These are considered “in transit.”

Bank reconciliation ensures your HOA’s money is well accounted for. Most online accounting software does the reconciliation process more or less automatically and the result is shown on the reconciliation report which should be included in the Monthly Board packet.

If you find a difference, make the necessary adjustments in your financial reports to balance them out with the HOA bank statements.  Occasionally, banks will make mistakes. In this case, contact the bank in order to have the bank correct the mistake, and then everything should balance. Make sure each difference comes with a detailed explanation. You may have to work with your bookkeeper or manager to accomplish this task.

Review Statements as Part of the Board’s Duty

It is imperative to review all your financial documents, including the HOA bank statements. By doing so, you can get a solid grasp of your association’s financials and ensure that the financial records are accurate. It is also a good way to stay alert to any fraudulent or potentially fraudulent acts. If you suspect anything, gather your board of directors to discuss the issue. You may also want to involve your HOA’s bookkeeper/management company. It is important to address the issue head-on to combat fraud in your HOA.

Financial management can be one of the toughest aspects of operating a successful HOA. This is why most associations choose to outsource the service to a management company like HOA Management Solutions. To get started with us, reach out to our team of experts today!