Chapter 11 - § 11.11 • ACCOUNTING AND MONEY MANAGEMENT

• Jurisdiction: Colorado

§ 11.11 • ACCOUNTING AND MONEY MANAGEMENT¹⁸³

One aspect of community management that may cause managers difficulty is accounting and money management. As one hearing officer noted, community association managers usually manage the association's financial affairs (including accounts receivable and payable), write checks, disburse association funds, invest reserve funds, and prepare and monitor the budget. Depending on the size of the association, the manager may have access to substantial sums of money in cash, credit cards, and checking accounts.¹⁸⁴ There is the possibility of mismanagement, accounting errors, or even embezzlement of funds or fraudulent kick-back schemes involving service providers.¹⁸⁵ The problem is exacerbated by the fact that some communities have a large number of absentee owners, resulting in lessened oversight and increased authority in the manager, and because the governing board members are volunteers. Some board members will be accountants, lawyers, or capable business people, but others may be relatively unsophisticated in business matters. Of course, managers are supposed to keep association funds in separate accounts,¹⁸⁶ use them only for proper purposes,¹⁸⁷ and prevent misappropriation of those funds as well as prepare and furnish accurate and timely financial reports.¹⁸⁸ The CCIOA requires an audit or review in certain circumstances.¹⁸⁹ An audit is required when requested by owners of at least one-third of the units represented by an association with annual revenues or expenditures of at least $250,000.¹⁹⁰ A review is required when requested by the owners of at least one-third of the units represented by the association.¹⁹¹

By rule, in Colorado, every manager is required to establish written internal accounting control policies that include adequate checks and balances over the financial activities of the manager and common interest community, as well as manage the risk of fraud and illegal acts.¹⁹² All "money belonging to others collected by a manager"¹⁹³ on behalf of an association has to be deposited in one or more accounts belonging to the association, and if the manager has access to association funds, written authorization to collect or disperse that money has to be obtained and an accounting of the funds maintained.¹⁹⁴ Commingling of funds is prohibited.¹⁹⁵

To address potential problems, the CCIOA requires that anyone employed as an independent contractor to manage the community by an association with 30 or more units must obtain and maintain fidelity insurance, unless the association names that person as an insured employee in a contract of fidelity insurance.¹⁹⁶ In either event, the policy coverage may not be less in aggregate than two months' current assessments plus reserves, as calculated from the association's current budget.¹⁹⁷ However, the association may carry fidelity insurance in amounts greater than that or may require the independent contractor employed to manage the community to carry a greater amount of fidelity insurance coverage.¹⁹⁸ By rule, managers have to carry crime/fidelity insurance that covers the dishonest acts of all employees in the management company or sole proprietorship.¹⁹⁹ The coverage for each community managed cannot be less in the aggregate than two months of current assessments plus reserves, as calculated from the current budget of the community, or any higher amount the association may require in its bylaws or management contract.²⁰⁰

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