Treasury Risk & Compliance

HOA boards are fiduciaries. That responsibility includes identifying financial risk, maintaining compliance with governing documents, and ensuring treasury practices can withstand scrutiny.

Many associations assume compliance is handled through audits or management companies. In reality, treasury risk often develops quietly through outdated policies, incomplete documentation, or unchecked operational habits.

This resource explains how HOA boards can identify common treasury risks and maintain compliance through consistent oversight and disciplined financial practices.

What Treasury Risk Looks Like in an HOA

Treasury risk refers to the exposure an association faces from how its funds are held, managed, and governed. Common sources of risk include:

• Cash held in a single institution or account
• Balances exceeding insured limits
• Poor segregation between operating and reserve funds
• Unclear approval authority for financial decisions
• Incomplete or inconsistent reporting

These risks rarely cause immediate problems. They become visible during audits, disputes, leadership transitions, or financial stress.

Compliance Is More Than Following the Budget

Budget approval alone does not ensure compliance. Boards must also align treasury activity with:

• Governing documents and bylaws
• State statutes and regulatory requirements
• Board adopted investment and reserve policies
• Audit and reporting standards

When treasury actions drift from written policy, compliance gaps form even if financial results appear acceptable.

Key Areas Where Risk Often Goes Unnoticed

Cash Concentration and Insurance Exposure

Many HOAs unknowingly exceed FDIC or NCUA insurance limits. This commonly occurs as reserves grow or assessments increase.

Boards should know:

• Where all funds are held
• Whether balances exceed insured limits
• How accounts are titled and structured

Diversification and proper account structuring reduce unnecessary exposure.

Policy Gaps and Outdated Documentation

Policies that are outdated or unclear create risk even if funds are handled conservatively. Common issues include:

• Investment policies that do not reflect current balances
• Reserve policies that lack clear approval thresholds
• Missing documentation for prior board decisions

Written policy protects both the association and individual board members.

Overreliance on Third Parties

Property managers, accountants, and advisors play important roles, but responsibility ultimately remains with the board.

Risk increases when:

• Boards do not review financial activity independently
• Reports are approved without questions
• Assumptions are not documented

Oversight does not mean micromanagement. It means informed review.

Controls That Strengthen Treasury Compliance

Strong treasury compliance is supported by basic controls that are consistently applied.

Effective controls include:

• Separation of operating and reserve accounts
• Dual approval for large transactions
• Regular reconciliation and review
• Clear documentation in board minutes
• Annual review of policies and account structures

These practices reduce error, improve transparency, and support audit readiness.

Why Documentation Matters

Many compliance issues arise not from bad decisions, but from undocumented ones. Boards should ensure that:

• Financial decisions are recorded in minutes
• Exceptions to policy are clearly justified
• Changes in strategy are approved formally

Good documentation creates continuity across board transitions and protects future boards from inherited uncertainty.

The Role of Annual Treasury Reviews

An annual treasury review helps boards identify risk before it becomes a problem. A proper review evaluates:

• Cash positioning and liquidity
• Insurance coverage and concentration risk
• Policy alignment with actual practices
• Reporting clarity and controls
• Reserve access and restrictions

This process strengthens compliance without adding unnecessary complexity.

Practical Questions Every Board Should Ask

• Do we know where every association dollar is held?
• Are balances fully insured?
• Are we following our own policies?
• Can we explain our treasury structure clearly to homeowners or auditors?
• Are decisions documented in a way that would stand up to review?

If these questions are difficult to answer, risk likely exists.

Final Takeaway

Treasury risk and compliance are not about perfection. They are about awareness, consistency, and documentation.

Boards that understand where risk lives, apply clear policies, and review treasury practices regularly reduce exposure, improve confidence, and fulfill their fiduciary responsibilities.

Strong compliance is not reactive. It is built through steady, informed oversight.