Board members owe several overarching fiduciary duties: the duty of reasonable care and attention, the duty of loyalty to faithfully pursue the community’s interests, and the duty of obedience to follow the association’s governing documents and policies.
To fulfill these duties, a community association board member must exercise appropriate financial stewardship. Responsible fiscal responsibility has many facets. First, the board member must have a good understanding of the community’s financial records including the balance sheet, periodic statements of income and expense, budgets and other financial projections.
This means that each board member must have a working knowledge of the association’s revenue and expense streams, as well as the factors influence revenues and expense. This knowledge enables the board to draft, revise and approve budgets. The board member must review the periodic financial statements to confirm that predictions arising from a budget are matching up with actual experience. Board members must also have an ability to ask meaningful questions revenue and cost items, contracts, bank accounts, reserve funds, etc. A board member must be able to ensure accountability from owners, management and the board concerning these shared fiscal responsibilities.
A Board member has various rights and responsibilities concerning financial affairs. The Colorado Common Interest Ownership Act (CCIOA) contains a specific provision to ensure every board member has access to critical financial information to fulfill their responsibilities. C.R.S.§ 38-33.3-303(1)(b) provides:
Notwithstanding any provision of the declaration or bylaws to the contrary, all members of the executive board shall have available to them all information related to the responsibilities and operation of the association obtained by any other member of the executive board. This information shall include, but is not necessarily limited to, reports of detailed monthly expenditures, contracts to which the association is a party, and copies of communications, reports, and opinions to and from any member of the executive board or any managing agent, attorney, or accountant employed or engaged by the executive board to whom the executive board delegates responsibilities under this article.
CCIOA requires associations to maintain accurate and complete accounting records. C.R.S. § 38-33.3-209.5(1)(a). While a board may delegate the responsibility for maintaining such records to manager, the ultimate responsibility for accuracy and completeness remains with the board of directors. The association is responsible for maintenance repair and replacement of the common elements, as well as drainage facilities or other public improvements required by the local governmental entity. C.R.S. § 38-33.3-307(1) and (1.5). CCIOA requires associations to adopt policies procedures and rules regarding investment reserves funds. C.R.S. § 38-33.3-209.5(1)(b)(VII).
Even without specific authorization in the declaration of covenants, the association can adopt and amend budgets for revenues, expenditures and reserves, make contracts, incur liabilities, and cause additional improvements be made as a part of the common elements. C.R.S. § 38-33.3-302. The Board can also request an audit or review of financial records. C.R.S. § 38-33.3-303(4)(b).
Getting beyond the specific statutory provisions, what do board members really need to focus on? The first category would be financial planning, such as anticipating revenues, expenses, future liabilities, and developing budgets to address these issues. The second category is monitoring and assessing the financial condition of the association on a recurring basis. This is where the board performs a reality check by measuring actual current financial results against the anticipated projections. The third major category is the creation of systems to measure and control financial matters. This includes matters such as: sufficiently detailed balance sheets, statements of income and expense, a general ledger; a system of internal controls (to make sure that there is not too much concentration of financial power, which may be exploited to the Association’s disadvantage); banking resolutions; separate bank accounts where appropriate; and systems and methods for reporting and filing information pursuant to statutes or regulations.
The attorneys at Altitude Community Law P.C. can provide guidance to common interest communities to assist them understanding of filling responsibilities concerning the utilization of Association funds.
Please feel free to contact us if you have any questions at 303.432.9999.