Assembly Bill 2912 was drafted with the express intent of preventing fraudulent activities by management companies. The Assembly’s analysis included important information, like the fact that homeowners associations now represent “approximately a quarter of the state’s housing stock.” The associations range from only a few homes in size to those with very large bank accounts, but they all have a common trait – the finances are controlled by a small group of volunteers. Particularly in retirement communities, it is the legislature’s opinion that these corporations are susceptible to financial mismanagement and fraud. As a result, AB 2912 is designed to put new safeguards in place.

Now, managers may not make transfers of greater than ten thousand dollars ($10,000) or five percent (5%) of an association’s total combined reserve and operating account deposits, whichever is lower, without prior written approval of the board.

Previously, all boards were required to do the following on a quarterly basis (unless the documents required a more frequent review):

• Current reconciliation of the association’s operating and reserve accounts;
• The current year’s actual operating revenues and expenses compared to the current year’s budget; and
• An income and expense statement for the association’s operating and reserve

This review will now need to take place on a monthly basis and must also include a review of the check register, monthly general ledger, and delinquent assessment receivable reports.

Note that the law now permits the review to made by every board member, or in the alternative, a subcommittee of the board consisting of the treasurer and at least one other board member. If a subcommittee is used, the review does not need to occur at a board meeting, but the review needs to be reviewed at the next board meeting and included in the minutes. Subcommittees will likely be a viable option for boards that intend to continue to meet quarterly, rather than monthly.

Finally, all associations are now required to purchase a fidelity bond for their directors, officers, and employees in an amount that is equal or more than the reserves of the association plus three months of assessments. However, if the governing documents require greater coverage amounts, the greater amount must be purchased instead. The fidelity bond must include coverage for computer fraud and funds transfer fraud. If the association uses a managing agent or management company, the fidelity bond coverage must also include dishonest acts by that person or entity and its employees.