For the board members and managers handling the successful operation of a co-op or condo community, one of their biggest responsibilities revolves around their fiduciary duties. They are, after all, dealing with people’s biggest assets: their homes.
“The board of directors must act in compliance with its fiduciary duties and in furtherance of its fiscal responsibilities to ensure the financial condition of the cooperative corporation and maintain safeguards to protect the fiscal soundness and integrity of both its operating accounts funds and reserve funds,” says attorney Ronald A. Sher, a founding partner with the firm of Himmelfarb & Sher, LLP, in White Plains..
Fortunately, in most cases the governing documents of a co-op or condo lay out a road map for the handling of common funds. But sometimes the path can become less clear – and that’s when the real challenges arise.
Knowing What’s What
There are a number of different funds that constitute the ‘common funds’ for a co-op or condo community. These include reserve, operating and petty cash funds.
“Operating funds are to be used for operating the building,” says Brad Schneider, an accountant and president of CondoCPA, which has offices in Illinois, Florida, and California. “They are generally ongoing maintenance and repair items. The reserve fund should be used for components of the building that are to be replaced or repaired. The petty cash fund is usually cash that is kept on-site for small expenses that are needed immediately, such as paper for the copier.”