The law requires that an HOA segregate its reserve funds from its operating funds and perform an annual financial review. Some governing documents increase the scope or frequency of this review and require periodic audits that are more thorough than financial reviews.
The law also requires preparation and distribution of a budget and financial report each year as described under the heading “Association Budgeting, Reserve Planning, and Reporting Requirements” above.
Reserve funds can be used only for repair, restoration, replacement or maintenance of the portions of the property that the association is obligated to maintain, or litigation involving these items. In some circumstances, the association can borrow reserve funds to cover operating expenses, but a plan to replenish the reserve funds must generally be adopted within one year.
The board is responsible for fulfilling the association’s accounting responsibilities, but it can delegate this responsibility to an officer, committee, or professional manager provided the board retains final authority.