Safeguarding an Ontario condominium corporation’s operating and reserve funds is one of the main fiduciary duties of all board members, not just the treasurer. This means that boards must protect the financial interests of the corporation and its members by making sure all funds are properly managed, invested and protected.
It is important for boards to understand a few essential considerations about solid financial planning.
1. Understand the board’s obligations and options
There are a variety of investment options for operating and reserve funds. Boards must select the right investment products based on the corporation’s investment policy and reserve fund requirements. As safeguarding the corporation’s assets is a top priority, boards commonly invest in money market accounts for liquid funds and CDs for longer term investments.
2. Find the right financial institution
- Check multiple sources when researching a bank’s ratings to gauge how predictable and stable its rates will be.
- Choose one with extensive experience in condo corporations.
- Understand what is required to open an account, complete a transaction and whether directors need to physically visit a branch to sign paperwork (due to recurring board turnover).
3. Know the basics
The strategy for managing reserve investments and operating funds differ. The key is to ensure the corporation’s liquidity needs are met while maximizing interest yield and protecting principal.
The board should develop an investment policy for reserve funds, if one doesn’t already exist. Based on this policy, the reserve study and any expected capital improvements, the board can determine the ideal amount of liquidity required for their reserves. As standard practice, a corporation should have 12 months of estimated expenditures, plus 10 percent cushion, of liquid funds available. Remaining funds should be placed in longer term investments.
For operating funds, it is recommended to maintain three months of expected expenses in a checking account. The remaining or excess monies can then be invested in interest-bearing accounts. Long-term investments are useful in situations where your operating fund contains more than a year's worth of budgeted expenses. Keep in mind that anything less than one year's worth of budgeted expenses should be kept liquid and accessible.
4. Review your investments regularly
Boards should conduct a thorough examination of their investment strategy at least once per year. Keep it simple by incorporating this review into the annual budget process. Remember, financial decisions made by board members have far-reaching implications for the corporation’s bottom line now and into the future.