The treasurer of a Resident Welfare Association (RWA) holds a pivotal position, entrusted with the management of the community’s collective funds. This role demands meticulous attention to detail and a deep understanding of financial regulations. Unlike other RWA board members, the treasurer is responsible for handling substantial sums of money. This involves a wide range of tasks, from timely invoice generation and debt collection to budgeting and bank account management.
To make things simpler to manage, following a few ground rules usually helps.
In this blog, we are going to talk about those basic ground rules, and that is about the number of RWA bank accounts you should have for managing your Community funds.
Managing RWA Finances: Streamlining Bank Accounts
When taking charge of supervising the finances of a Resident Welfare Association (RWA) as a Treasurer, Board Member, or Community Manager, the first question you should ask is:
How many bank accounts does the Association hold?
Ideally, the answer should be no more than 1-3 per Association.
If your Association feels that multiple bank accounts are necessary, there should be a compelling reason for it. Managing numerous RWA bank accounts can be challenging and inefficient. Here are key considerations for maintaining multiple bank accounts:
- Structuring of Operating Fund and Reserve Fund
- Possible Diversification against Bank Defaults
Typically, you can manage with just two RWA bank accounts:
- Operating Account: This account handles the day-to-day operations and expenses of the homeowners association or RWA.
- Reserve Fund Account: This account is for the community’s savings, used for large future projects or unexpected major expenses (e.g., building painting, new play area construction, significant repairs due to natural calamities).
Some RWAs end up opening multiple bank accounts to manage various segments, such as different types of reserve fund requirements or different operating expenses. Additionally, some may open multiple accounts to take advantage of various benefits or offers from banks. However, creating too many segments can lead to complications in managing the accounts. It’s best to keep things simple and streamlined with just two accounts unless there are strong reasons for more.
Challenges of Multiple RWA Bank Accounts
Maintaining multiple bank accounts for an RWA can introduce several complexities:
- Increased Administrative Burden: Each account requires regular reconciliation with financial records, a time-consuming process even for inactive accounts.
- Operational Challenges: Whenever the RWA board changes, updating signatory details across multiple accounts can be cumbersome and error-prone. Overlooking a single account can freeze its funds.
- Potential for Misuse: Less frequently used accounts may receive less scrutiny, increasing the risk of financial irregularities.
So, the first day in office for a Treasurer should be to take stock of the Bank Accounts! Sunset redundant Bank Accounts, and ensure any new Bank Account opening follows a Due Diligence process – Passing a Board Resolution being just one of them.
