Company, HOA board may be both at fault over funding flaw

Q: I am the president of our HOA and I just found out that our management company’s accounting department transferred $40,000 from our operating account to our reserve account, leaving almost nothing in our operating account to pay bills. Upon investigation I found out that they had not been making the monthly contributions to reserves for almost the entire year of 2025. I am furious and consider this to be gross incompetency and negligence on their part. Can I file a complaint with the Ombudsman’s Office and talk to our lawyer about taking legal action? Why didn’t they notify the board before they did that? I want to hold them accountable for what they have done to us. Can you shed any light on this? Can management companies do things like this? This can cause severe financial hardships to an HOA like ours.

A: Under NRS 116.3115, pertaining to reserves, associations are obligated to properly fund their reserves. Under NRS 116.31083, pertaining to board meetings section 7d, the board is to review its reserves and its current reconciliation of the reserve account.

The community manager should be advising the board that the association is not properly funding the reserve account. The financial report under the heading Due To/From should be showing that money is owed to the reserve account. The minutes of the meeting should include this discussion and what actions need to be taken. If the funding of the reserve is not discussed, both the board and the community manager would be at fault. Ultimately, the board is responsible for the funding of its reserves.

Under NRS 116.31153 (3a), money in the operating account of an association may be withdrawn without the required signatures under subsection 2 of this law to transfer money to the reserve account of the association at regular intervals.

The decision to make the $40,000 transfer from the operating account to the reserve account, leaving the association without funds to pay for its operating account should definitely have been discussed with the board by the community manager prior to any transfers. The funding of the reserve should also have been addressed during the preparation of the 2026 budget. If the association was so underfunded, some action to increase assessments should have been made.

The reader should have a discussion with their attorney because this is simply not just a black-and-white issue as the board could be found negligent in its funding of the reserves as required by law. The community manager should have discussed the funding problem and decisions could have been jointly made with the board prior to the $40,000 transfer. The community manager could be found to have violated numerous sections under NRS 116A. 355 (2 and 3) which pertains to unprofessional conduct, such as failing to disclose material fact and exceeding the authority granted to the community manager by the association.

Barbara Holland, CPM, CMCA, AMS, is an author, educator and expert witness on real estate issues pertaining to management and brokerage. Questions may be sent to holland744o@gmail.com.