The main difference between a reserve fund and an operating fund in a HOA setting is that an operating fund is used to cater for the daily expenses of managing a HOA while a reserve fund is used for unforeseen circumstances or long-term projects which require more in-depth planning.
HOA board members have a fiduciary responsibility to ensure these Funds are separate and in good standing accounts at all times.
These two kinds of funds are explained below in details on what functions they perform and how the categorized funds should be rightly used:
- The Reserve Funds
In a HOA, this type of fund is particularly used for large scale and long-term projects. These are replacements or repairs that are done in rare occasions. The monies have a strict criteria on how they can be used depending on the CC&Rs of the association, bylaws, and accountability. Some of the projects that can be associated with this kind of funds are major landscaping ideas, replacing fencing in HOA-controlled areas, major constructions like sidewalks, roof replacements, new pool pump, playground, social hall equipment, and the like.
- The Operating Funds
In a HOA, this type of fund is particularly used to cater for everyday services that are meant to help the association function smoothly. The budget calculated annually is what the association uses to know how much monthly payments each unit owner should pay. Some of the projects covered under the operating funds are utility expenses, accounting and legal fees, office expenses and supplies, contracted services, insurance, and taxes. It is the work of the board of the association to ensure costs are kept at a minimum.
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