Fidelity insurance requirements protect association operating and reserve funds from inappropriate use, embezzlement or stealing on the part of board members having access. Community associations are required by law to have this coverage.
Below is a reprint of the fidelity insurance requirements from Fannie Mae:
The fidelity insurance policy should cover the maximum funds that will be in the custody of the owners’ association (or cooperative corporation) or its management agent at any time while the policy is in force. A lesser amount of fidelity insurance coverage is acceptable for a project if the project’s legal documents require the owners’ association (or cooperative corporation) and any management company to adhere to certain financial controls. Even then, the fidelity insurance coverage must at least equal the sum of three months of assessments on all units in the project.
A lender may accept reduced fidelity insurance coverage based on greater financial controls only when the financial controls take one or more of the following forms:
- The owners’ association (or cooperative corporation) or the management company maintains separate bank accounts for the working account and the reserve account, each with appropriate access controls, and the bank in which funds are deposited sends copies of the monthly bank statements directly to the owners’ association (or cooperative corporation);
- The management company maintains separate records and bank accounts for each owners’ association (or cooperative corporation) that uses its services and the management company does not have the authority to draw checks on – or to transfer funds from – the owners’ association’s
(or cooperative corporation’s) reserve account; or
- Two members of the Board of Directors must sign any checks written on the reserve account.