Records Retention Guide for Homeowners Associations
By: Gary A. Porter, CPA
For many Associations, maintaining adequate records is a significant problem. There are several aspects to this issue:
- Creation of appropriate records to begin with
- Adequately storing and maintaining the records so that they are accessible in future periods
- Creating policies and procedures for the systematic destruction of records at the appropriate time
- Creating policies and procedures for digital records storage
Entering the era of digital records storage actually adds a new layer of administrative burden, as many people that have finally mastered their paper documents storage system discover that management of electronic documents is another whole ballgame. Digital records don’t take up lots of space like paper documents, but should still generally have the same retention requirements as their paper counterparts.
While the creation of adequate records and documentation is considered a part of this records retention problem, it really is a completely separate subject. Our firm has developed several guidelines for use by our Association clients in determining what records should exist. We have attempted to summarize these guides in the form of our minutes checklist and our suggestions for a resolutions manual, which is the subject of a separate article. Records creation is a problem for the same reason that records retention is a problem for many Associations: there is a lack of continuity on the Board of Directors, and many times there is inadequate continuity with management companies to ensure that adequate records are created and retained.
The subject of records retention is further compounded by the question of who should be maintaining the records, the Association or the contract management company. We offer no specific recommendations on this issue, but it is clear that it is the responsibility of the Board of Directors of the Association to make sure that the records are adequately maintained. We recommend that an Association maintain a storage facility for important Association documents that is separate from storage facilities maintained by the contract management company. This storage facility should not be in a member's home or garage, but should be in an area that is commonly accessible to future Boards of Directors. This may be an offsite public storage facility that is rented on an annual basis, or may be a segregated and secure area on the Association grounds. As an example, a portion of the clubhouse area or a storage area within the clubhouse complex could be utilized.
It is very important that once a storage place has been selected, that an index or catalog system be maintained of the contents of all of the boxes stored in the storage area so that anyone wishing to find a particular item will not have to search through a hundred boxes to find one specific paid invoice or minutes for a specific board meeting.
If you are an Association that files records electronically, there are legal standards to follow. Please consult with your legal professional for further advice.
The records retention checklist attached represents suggested guidelines to the Association in maintaining their records. This is not intended as an all-inclusive list, but as a starting point for the Association in developing its own records retention policy. We suggest that you contact both your accounting and legal professional advisors before making major modifications to this schedule as there may be state laws requiring that certain records be maintained for a specified period of time.