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Financial Policy Check Can your policy keep your association running smoothly through economic flux?

September 1, 2008

No single policy area in association management is more important to an association’s long-term success than developing a sound financial policy. In both economic boom times and downturns, a thorough and reasoned financial policy that is accepted by leadership and staff enables associations to hold a steady course.

Like many associations today, yours may be reviewing its financial policy. Every association should periodically revise its overall financial policy to stay in sync with changing strategies and economic realities. For example, is your association expecting a tight budget for the next three years or will you be expanding some services? A financial policy that is out of touch with your goals is ineffective.

To bring your policy up-to-date, establish a committee or a group of directors to review it. If you don’t already have committees, such as budget and finance, investment, and policy review (with multiyear terms of service to ensure consistency), consider establishing these to create a system of checks and balances.

Leadership and staff should be familiar with the financial policy. Ensure that the new elected leader-ship reviews and readopts the association policy manual annually.

Although it will take some work, an organization that commits to preparing a thorough financial policy will operate with a greater level of consistency and open communication than one that constantly reinvents itself in reaction to economic changes or budget crises.

The best financial policies address not only the governance issue associated with assets and liabilities, but also identify strategic goals and objectives and translate these into daily actions. In short, a financial policy ensures that over time, an association will put its money where its mouth is.

Policy documents in general are distinctly functional documents, as opposed to an association’s bylaws or charter. Policies dictate specific actions to be carried out and enforce the general statements contained in the bylaws. For example, if the bylaws state that the association will collect annual dues, the financial policy will describe how, such as amounts, deadlines, and penalties. Policies are more easily modified than bylaws. But no less than bylaws, policies represent a written understanding between members, leaders, and staff regarding association practices.

During times of economic flux, some policy items to reevaluate include: the percentage of dues allocated for reserves (is it too high?), expense reimbursements for leadership and staff expenses (are you cutting back on travel and training?), financial commitments to ongoing programs, such as scholarship funds or charitable programs (can you afford these this year?), and target percentage of association income from nondues revenue (will you meet the target this year?).

Sound association financial policies cover:

• General organizational operations. What is your organization’s corporate structure (for example, not-for-profit tax-exempt, not-for-profit but pays taxes on income, or for-profit)? What is your fiscal year (July to June or January to December)? What are the general financial responsibilities of the treasurer, staff, and other key players in the association?

• Dues. What are your dues amounts, collection procedures, and penalties for late payment?

• Cash receipt and disbursement. Who pays the bills and when? Who signs checks, and what are your credit policies and late charges?

• Checking, savings, and investment accounts. Where are your funds maintained? Who can add or withdraw funds or make changes to -investments?

• Budget. Who develops the budget, who reviews it, who approves it, and along what timframe? What types of budgets does the association expect (zero-based, programmatic, capital)?

• Reserves. What is the association’s policy regarding amounts and types of reserves? Is depreciation of the office building funded? Are leasehold improvements funded? Is there a percentage of the budget allocated to general reserves—for instance, an amount equal to 50 percent of the annual operating budget? Some common reserve funds are: rainy day, legal liability, research and development, equipment and software acquisition, and building maintenance and acquisition. How should the association fund these reserves? (Direct contribution as a budgeted line item? Percent of dues? Allocation of a certain type of income?) What limitations are there in approving expenditures from reserve funds?

• Employees. What is the association’s financial commitment to its employee benefits program? Does it provide insurance? Pension plans? You can include specifics about employee programs in the personnel manual, but general financial obligations to the personnel program should be detailed in the financial policy.

• Association operation expenses. These policies relate to: expense reimbursements for leadership and staff, financial commitments to ongoing programs such as scholarship funds or charitable programs, association insurance coverage, honoraria for association staff or leadership, board or other leadership position reimbursements, and other special paid positions. What procedure should committees follow to gain approval to fund programs?

• Nondues income. What target percentage of the association’s income comes from nondues sources? As associations look at developing alternative income streams, they need to develop specific goals.

• Financial audit procedures. How often is a full audit (as opposed to a review) performed? What are the reporting procedures and accountability expectations to which staff and leadership are held? Z

Financial Policy Samples & Resources

Articles: Visit the online archives of REALTOR® AE at
REALTOR. org/RAE to read these articles:
• How to Budget in Uncertain Times
• Better Budgets: 10 Steps to Initiating a Zero-based Program Budget


Guides: Visit NAR’s online library to access the Field Guide to Association Budgets and Reserves at

The following guides are available for loan from NAR’s library in Chicago; call 800/874-6500. Management Guide for Real Estate Associations, by Judith Lindenau, International Real Property Foundation, 2002. The Policy Sampler: A Resource for Nonprofit Boards, Washington, D.C.: National Center for Nonprofit Boards, 2000.

Financial Checklist: Access a Financial Operations Checklist, by Judith Lindenau and Dale Stinton, online at

Judith Lindenau, rce, cae, is an association management consultant and former EVP of the Traverse Area Association of Realtors®, Mich. She can be reached via