Most California associations that hire a management company let it collect assessments, pay vendors and move money between accounts. That convenience comes with risk, and the Davis-Stirling Act answers it with specific rules: where the money must be kept, what the manager can never do with it, when the board has to approve a transfer and what insurance must cover it. This article explains each rule and the habits that keep an association’s money safe. For more on working with a management company, visit the HOA Management hub.
Who these rules cover
The rules apply to a managing agent, meaning a person or company paid to exercise control over the association’s assets. Regulated financial institutions and attorneys acting within their licenses aren’t managing agents, and for these rules neither is a full-time employee of the association. Our article on managing agent disclosures in California explains the definition in more detail.
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Where the money goes
A managing agent that receives association funds must deposit any money that isn’t placed in an escrow account or in an account under the association’s control into a trust fund account the manager maintains at a bank, savings association or credit union in California. The funds must stay in a federally insured California financial institution, or one covered by a guaranty corporation the Financial Code allows, until they’re paid out according to the association’s written instructions (section 5380).
The board can go further. At its written request, the funds the manager receives must go into an insured account at a California bank, savings association or credit union that meets all of these conditions (section 5380):
- the account is in the name of the managing agent as trustee for the association, or in the name of the association
- all the funds are covered by federal deposit insurance or an allowed guaranty corporation, and they’re held only in accounts that protect principal, never in stocks or high-risk investments
- the funds are kept separate from the manager’s own money and from money the manager holds for anyone else
- the manager tells the board what kind of account it is, how interest is calculated and paid, who pays any service charges and what notice or penalties apply to withdrawals
- no interest earned on the account benefits the manager or the manager’s employees, directly or indirectly.
No commingling and a separate record
A managing agent can’t commingle the association’s funds with its own money or with money it receives for others. It must keep a separate record of every dollar it receives and disburses for the association, including any interest earned. In a lawsuit to enforce these rules, the winning side recovers reasonable legal fees and court costs (section 5380).
Board approval for transfers
No one, manager or director, may transfer money out of the association’s reserve or operating accounts without prior written approval from the board unless the transfer is below these limits (sections 5380 and 5502):
- Associations with 50 or fewer homes or units: the lesser of $5,000 or 5 percent of the estimated income in the annual operating budget.
- Associations with 51 or more: the lesser of $10,000 or 5 percent of the estimated income in the annual operating budget.
Using reserve money for anything other than reserve purposes has rules of its own, covered in our guide to paying for a major HOA repair.
The board’s monthly review
Unless the governing documents set stricter standards, the board must review every month (section 5500):
- a current reconciliation of the operating accounts
- a current reconciliation of the reserve accounts
- the current year’s actual operating revenues and expenses compared with the budget
- the latest statements from the banks or credit unions holding the operating and reserve accounts
- an income and expense statement for the operating and reserve accounts
- the check register, the monthly general ledger and the delinquent assessment receivable reports.
The review can happen outside a board meeting if every director, or a subcommittee made up of the treasurer and at least one other director, reviews the documents independently and the board ratifies the review at its next meeting, with the ratification noted in the minutes (section 5501). Our California guide to budgets, reporting and records covers the board’s other financial duties.
Starting January 1, 2027, AB 739 adds a yearly review of a statement of the fees the managing agent charged, broken into base fees, fee schedule charges and reimbursed expenses. That statement also becomes an association record owners can inspect (sections 5500 and 5200, as amended).
Crime and fidelity coverage
Unless the governing documents require more, the association must carry crime insurance, employee dishonesty coverage, fidelity bond coverage or the equivalent for its directors, officers and employees, in an amount at least equal to its reserves plus three months of total assessments. The coverage must also protect against computer fraud and funds transfer fraud in the same amount. If the association uses a managing agent or management company, the coverage must also include, or be endorsed to include, dishonest acts by that agent or company and its employees. Self-insurance doesn’t meet the requirement (section 5806).
Separately, before a contract is signed or renewed, the manager must disclose whether its own fidelity insurance, or its employer’s, covers the association’s current-year operating and reserve funds. That is a disclosure only. The law doesn’t require the association to make the manager carry that insurance (Business and Professions Code section 11504).
Habits that keep the money safe
Everything in this section is good practice, not a legal requirement.
- Keep reserve accounts in the association’s name. Ask the bank to give directors read-only online access so they can see balances without relying on reports.
- Use two approvals. Require two directors to approve any transfer above the legal limits, and keep the approvals in writing.
- Read the actual bank statements. Compare them with the manager’s reconciliation every month, not just the summary.
- Check the insurance every year. Make sure the crime coverage amount still matches the reserves plus three months of assessments, and that the management company endorsement is in place.
- Ask about the trust account. Find out whether the association’s money sits in a pooled trust account or its own account, and request your own account if the board prefers it.
For a full set of financial controls, see our guide to preventing HOA fraud. Boards comparing management companies can also use our guide to writing an HOA management RFP to ask how each firm handles association money.
Frequently asked questions
Can our management company keep our money in its own account?
It can keep the funds in a trust account it maintains at an insured California institution, but never mixed with its own money. If the board asks in writing, the funds must go into an insured account in the association’s name or in the manager’s name as trustee for the association.
Who earns the interest on our funds?
When the board has the funds placed in a separate account at its request, no interest can benefit the manager or the manager’s employees, and the manager must disclose how interest is calculated and paid.
Can the manager pay a large invoice without the board?
Not from the reserve or operating accounts if the transfer is at or above the limit for the association’s size. Those transfers need prior written board approval.
The Law Behind This Article
Every legal point in this article comes from the official text. Each link below opens it in a new tab.
Civil Code sections: 5200 · 5380 · 5500 · 5501 · 5502 · 5806
Business and Professions Code sections: 11504
Bills: AB 739 (2026)
Last reviewed October 21, 2026, by the How2HOA Editorial Team. This article is general educational information, not legal or financial advice. Laws change and your association’s governing documents control many of these questions, so check with your association’s attorney or another qualified professional about your situation.