The Pillars of Fiduciary Duties for Timeshare Board Members
Purpose: The Pillars have formed the basis for TBMA and its Advisory Committee to plan updated meeting agendas and dynamic educationals panels. The Pillars are meant to be a guide for responsible board member resort management in developing strategic business plans and implementing solutions to the key issues.. As a fiduciary – a board member is someone who has undertaken to act for and on behalf of another with the duty to make decisions regarding financial matters on behalf of the others.
The Pillars are not to be relied upon as legal, tax or accounting advice. Consult a professional in your state in all areas requiring qualified assistance.
After you read each of The Pillars, we invite your suggestions and questions. They are intended to be dynamic so as to evolve over time and adaptable to emerging issues.
1. Legal – “Based on the advice of legal counsel”. . . Retain industry experienced legal counsel. Counsel should attend, in person or by telephonic conference line, a minimum of one board meeting per year. All matters related to legal issues or that overlap into legal issues should be reviewed by legal counsel. Assure compliance with Governing Documents and state statutes. Review and amend documents on a timely basis to adapt to changing conditions affecting the resort. The Board Members should adopt a policy of acting on issues “based on the advice of legal counsel.”
2. Audits – Annual “Going Concern” audit including auditor and disclosure notes. A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months. An indefinite period means the foreseeable future or long enough for the business to meet its objectives and to fulfill its commitments. It is important to note that the 'going concern' concept does not imply or guarantee that the business is profitable and/or will remain so for the foreseeable future. A qualified CPA firm should be engaged to perform an annual audit of the resort’s financials. Provided accrual basis accounting methods were utilized, the audit can be performed in accordance with U.S. generally accepted accounting methods (GAAP). Audit should include notes to financial statement, management representation letter, and SAS No. 115. SAS No. 115 was issued by the Auditing Standards Board to provide guidance to auditors with respect to what should be communicated to management and those charged with governance in an organization. SAS No. 115 requires the auditor make communications, in writing, to management and those charged with governance regarding significant deficiencies and material weaknesses in internal controls that you note in your audits.
3. Financial Records– Operating Account, Reserve Account, General Fund. (Optional). . . Monthly Accrual Basis method, objective: less than 10% delinquency, bill 100% of intervals, include line item expense for Bad Debt. The accounting method utilized for the resort financial accounting should be the accrual basis method. Accrual-basis accounting recognizes economic transactions as they occur in the normal operations of business. This accounting method follows Generally Accepted Accounting Principles (GAAP) matching principal, and revenues earned with the money expensed to earn that revenue. Some local Board Members must be signatories on all resort bank accounts to maintain control of the funds except an exception may be operating fund; wherein, maximum amounts may be determined requiring Board Member approval. Budgeting must be with justification, historical data and allocation of costs. Bill 100% of intervals. Include a line item expense for “bad debt.” The objective is less than 10% delinquency. Take action if your delinquency exceeds this percentage.
4. Insurance – Secure a comprehensive D&O and general liability policies. Utilize an industry knowledgeable licensed insurance agency and confirm the rating on the underlying underwriter of AM Best A or better. Size of the policy should be appropriate for the revenue of the HOA..
5. Disclosure: - Maintain a policy for disclosure of any material information affecting the resort such as litigation, notices of default against the resort, liens, binding agreements for services, etc. Disclosure is a part of the overall communication between the resort board and the owners. The disclosure procedure should be reviewed by and acted on “based on the advice of legal counsel”.
6. Reserve Study – A 10 – 30 year reserve study should be prepared and updated on an annual basis. The study should detail all replaceable components within the resort, indicate the life and replacement timeline for each item and a projected replacement cost at the end of the useful life for the subject item. Consistency and accurate annual updating are critical to a useful reserve study.
Reserve Fund – Remember: This is not operating funds. Cash funded reserve. Fund your reserves with cash in a separate interest bearing account.
a. Owner Communications – Ongoing owner communication to maintain transparency and disclosure. Implement cost effective and consistent communication with owners including electronic communication including updates with billings statements, and keep your web site current. Board meeting minutes, monthly financials, and annual audits should be made available to owners upon request. Communicate any issues on a timely basis that adversely affect dues pay owner interests. Maintain an accurate and current list of owners, addresses, phone numbers (including mobile numbers) and email addresses.
b. Intra-Board Communications: Maintain effective methods for communication among Board Members on an interim or as needed basis.
8. Non Assessment Revenue – Rentals, Resales, Space Rentals, Special Events. Responsible Board Members should continually examine and implement non assessment revenue opportunities. These may be facilitated with internal operations or be contracted with third parties. Do not “give away” non-assessment revenues to third parties.