Restricted funds

What makes a fund restricted

Not every dollar in the association's bank accounts is available for the same use. Fund accounting exists to keep money tied to one purpose, like a future roof replacement, separate from money the board can spend on whatever the budget allows. A fund becomes restricted when something outside ordinary board discretion says so: the governing documents, a state statute, or a specific board designation. Once that happens, the money is off limits for other spending until the restriction is lifted or its purpose is fulfilled.

"Fund accounting is a system of accounting used by non-profit entities to track the amount of cash assigned to different purposes and the usage of that cash."

Source: Fund accounting definition, AccountingTools

The reserve fund is the clearest example

The reserve fund is the restricted fund most boards deal with. It sits apart from the operating fund, which covers the community's recurring bills.

"the operating fund pays for the things the community uses today: landscaping, utilities, insurance premiums, management fees, payroll, pool chemicals," while "the reserve fund pays for the things the community will need tomorrow: roof replacement, asphalt resurfacing, pool resurfacing, elevator modernization."

Source: Operating Fund vs. Reserve Fund, Common Interest Community Standards Council

The fund balance reported for the reserve fund is not always one plain number either. Some accounting systems split a fund's balance into restricted and unrestricted pieces, though there is no single industry format an association is required to follow when presenting that split.

Can the board move money between funds?

Fund accounting exists specifically to keep restricted money from being spent as if it were ordinary cash. That does not mean transfers are never allowed, only that they are not a routine board decision. Whether, when, and how an association may move money between operating and reserve funds depends on the governing documents and state statute, both of which vary by association and by state. Before assuming a transfer is fine, or assuming it is forbidden, a board should check what its own bylaws and state law actually say, and loop in the association's CPA or attorney if the answer is not clear.