Do you shake your head when you read about fraud in homeowner associations? Fraud can be devastating to an association, and it happens more frequently than what you see in the news. Fraud could never happen in your community. Or, could it? What safeguards does your HOA Board have in place to reduce the opportunity for fraud to occur?
With very few exceptions, a fraudster is easy to like and difficult to spot. You can’t identify someone who may commit fraud by working with them. Think about it. If a person looks like a criminal or acts like a criminal, you won’t trust them with your financial records and money. Fraud is committed by ordinary people — typically upstanding citizens that you would never suspect — because the right opportunity and motivation is there.
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Segregation of duties goes a long way in preventing “creative accounting” in HOAs. When different Board members manage different financial processes and tasks, it can reduce the opportunity for fraud to occur. Segregation of duties sounds easy enough to do. Assign a different person to handle vendor payments, invoicing, purchasing, bank reconciliations, assessments, etc. Unfortunately, many HOAs are operated with a minimum number of volunteers, so there aren’t enough people to assign a different individual to each task.
Common elements typically set the stage for fraud. Associations often lack effective accounting procedures, documentation and independent check steps. Lax processes make it simple for someone to commit fraud that can go unnoticed for a long period.
A good property management company can be one of your greatest assets in fraud prevention. They have the experience to help Board members establish processes and check steps to deter fraud. In addition, a property management company has financial tools that can automate and integrate a sound financial management system for the association. In essence, you extend your resources without recruiting a volunteer by engaging a management company. And, you can draw on their experience and knowledge to create a solid financial strategy for the future.
Fraud can happen in any community—even yours! The right fraud prevention processes reduce the opportunity, making your community less of a target for fraudsters. Check steps and audits add another layer of difficulty. Don’t delay. Establish a sound financial strategy for your community today.
Wise Property Solutions is East Tennessee’s only Accredited Association Management Company (AAMC®). As the region’s leader in community association management, the firm is committed to the industry’s best practices and continuing professional development. Wise Property Solutions’ certified and highly trained property managers empower well-organized and efficient communities. The firm maintains offices in both Knoxville and the Tri-Cities.
Tri-Cities, TN-VA: 423-926-7373
Knoxville, TN: 865-643-8989