Fraud…It Can Happen in Your Own Backyard, and it’s especially shocking when we feel that our homeowners association is shielded from such behavior. We continue to see reports of fraud or embezzlement of various sizes that have occurred through almost every means imaginable. HOAs are no different from other organizations. If the opportunity is there to give relatives a break or get a kickback from vendors, temptation can get the best of some people.
Most often, there are clear indicators that something isn’t quite right if someone is engaging in fraudulent activities. You can protect your community by knowing some of the signs that warrant an inspection.
Conduct Background Checks Before Hiring
Every HOA should conduct background checks on prospective employees, vendors, and potential Board members. Check references and contact former employers and clients to get the best overall picture of the company or person.
Implement Checks and Balances
Some HOA Boards have tried to reduce inconvenience by combining responsibilities. While it sounds great in theory, it can make the association more vulnerable to fraud. Remove temptation by adding a few checks and balances to your community association’s financial management processes. Some good practices include requiring two signatures on checks, avoiding using rubber stamp signatures, and separating the responsibilities of bank statement reconciliation from HOA bill payment.
Notice Lifestyle Changes
Stay alert to significant changes in spending habits, vacations, or other purchases that indicate changes in financial circumstances. Another indicator that something may be amiss is if people don’t want to change roles or train a substitute to handle their responsibilities.
Consider Insurance Coverage
Insurance coverage is available for loss of money due to fraud, embezzlement and misappropriation. Community associations often assume that their general insurance policy provides coverage for any exposure. This may not be true. Check your coverage with someone well-versed in the needs of HOA coverage to ensure that you have adequate protection.
If you ask people who live in a community association if fraud would ever occur, the most common answer is no. Unfortunately, the potential for fraud is there, and HOAs are especially vulnerable because volunteers with little experience and little time often govern them. Professional community association management can help the association reduce their vulnerability for fraud. Start planning now to implement checks and balances that protect your homeowners association and your community.
Wise Property Solutions serves condominium and homeowners associations by addressing their financial, association and facilities management needs. The only certified and licensed community association management firm serving the Mountain South (Virginia, North & South Carolina, Tennessee) with offices in the Tri-Cities and Knoxville. Wise Property Solutions provides condo and homeowners association management services in Johnson City, TN; Bristol, TN; Kingsport, TN; Knoxville, TN and the surrounding region.