Theft is something community associations hope to never encounter, but a volunteer organization like an HOA can often be a soft target for fraud. Here are the common warning signs of embezzlement and the ways to protect your HOA from fraud.

Common Warning Signs of Embezzlement

  • Disorganized records
  • Unexplained accounting record changes
  • Standard of living changes
  • Missing documents
  • Delayed bank deposits
  • Increases in past due accounts receivables
  • People complaining about having already paid their assessment
  • Altered check amounts
  • Duplicate payments
  • Many outstanding checks in bank reconciliations
  • Vendor payments that do not make sense
  • Multiple payments made to same names and/or addresses
  • Late bank reconciliations
  • Accounts receivables and payables don’t match

Ways to Prevent Fraud and Embezzlement

Promote an Atmosphere of Transparency

Promoting an atmosphere of transparency will be the foundation in minimizing the risk of embezzlement. Since the HOA board of directors has a responsibility to protect the financial interests of the organization, the board should carefully monitor its records to detect any indication of fraud.

Develop Strict Internal Financial Policies

In order to ensure that all of the members are on the same page, the HOA needs to document the financial policies and procedures everyone should follow. Some of these key practices may include not accepting cash payments, directing that bank account statements be mailed to an officer who does not sign checks, etc.

Create a System of Checks and Balances

Maintaining a system of checks and balances is absolutely necessary to prevent fraud. An appointed person from the HOA should often review the actions of the person writing the checks by examining the organization’s bank statements for red signs. Along with regular reviewing bank statements, another aspect of checks and balances is requiring two people to approve all payments.

Make Sure Data is Secure

Cloud technology is a great resource for ensuring that the HOA data is protected at all times. Instead of storing data on an unsecured laptop, outsourced or internal bookkeepers can access and control the data through more secure vehicles.

Report Alleged Theft to Authorities

If a member on the board suspect’s theft in his organization, he should contact the appropriate authorities immediately. The refusal to report missing funds may be a violation of an HOA’s fiduciary obligation. Once the theft is reported, the missing funds will hopefully be recovered.

In most cases, embezzlement is not an overnight crime. When someone is managing a large sum of money, they may eventually succumb to temptation as time progresses. They may even intend to repay the money that was “borrowed” for debt, drugs, or alcohol, but this intention is rarely executed. Probably the best method to prevent this kind of crime is a system in which multiple people are overseeing financial activities.

As our region’s only Accredited Association Management Company, Wise Property Solutions can help you develop systems that will protect your association and its finances.

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