One detail from the fraud cases that prompted Tennessee’s new fidelity bond law deserves more attention than it got.
At least one affected association reported filing an insurance claim to recover its missing dues, and reported that the claim was denied for lack of sufficient proof of theft.
The specifics of that claim are not public, and every policy is different. The lesson still holds. Insurance responds to what you can document. If an association cannot show what it was owed, what it paid, and what happened in between, recovery gets harder no matter what coverage is in place.
That is the part a bond alone does not solve. A fidelity bond is a backstop that responds after a loss, and it responds based on what your records can demonstrate. Internal controls are what prevent the loss in the first place, and what make the bond collectible if prevention fails.
Buying the bond is the easy part. It is also the minimum.
Why Volunteer Boards Drift Into Low Oversight
Almost no board sets out to stop watching the money. It happens gradually, and usually for understandable reasons.
Someone on the board has a finance background, so everyone defers to them. Or the management company handles it, and the board reasonably assumes that is what they are paying for. Board terms turn over and the new treasurer inherits a process nobody documented. Meetings run long and the financial report gets three minutes at the end.
There is also a social dimension that boards rarely say out loud. Asking to see the bank statements can feel like accusing a neighbor of something. Nobody wants to be the person who implies the treasurer is untrustworthy.
That instinct is exactly backwards. Good controls protect honest people. A treasurer handling six figures of other people’s money should want a second set of eyes, because it means no one can ever raise a question about their handling of it.
Know Whose Name Is on the Account
Start here, because this is where the risk concentrates.
Association funds should be held in accounts titled in the association’s name, with the association’s tax identification number. Not pooled into a management company’s operating account. Not sitting in an account where your community is a line item in someone else’s ledger.
At least one board officer should have read-only access to view balances and transactions directly, without going through anyone. This is not an accusation. It is the difference between seeing your money and seeing a report about your money.
If your board cannot currently log in and look at the association’s bank balance, that is the first thing to fix.
Separate Who Spends From Who Reconciles
The single most effective control is also the simplest. The person who writes checks should not be the person who reconciles the bank statement.
When those two jobs sit with the same person, errors can go uncaught and misappropriation can go unnoticed. When they are split, each function checks the other by design.
For small associations this is genuinely harder, but it does not require a large board. A treasurer can prepare payments while a second officer reviews the reconciliation. Set an approval threshold, and require two signatures or two approvals above it.
Review the Financials, Do Not Just Receive Them
Most boards receive a monthly financial package. Fewer boards actually review one.
Receiving means it arrived in the packet. Reviewing means someone compared it against something and asked a question. Those are different activities, and only one of them catches problems.
A board does not need an accounting background to review well. It needs a short list of things to look at every month.
The bank statement balance should tie to the balance sheet. Actual expenses should be compared against budget, with any large variance explained. Reserve funds should be where the reserve schedule says they are. Owners who sold their units should not still be carrying balances in the receivables aging.
If a number does not make sense, ask. A good manager expects the question and has an answer ready.
The Annual Outside Review Is Worth the Line Item
Boards often say they cannot afford an audit. That is sometimes true, and it is also often the wrong frame.
A full audit is the most expensive option, but it is not the only one. A review or a compilation costs meaningfully less and still puts an independent set of eyes on the association’s books once a year. Check your governing documents as well, because many associations already require some level of annual financial review whether or not the board has been doing it.
The cost of the smallest version of this is usually less than the cost of finding out years later that something was wrong.
Controls Are What Make the Bond Work
Come back to the denied claim.
A fidelity bond pays on proof. Proof comes from documentation: reconciled statements, approved invoices, board minutes recording authorizations, a clear trail showing what the association expected versus what actually happened. Weak records make recovery harder, even when the loss is real.
So the two work together. The bond covers you. The controls make the coverage worth having, and give you a real chance of catching a problem early.
Practical Steps Your Board Can Take This Quarter
None of this requires a special meeting or a consultant:
- confirm all association accounts are titled in the association’s name and tax ID
- get read-only bank access for at least one board officer
- separate check-writing from bank reconciliation and set a dual-approval threshold
- spend ten minutes on the financial report at every meeting, not three
- put an annual financial review in the budget, at whatever level you can afford
The Bottom Line for Boards
[Tennessee’s new fidelity bond requirement](link to the fidelity bond post once published) takes effect January 1, 2027, and every association collecting assessments should be handling that now if it has not already.
Handle it. Then keep going, because the bond is the floor rather than the ceiling. Clear records are what let an association show exactly what happened if something goes wrong.
Boards that want to strengthen this side of their operation are usually not asking for more work. They are asking for better reporting and straight answers about where the money sits. Wise Property Solutions works with boards across East Tennessee on financial management built around exactly that kind of oversight. Reach out if you would like a look at how your association’s controls hold up.
