Unfortunately, not everyone involved in the
management of Association funds and documents is honest. Ballot tampering, modifying data, submitting
personal bills for reimbursement, or even writing checks to oneself do occur.
These offenses are committed by Board members, managers, and other staff
personnel. Recognizing the potential for these things is half of the battle.
The other half is minimizing or eliminating the possibility.
Self Dealing
The phrase ‘conflict of interest’ often comes up in
Associations. In this context, a true conflict of interest exists when:
- Failing to properly disclose a relationship or potential personal benefit as the result of the Association doing business with a vendor.
- Receiving kickbacks in the form of gifts such as free dinners/shows/vacations, hotel discounts, maintenance on a personal home, free or reduced repairs at a personal home, etc. in exchange for a continuing or awarding a contract.
- Board members not paying their assessments or not paying on time, simply removing their past due charges from association records
Who’s on your Association’s payables? Friends or relatives who work little or not at
all but still collect full time wages? Vendors who are well liked but they charge more
and do less?
Check Processing
Rule #1 should always be that at least
one Board Member's signature is required to expend funds of any kind -
operational or reserves. NO
exceptions. The Board may receive a
spreadsheet that purports to show bank balances, but insist on seeing copies of
the actual bank statements. Do not
permit the use of a consolidated account for multiple HOAs rather than a dedicated
account for your community. Ensure that
the cancelled checks appear on the bank statement and that they match the
accounting entries, to detect payee name change on a check after it has been generated
by the accounting software. Spot-check
signatures on the checks to detect forgeries.
Debit Cards
If your Association uses a debit card be
sure to have a Board member or Finance Committee member audit the monthly
statement. Require all parties that use
the card to submit receipts. Debit cards
are not in the best interest of the Association, they put the community at risk
as they are tied directly to your operating account. Even the issuing banks
will caution you, since these are meant more for personal banking accounts.
Audits
The governing documents may require an audit each
year, something Boards often overlook.
Regardless, your Association should obtain at least a limited audit
annually by a third party CPA. Do NOT allow your management company to
choose the CPA for your HOA! Locate
a CPA with a CFE (Certified Fraud Examiners) credentials: They have the tools that other CPA's lack for
finding fraud. For an accurate audit,
insist that the actual files, not reports, are provided to the CPA. The expense of an audit is a lot cheaper than
the financial loss involving a fraud if allowed to go unchecked, along with the
loss of insurance coverage for failing your duty to properly protect assets.
As a side note:
When homeowners make assessment payments, they should look at the back
of the returned check to verity the account the funds were deposited into
(should be the Association's bank account). The same goes for auto-draft payments.
No matter its size, any homeowner association is exposed
to opportunities of theft and fraud on a continual basis. Take steps now to eliminate
these before they occur!
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