Are you Guarded?

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!