How to Prevent Fraud Against Homeowner Associations
Fraud on a homeowners association hurts all of the homeowners and makes the association board look bad. It's a financial loss, of course, but it also causes suspicion and mistrust of the board members, as well as the sense of guilt the board members feel for failing to prevent it. The most common fraud against these organizations involves conflict of interest, bribery and illegal gifts, false reimbursement of expenses, over billing, check tampering and cash theft.
Other People Are Reading
Instructions
-
-
1
Require two board members' signatures on all checks and account transfers over a certain amount. No single person should be able to make the decision to pay a large bill or move a significant amount of the association's money around. A common limit is $500. Many routine bills, such as utility payments, may approach this amount, but paying larger items should be a shared responsibility. Also, don't give over the check signing or bank transfer authority to an outside manager.
-
2
Avoid making checks out to cash or having board members sign blank checks for later payment. It's tempting, with busy schedules, to have some checks pre-signed so the board officer responsible for issuing checks doesn't have to hunt down a co-signer at an inconvenient time. Don't give in to the temptation. The convenience is not worth the risk of signed checks getting into the wrong hands or being misused.
-
-
3
Obtain multiple bids for all major contracts and check references. Make it a policy to avoid conflicts of interest by not soliciting or accepting bids from board members, their friends or relatives. Open bidding keeps all contractors on the same level and makes it possible for the board to objectively compare the bids and get the most competitive price.
-
4
Set low limits on any credit cards issued to board members or association employees. It's also a good idea to have a different board member approve payment of the card expenses than the one who makes the charges.
-
5
Review thoroughly invoices and supporting documentation before signing payment checks. The same is true for reimbursement checks to board members, employees or homeowners who make purchase on behalf of the association. Also, make sure any work done by vendors is inspected and satisfactorily completed before paying an invoice.
-
6
Keep association records up to date and require regular financial reports at each board meeting. Reconcile all bank accounts monthly, and segregate responsibilities by have a different board member reconcile the bank than the one who pays the bills.
-
7
Keep a minimum of petty cash and have board members count it periodically on an unannounced basis.
-
1
Tips & Warnings
Update bank signature cards immediately whenever an authorized signer leaves office.
Consider a thorough financial review or audit when changing management companies or after an annual election of board members.
