Community associations - and their
budgets - can be ripe targets for con artists.
Associations are run by unpaid volunteers, some with little more
financial experience than balancing a personal checkbook. And many
condominium and homeowner associations have large and multiple bank
accounts, with checks constantly coming in and going out for maintenance
and other projects.
Amid all of that, directors have to learn to fight against possible
fraud from those within the community and from the outside.
"Fraud is an ongoing threat to associations. And the likelihood of
being a victim escalates during bad times," said Donna Berger, the
executive director of the Community Advocacy Network, a lobbying group
for associations.
"Association
boards are run by volunteers who take time away from families, jobs and
hobbies to serve. Con artists know these time constraints and divided
attention might leave an opening."
With that in mind, Berger and other experts advise association members
to be on guard and take specific steps to prevent fraud.
Berger recommends directors need to take the time, for instance, to
create a delicate system of checks and balances to make sure the books
remain in order. And don't leave the work to one or two members. The
entire board should be up to speed on all financial transactions and
practices. Berger's strongest piece of advice: Make sure your
association requires two signatures to write an association check.
"If you do not already require two signatures to write an
association check, consider implementing this requirement," Berger
said. While it might prove to be inconvenient at times, it's a good
security measure.
More tips:
Make sure to have a bond in place for every person who has access to
association funds.
Pay attention to details. In bad times, employees might be more tempted
to steal money by exploiting weaknesses in an association's financial
controls. Look closely at what supplies are being ordered, what checks
are sent out and all petty cash disbursements.
Review the association's "Employee Dishonesty" coverage under
its insurance policy to determine what losses will be covered and not
covered. The last thing you want is to be ripped off by an office
manager, find out your association is not covered and you owe an
insurance bill.
Check your own records regularly. Even if you have professional
management in place, it is essential that the board review all bank
accounts each month, every month.
Obtain photocopies of checks from the bank and review the payee, amount
and authorizing signatures.
A monthly examination will catch checks paid to unauthorized suppliers
and vendors or those approved with fraudulent signatures. Also,
transfers between all bank accounts should be reconciled. Many
fraudulent transactions are intentionally committed near the end of the
month to allow the wrongdoer to cover the fraud by categorizing it as an
outstanding deposit or a check in transit, Berger said. This usually
leaves 30 days for the board and/or manager to forget about the
discrepancy or for the employee to cover up the misappropriation.
Look out for red flags. Are checks being sent to a series of companies
with similar sounding names? If your association is paying the American
Pool Company for monthly services and the American Pool Inc. too, there
could be a problem. Also look out for money being sent to businesses
using P.O. box numbers rather than street addresses.