I’ve been posting the condo and HOA news for over 8 years now.  During the first 6 years, I might have run across 3 or  4 cases  of people stealing from an association.  During the last 2 years, I’ve seen over 20.  And most of them haven’t been for small amounts.   The scams were often as simple as someone writing checks to themselves, either as a manager, treasurer or president.  The one constant in all of them – no one esle was paying very much attention. Now, with the vast majority of association fiscal years coming to a close, here is your opportunity make sure it hasn’t and won’t happen to you. Whenever the economy takes a hit, and particulary when it both an extended and bad one, you need to pay special attention to the deep pockets, your association’s bank and reserve accounts.

First – GET AN AUDIT – not a review, not a compilation, but a real, honest-to-god, audit.  Only in an audit does the CPA use the type of testing that would turn up fraud or embezzlement.  Yes, an audit is more expensive, but given the huge increase in financial crimes against associations, this is not the time to skimp.  Remember, everyone trusted the people that were ripping them off.  Just because your treasurer is a nice person, doesn’t mean their not having personal financial trouble.

Next, make sure your insurance covers the association if money goes missing.  All too often association’s think that fidelity bonds that the management company has protects them – it doesn’t, it only protects the management company if an employee steals from them.  Whether its a bond or crime insurance, make sure the association is covered for ANY loss, no matter who is  lining their pockets.

Always make sure the bank or any financial institution that holds your money, sends a second, original statement to someone other than the person writing the checks or doing the books.  The embezzlers got away with their scams for long periods of time because they were getting the only bank statement, and then delivering a doctored one to the boards. Someone else needs to get an original – and then actually compare it to the one presented with the financial report.

Periodically, test the invoices.  Ask one of your contractors to review their invoices with you.  A basic scam is to book false invoices for work that was never done, then write a check for that amount and cash it.  Unless you’re reviewing the cancelled checks or testing the invoices, it’s pretty easy for the crook to get away with it.  Anytime you have a vendor or contractor going over budget or contract, you should probably be checking it out.

Make sure that no one can get to the reserves easily, to withdraw or transfer funds.  Talk to whatever institution is holding the funds as to the best way to make sure no one can get to them without going through a lot of checkpoints.

Basically, you should be making sure that you have all necessary protections in place and that they are, in fact, actually being followed.  There are a lot of articles around about how to do this, and that’s a good place to start.  But remembers, its the whole process that needs to be followed – no one part is going to protect you.  For example, you’ll see the recommendation to require two signatures on the checks, but realistically, the banks no longer look at or check signatures, so that by itself is going to protect you.

Why go through all this?  I’m not an attorney, but if I was an owner and someone made off with a bunch of my association’s money, I would think that the board had failed miserably in one of their most important fiduciary responsibilities and that they should be held liable for that failure.