Help Associations Protect Themselves from Financial Fraud

This week, we dig into the significant risks smaller community associations shoulder when they leave the handling of financial matters to only one or two insiders and suggest some steps they can take to control those risks.

Unfortunately, it’s not uncommon for under-resourced or overtrusting associations to find themselves the victims of fraud. In April 2019, for example, an Iowa man pleaded guilty to a scheme to defraud his homeowners association out of almost $125,000, which he used in part to pay the mortgage on his unit. The scheme ran for nearly five years.

The man, who served as treasurer, funneled the funds from an association account to another account that he controlled and used for personal expenses. He produced fraudulent treasurer reports every year to hide the scheme.

Many community associations are susceptible to these types of financial frauds, according to Bill Worrall, a vice president with FirstService Residential, a property management company serving more than 85,000 units in Florida.

“They put too much trust in one person handling the money and doing the transactions,” he says, “The biggest vulnerability is when one or two people on-site at the property handle the financial duties and the reporting.” Not every association can afford an outside CPA to handle their financial affairs, though.

You can help your clients in these circumstances reduce their risks. “Managers serve themselves well to insist their associations employ these techniques and tactics,” Worrall says. “No manager wants that liability for an association’s entire annual budget or the entire special assessment.”

A smart place to start is with the monthly bank statement. Does the statement to go to the same person who handles the money? It shouldn’t. Another board member or the association manager should receive it — and take the time to scrutinize it every month.

To learn some more ways to protect your clients’ finances, read our new article Could a Treasurer Be Defrauding Your Community Association?

Best regards,
Matt Humphrey
President