When it comes to fraud in this day and age, it is more a matter of “when” rather than “if” you will become a victim. Everyone is at risk including individuals and businesses, and your HOA is no exception. Whether the fraud occurs internally or from outside the business, it is important to have a strong system in place to protect your HOA from these crimes. Here are a few tips on how to prevent homeowners association fraud.


Divide Financial Tasks

One of the best things you can do to prevent fraud is to be sure that financial tasks are divided between more than one person. If only one person is signing checks, reconciling the bank account, and keeping records of invoices, there is more opportunity for that person to commit fraud. It is important to remember that these crimes are less and less possible when there is less opportunity. It is also good to remember that over 90% of fraud is committed by first time offenders. This means that even a trusted member of the community could commit fraud against your HOA if they are desperate and are given the chance. Division of tasks severely limits this opportunity.


Set up a System For Financial Review

Every board should recruit one or two people to review each and every transaction that occurs. This person should be separate from the members who write the checks, and they should have a checklist of things to look for in each transaction. A good checklist is as follows:

  • -Does the amount of the transaction match the amount that the HOA was expecting to be charged?
  • -Was the check for a service or expense that was approved by the whole board?
  • -Is this the only check or charge for the service, or is there a duplicate charge?
  • -Is the transaction in the association’s name?


Send Assessments to a Lockbox

One key area in which fraud can occur is during the transfer of assessment funds from the residents to the HOA. Because these payments are generally made by check, there is ample opportunity for theft. In order to prevent these checks from going missing, it is a good idea to obtain a lockbox at a bank and have the funds mailed directly from the homeowners to the bank to be deposited into the HOA’s account.


Random Bank Reconciliation

Although most HOAs are required to perform quarterly bank reconciliations, one good prevention of fraud is to have unscheduled bank reconciliations. These random checks should discourage anyone from attempting to steal money.


Acquire Good Fraud Protection Insurance

Although fraud protection is likely a part of your insurance policy, it is a good idea to review your policy to be sure that your HOA is protected for every potentiality and for the full value of your operating and reserve funds.

Fraud, both from without and from within businesses, is unfortunately an extremely regular occurrence. It is important to take every step that you can to prevent your HOA from becoming a victim. Although this is by no means an exhaustive list, these tips can help you on your way to preventing homeowners association fraud.