Though it happens rarely, fraud can take place within a community association. No matter how problematic or costly, fraud can be detected and prevented by the Board of Directors, Property Manager and Management Company by following these 10 steps:
1. Let the employees and your staff know that there is a Fraud Policy and that you are watching out for it.
2. Hire the right employees. Do background checks on all employees. It is your right to do this when hiring. Just disclose to the applicant that you will be performing a background check. In this day and age, if you did not perform a background check, you would probably be considered negligent.
3. Put into place a Policy and Procedures of how your office handles finances and make sure that everyone reads and understands this policy.
4. Put into place Checks and Balances in your system. The best and efficient way to do this is to segregate duties. For example, have one person to handle bank reconciliation, another to pay bills, another to make deposits and another to prepare the financial statement and balance sheet.
5. Make sure that all expenditures are approved by an individual with that authority. Do not allow any bookkeepers, clerks to approve of or sign any checks. Do not allow your Property Manager to sign any checks.
6. Do not handle any cash. Cash can easily disappear. Take a check, money order or credit card. Do not take cash!
7. Conduct audit and reviews by an outside independent CPA of the books, records and also include an audit of your procedures. They will guide you on this.
8. Enforce vacations. People who do not want to take vacations may have something that they want to hide or do not feel comfortable leaving. Make sure that they take vacations, as this would be the time that problems will be discovered.
9. Be on the lookout for phony invoices, improper billing and non-existent employees with direct deposit. I am sorry to say that this happens. Beware of credit card activity or new credit cards being opened up in the association name.
10. Reconcile all of your bank statements every month and insist that you receive a financial statement every month. Another good idea is to arrange with your bank to have bank statements come to the Treasurer of the Association, as well as to the bookkeeper (see #4 above – Checks & Balances).
Follow these 10 tips and ideas, along with what your CPA suggests and you can be fairly confident that your Community Association will not be a victim of fraud in the future.
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