Fraud and embezzlement are topics no HOA wants to ever deal with, but the best way to avoid it is to always watch for it. It is a sad reality, but fraud and embezzlement are more common in HOAs than we’d like to admit, so today we’re going to share four red flags your board should always be on the look out for. Good financial reporting and a watchful eye can save your association and homeowners a lot of time, money, and stress.
Be on the lookout for:
- Strange invoices. Watch for billing addresses at a PO Box instead of a street address, a billing address within the community, or an invoice showing overbuying, which indicates someone is pocketing money. It could even be a fake invoice for something that never happened, so always cross check invoices and payments against work you’ve hired out.
- Strange payments or balance sheets. This happens when balances exceed budgeted amounts or when multiple payments are made to a vendor for a one-time transaction. While it’s true for some things to cost more than budgeted, always look into it more closely!
- Strange documentation. It is normal to lose an original document once in a blue moon, but if you ever notice that your records are mostly made up of copies or summaries and not originals or full statements, assume something fishy is happening and investigate.
- Strange or defensive behavior. When you have someone on the board or at the property management company who is always “losing” documents and bills, or is defensive when you ask questions, it’s a red flag they are trying to hide something. The same is true if someone is always late to deposit money.
There are so many dishonest ways to skim money from any business, even an HOA! But, by being proactive and watching for red flags, you’ll be quick to catch fraud or embezzlement before it has the chance to drain your community’s assets. In addition to watching for strange behaviors, the best thing your board can do is to establish detailed financial reporting, and a system of checks and balances to review the financial health of the community on a monthly basis.
Related: Neighbor to Neighbor Disputes and HOA Involvement
Good financial reporting is sometimes enough to deter fraud and embezzlement. These people look for areas of weakness where they can take money unnoticed, but a community who keeps detailed financial reports and invests the time to cross check everything on a monthly isn’t an easy target. The best way to prevent fraud and embezzlement is being proactive, so establish good accounting habits and watch for red flags like a hawk.
For additional information regarding the HOA management of your Arizona or Texas based community, contact Spectrum Association Management today and see what makes our services refreshingly different!
