One of the most common issues HOA board members deal with is the inappropriate use of funds and embezzlement. This is because committees are usually made up of volunteers who have limited leadership and financial experience, which can create an ideal opportunity for embezzlers to get their hands on some money.

There are a few warning signs that HOA board members should be aware of, as well as a few simple steps that members can take to prevent the opportunity for members to mishandle funds.

Warning Signs

On average, it takes a business or board approximately two years to catch on to the fact that someone is misusing funds. By training yourself and your fellow members to recognize the signs that embezzlement might be going on, you will hopefully be able to catch on before too much money is lost.

Here are a few red flags to look for if you suspect something is amiss:

  • This person will not take vacations. To prevent detection, they need to constantly be available to handle the financial work.
  • This person will be the first into the office in the morning and the last to leave.
  • This person will likely seem to be living a lavish lifestyle.
  • This person will get upset and defensive if asked to explain financial records.
  • Accounts payable and accounts receivable will be out of balance, missing supplies and/or services that are paid for but not completed.
  • There are delays in bank deposits and/or petty cash funds keep disappearing.

Prevention

The good news is, with a little training and a system of checks and balances in place, your community and HOA Board can easily protect itself from embezzlement. It’s all about removing the opportunity to misuse the funds.

Here are a few guidelines that all HOA Boards should have in place:

  • Have regular (and occasionally unannounced) financial audits. This will keep a clear tracking of where your money is going. All Spectrum clients have access to a Financial Health and Risk Audit Report.
  • Divide up the financial responsibilities. For example: one person signs the checks, another person gathers and verifies invoices and another person checks the invoices against the supplies delivered and services received.
  • Always keep bank accounts in the name of the HOA, never under the name of an individual.
  • Investigate anything that seems off or that appears to be a late or outstanding payment. If your instincts are telling you that something is off, call in a fraud expert to take a look.

By maintaining a vigilant attitude and sharing the load across board members, you can protect your community and everyone who lives there from devastating embezzlement and fraud.