The Top 10 Things to Prevent Fraud in Your Community Association
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
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
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.