Five Ways Co-op & Condo Boards Get Defrauded

Fraud is an equal opportunity crime. It goes up when the economy is good and it goes up when the economy is bad. Here are five things to know about fraud:

1) Phony vendors and the work they do – Homeowners associations are often targeted by vendors who overstate their expenses or submit vouchers for work that was never done. Be informed by knowing how much work has to be done. Also be on the lookout for fictitious vendors, who may even be controlled by people within the HOA.

2) Sealing the bid to avoid the rig – For new capital improvement projects, the board should open the bids, not the managing agent. It’s a good idea to get sealed bids.

3) Trust the CPA, but get a second opinion – Build in checks and balances. The person who writes and signs checks shouldn’t be the same as the person who reconciles the books. If an accountant is used for regular tasks, a separate accountant should be hired for an annual audit.

4) Audits are not the only answer – Audits are designed to look into whether financial statements are accurate, not to detect fraud.

5) It’s your duty – The board of directors are the custodians of an HOA’s funds. It’s not their money. They have a fiduciary obligation to care for the wellbeing and financial security of the other association members. If fraud is detected, they should get direction from the membership at large as to how to proceed.

The reasons people steal may be based upon the economy, as might the people who steal. But fraud is an ever-present risk.


About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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