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.