Do you suspect fraud in your HOA? If you see something, say something

Some of the telltale signs of potential malfeasance include unusual payments for unbudgeted purchases, payments remitted to unknown vendors, and/or unauthorized signatures appearing on checks or other official documents.

Some of the telltale signs of potential malfeasance include unusual payments for unbudgeted purchases, payments remitted to unknown vendors, and/or unauthorized signatures appearing on checks or other official documents.

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The vast majority of community association officers, directors and officers act in the best interests of the communities they serve and are committed to upholding their fiduciary duty to unit owners. However, unfortunately, associations are sometimes victims of financial fraud, theft, embezzlement, mismanagement and similar offenses which not only impact the operations of communities but also create mistrust among members.

In the context of a community association, fraudsters can take many forms, including administrators, property managers, bookkeepers, bookkeepers, lawyers, contractors and others. Those who commit fraudulent acts usually pose as experts and work diligently to gain the trust of their victims, and then these unscrupulous individuals unfold their schemes and start siphoning funds from association accounts.

In many ways, modern technology has exposed associations to new potential sources of fraud and financial abuse. The deception involved in some cases of fraud can be immense, and it often takes more than cursory reviews of financial statements and accounts by board members and property managers to determine if something is wrong.

Some of the telltale signs of potential malfeasance include unusual payments for unbudgeted purchases, payments remitted to unknown vendors, and/or unauthorized signatures appearing on checks or other official documents. However, the variety of potential schemes, which can also include kickbacks and kickbacks involving unscrupulous sellers, demands the utmost vigilance for effective prevention and detection.

Association directors, members and property managers who suspect they have discovered potential theft or fraud should exercise extreme caution in their approach. They should collect as much data as possible without alerting potential fraudsters to their investigations, and should immediately contact their association’s attorney, or another experienced community association attorney, and the association’s accountant or other licensed financial professional to assist in the investigation.

Under the guidance of scrupulous and experienced legal advisors and accounting professionals, investigations can proceed by gathering all appropriate account statements and financial documents, again in a manner that avoids alerting the potential perpetrator(s).

Qualified legal counsel and accounting professionals should then analyze the information and determine the best course of action. In most cases, the association may need to hire a forensic accountant to audit and analyze its financial records and transactions. A detailed review of these records will help identify and confirm whether fraud has occurred and, if so, the extent of damage to the association.

Before disclosing in writing or at a public meeting any findings related to the association’s forensic audit and investigations, lawyers are likely to advise associations to contact their insurer(s), as coverage often depends on the insurer’s approval of the association’s actions. A legal advisor may also suggest filing a formal complaint with the divisions of the Florida Department of Business and Professional Regulation that oversee community association boards and property managers.

In addition to filing a complaint with the state agency, the legal counsel may also advise the association to pursue civil lawsuits against the suspects for damages and injunctions, and to contact law enforcement to report fraudulent transactions so that police can further investigate claims prior to disclosure to all council members.

Chere Trigg - Siegfried Rivera (2_fitted.jpeg
L. Chere Trigg is a shareholder of Siegfried Rivera.

Collecting funds can be extremely difficult, so associations are well advised to employ the strongest safeguards and precautions to protect against fraud, theft, and embezzlement. Some of the most recommended safeguards include requiring two signatures on all cheques, keeping the reserve of blank checks locked away, having monthly reviews of all accounts and financial statements by multiple administrators/ managers and maintaining adequate insurance coverage to protect against loss of funds through embezzlement, fraud or other misappropriation. Communities should also schedule and conduct independent audits of all financial records by certified experts on a regular basis.

Additionally, associations should always require multiple signatories to withdraw/transfer funds or make changes to bank accounts, vendor contracts, and insurance policies. Authorized signatories should be limited to officers and directors of associations’ boards of directors.

Communities should also avoid issuing and using debit cards in the association’s name. In fact, Florida law expressly prohibits condominium corporations and their officers, directors, employees, and agents from using debit cards issued in the name of, or billed to, the corporation.

By working very closely with highly trained professionals of the highest integrity and employing the most effective preventative measures, condo associations and HOAs can proactively help avoid falling victim to unscrupulous fraudsters.

L. Chere Trigg is a shareholder in the law firm Siegfried Rivera which focuses on community association law. She is a regular contributor to the firm’s association law blog at 305-442-3334, [email protected],


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