The Honest Broker: Evaluating your HOA or COA For Fraud or Mismanagement

The Honest Broker: Evaluating your HOA or COA For Fraud or Mismanagement

BY: DIANE LOTT, BROKER

PARADISE FOUND REALTY

Many homeowners living in an HOA or COA have the tendency for non-participation or not making themselves knowledgeable about the  “how” and “who” are running their community. No community will ever be immune to homeowners’ association fraud, embezzlement, or mismanagement. Although no one wants to look upon other board members with suspicion or doubt, there are always risks when dealing with HOA finances. Board members should be on the lookout for red flags that may indicate that funds are being handled incompetently or even dishonestly. 

 

Here are 9 warning signs that you have an HOA financial problem.
1. Mistakes in the Bookkeeping

Mistakes in the bookkeeping could be just that: mistakes! However, consistent mistakes should be cause for concern. They can be a sign of sloppiness or incompetence on the part of a board member. In more serious cases, these mistakes can also be an indication that HOA embezzlement or fraud is being perpetrated. Always investigate consistent mistakes.

 2. An Unexpected Decrease in Revenue

The HOA should investigate any unexpected or unexplained decrease in revenue. It could be due to residents are not paying their dues on time, or it could also be one of the signs of embezzlement. If it’s clear that residents are diligently paying their dues but there is still a decrease in revenue, someone is illegally leaking funds into their own pockets.

 3. Statements that Do Not Match

HOA financial statements should always match the bank statements. Do consistent checks to make sure that all monthly, quarterly, and yearly statements match your bank statements. If there are any discrepancies, you should investigate the cause immediately.

 4. Checks Written to Individuals

Any checks from vendors, partners, or residents should always be made out to the association. If checks are made out to individuals, this is either a sign of ineptitude within the board or of HOA fraud. To avoid an HOA financial problem, don’t accept any excuses for writing checks to individuals, even if it’s for the sake of convenience.

 5. Checks Written to Illegitimate Companies

If the name of a company written on a check is unfamiliar or suspicious in any way, this is a huge red flag for fraud. Your HOA board should always be double-checking, whether through the internet, in person, or by phone, that the vendors on your checks are legitimate companies.

Also, when choosing vendors or contractors, it’s important to have a good vetting process to ensure the legitimacy of your chosen companies.

 6. HOA Checks Written to Individuals

Another red flag to look out for is if the association’s checks are being made out to individuals. Board positions are not salaried so there’s no reason they should be receiving the HOA’s money for any service provided. Not only can this lead to a financial problem, but it also puts into question the motives of the board member.

 7. Sudden Increases in Vendor Pricing

Any sudden increase in vendor pricing should be investigated. It could simply be that the vendor has raised its prices, in which case you can consider negotiating with them or seeking out a new company. However, if the vendor does not acknowledge an increase in pricing, this should be considered with suspicion. In the future, if prices change, make sure to update existing vendor contracts to avoid HOA financial problems.

 8. Less Cash Depositing or Checks Written to Cash

Some individuals can commit fraud by depositing checks but reserving a certain amount to be taken out in cash rather than deposited. If this is happening, take this as a serious warning sign. In addition, checks should never be written to CASH.

 9. No Checks and Balances

One person should not be in charge of all the finances in your HOA. The board can incorporate safeguarding procedures such as assigning one individual to write all the checks, while another should deposit them and record them.

It’s important to remember that board members are volunteers. While earnest in their desire to help the community, community members elected to the board often lack expertise when it comes to accounting and financial management. As such, there’s always a risk of mismanagement when board members handle HOA finances. 

On the other hand, a self-managed community can also be at risk of fraud and embezzlement. This is because only 1 or 2 individuals are handling HOA finances. Since there is no outside party that can monitor or check what these board members are doing, they have many opportunities to illegally siphon the association’s money into their personal bank account — should they wish to do so.

If you want to safeguard your association’s hard-earned money, consider the services of a financial management company. Apart from protecting your association from fraud, embezzlement, or ineptitude, they will be able to handle financial matters that are too complex for the board members. Accurate bookkeeping and monthly financial statements will make it easier to make decisions for the HOA. 

Be Well

Diane

Email:  Diane@ParadiseFoundRealtyFl.com

Website: www.ParadiseFoundRealtyFl.com

Phone:  954-294-5060

Your  Martin County Concierge Real Estate Company!

Office Open by Appointment Only

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  • Posted 12 months ago

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