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Technology has provided many benefits for HOAs in terms of convenience, operational efficiencies, and lower costs. However, the potential for fraud has also been on the rise. That’s because criminals have discovered that online platforms and accounts present an incredible opportunity to steal personal data and identities through breaches.

Unfortunately, the risk is present because many HOAs have vulnerabilities in their technology that allows for fraud and theft related to stored contracts, banking information, and other documents that may contain personal data from those within these communities.

With the risk that there could be elevated suspicious financial activity in your HOA, it is important that Board, management, and community members know the signs. This blog post provides some insights on understanding potential signs of fraud and misuse of association capital, as well as how to address it and avoid it in the future.

Know the Signs of Fraud  

The signs of potential fraud are varied, so there are many things to be on the lookout for. These signs might include:

    • Multiple or high payments for purchases outside of what is listed in the budget;
    • Payments to vendors that do not exist;
    • Suspicious-looking signatures on HOA documents; and
    • Unrecognized sign-on accounts to HOA portals.

These can be signs of theft or embezzlement, but there is also a possibility of human error such as a miscalculation. Therefore, it is critical to investigate all suspicions to ensure your small business is fiscally healthy.

How to Investigate Suspicious Financial Issues in Your HOA

If you suspect theft or fraud in your association, it’s important to investigate, collect data to substantiate fraud or a data breach, and then contact the right people within the HOA as well as your association attorney for guidance. The first step is to start an investigation before assuming a Board member or employee has done anything wrong or to validate if an outside source has breached a database of personal data from the community.

To validate any suspicious financial issues, it is important to examine all HOA documents. This includes vendor agreements, monthly financial records, and documents like meeting minutes, governing documents, and tax returns. The research may involve going through legacy records to examine any paper trail associated with numbers that do not add up. Then, you should also investigate who has access to the association’s database to see where there may be vulnerabilities. 

What To Do Once Suspicions are Confirmed

If any suspicions have been confirmed about discrepancies in financial records or a database breach, and you have adequate proof, then it is important to act swiftly. 

The first step is to call a special meeting. Of course, that may depend on Association bylaws. If bylaws do call for this type of meeting, then it is important to get the meeting scheduled as soon as possible and to alert the community about when and where it will take place. It is important to take minutes and distribute these after the meeting. During the meeting, the suspicious and factual evidence should be shared. Then, time should be allotted for all Board members to review the evidence.

During this time, it may also be good to undertake an independent review of the HOA financials. If the situation involves a data breach, it will be important to involve other external members. If a crime has been committed, then other professionals will need to be involved.

From there, action will be taken based on the situation. For example, if some type of theft has occurred involving assets, it may be possible to recover those through insurance or some other legal avenue. This is a reminder that if an HOA policy does not list theft coverage, then insurance should and the policy should be updated. This may also be the time for an accountant to perform a forensic audit over a longer period of time to trace all possible theft. There may be a need to get the police involved or some other agency if it involves a data breach or some type of online theft.

How to Protect Association Finances and Personal Data

Whether the association has been a victim of theft or not, proactive planning toward any future prevention of such activity is the best accounting security strategy. After all, it is critical that community members trust that those in charge are looking out for their interests and taking care of the community’s finances.

Here are some tips:

    • Maintain clear roles and responsibilities for any Board member or employee who is involved in any aspect of the association’s finances.
    • Only accept checks made payable to the association.
    • Deposit paper checks as soon as they arrive.
    • Minimize people involved in the check deposit process.
    • Get two signatures for every check deposited.
    • Secure blank check stock.
    • Reconcile deposits and payments with monthly bank statements.
    • Ensure adequate insurance coverage that includes any embezzlement or fraud occurrences.
    • Perform background checks on, and verify credentials of those who will be authorized to handle the association’s finances.

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