Year-end financial reviews are when condo associations take stock of budgets, audit accounts, and assess risk. It is also the moment when internal vulnerabilities tend to surface. That is why fidelity coverage for condo associations should be at the top of every board’s agenda. With internal theft, embezzlement, and unauthorized funds transfer continuing to rise, associations cannot afford gaps in financial protection.
Fidelity coverage protects condo associations from dishonest acts committed by individuals with access to association funds, including employees, board members, and property managers. As boards reconcile accounts and prepare new budgets, the need for serious crime and fidelity safeguards becomes especially clear.
Why Year-End Reviews Expose Financial Vulnerabilities
Board members often volunteer their time, and year-end transitions can stretch oversight thin. New officers take the helm, management companies undergo changes, and reserve studies are updated. These shifts create natural openings for financial inconsistencies or fraud to go unnoticed.
Year-end reviews also tend to reveal operational issues such as missing documentation, outdated procedures, or unexplained variances in reserve accounts. Many associations still rely heavily on a single bookkeeper or manager to control funds, which increases the likelihood that errors or misconduct could go undetected. These risks grow when associations handle large reserve balances or process seasonal vendor payments.
Digital exposure adds a new layer of concern. Cyber-enabled fraud, including phishing and unauthorized electronic transfers, tends to increase during periods of heightened financial activity. Even sophisticated boards can face challenges when digital controls have not kept pace with modern threats.
What Fidelity Coverage Actually Protects Against
Fidelity coverage reimburses the association when money, property, or securities are stolen or misappropriated by individuals in positions of trust. It is distinct from other forms of protection. Directors and officers liability policies do not cover theft, so agents must carefully evaluate crime coverage to address the correct exposures.
Examples of incidents that fidelity coverage can respond to include:
- Embezzlement by board members, employees, or management-company personnel.
- Forged or altered checks are used to divert association funds.
- Electronic funds transfer fraud is one of the fastest-growing risks for community associations.
- Theft or misuse of reserve funds, especially when dual controls are lacking.
Digital schemes are also on the rise, including tactics associated with mass marketing fraud. Fraudsters may impersonate vendors, property managers, or even board members to request transfers or redirections of payments. Associations without proper controls or sufficient insurance are particularly vulnerable to risks.
Are Most Condo Associations Properly Insured for Fidelity Losses?
Many are not. Associations frequently carry minimal fidelity limits that were appropriate decades ago but no longer reflect today’s financial landscape. Reserve funds have grown, operating budgets have expanded, and governing documents often require higher limits than the board realizes. Lenders may also mandate specific fidelity requirements as a condition for financing within the community.
Boards should review:
- Whether current limits reflect total accessible funds, including reserves
- Who is covered, including board members, employees, volunteers, and management companies
- Whether the policy includes coverage for computer fraud and funds transfer fraud
- How vendor access or accounting platforms may create new exposures
During renewal season, it is appropriate for board members to request a coverage review, updated limits, and clarification on how modern fraud scenarios would be handled by their existing policy.
How To Strengthen Your Association’s Financial Protection Before Year-End
A strong year-end risk review includes updating financial procedures and confirming that fidelity and crime coverage support the association’s current operations. This period is an ideal time to make corrections, strengthen internal controls, and assess whether policy limits align with real-world exposures.
Working with a knowledgeable insurance partner helps associations identify gaps, align coverage with governing documents, and ensure that financial safeguards are in place for the coming year. Kevin Davis Insurance Services specializes in community association risks and can support agents and boards in reviewing fidelity exposures and selecting appropriate solutions.
FAQ About Fidelity Coverage
What does fidelity coverage protect condo associations from?
It protects against theft, embezzlement, forgery, and dishonest acts committed by individuals who have authorized access to association funds, including board members, employees, and management-company personnel. Many policies can also include computer and electronic funds transfer fraud.
Is fidelity coverage the same as crime insurance?
They are related but not identical. Crime coverage often includes additional protections such as computer fraud or social engineering, while fidelity focuses more specifically on employee or insider dishonesty. Many associations need both.
Do management companies’ policies cover the association?
Not always. Some management company fidelity policies do not automatically extend to the association’s funds. Boards should confirm who is included and review whether they need separate or additional coverage.
How often should associations review their fidelity limits?
At least annually, and especially whenever budgets, reserves, or management structures change.
About Kevin Davis Insurance Services
For over 35 years, Kevin Davis Insurance Services has built an impressive reputation as a strong wholesale broker offering insurance products for the community association industry. Our president Kevin Davis and his team take pride in offering committed services to the community association market and providing them with unparalleled access to high-quality coverage, competitive premiums, superior markets, and detailed customer service. To learn more about the coverage we offer, contact us toll-free at (855)-790-7393 to speak with one of our representatives.