Community associations face multiple threats that may compromise their safety and livelihood and must take measures to prevent them. The HOA can implement security measures to combat these threats in neighborhoods with a homeowners’ association. Sometimes, a threat targets the HOA itself, as is often the case when fraud occurs. A community organization can be especially vulnerable to financial crimes.
Things for Community Associations to Consider
However, association leadership can take several steps to mitigate this risk by ensuring members spend the funds appropriately.
Maintain Stringent HOA Recruiting Practices
Unfortunately, people who enjoy insider access to an organization or business have often committed fraud. For homeowners’ associations, this means that board members, contractors, employees, and volunteers may all be in a prime position to perpetrate some form of fraud. When a board is considering new members or filling any other position, it’s imperative to maintain stringent recruiting practices — especially for any individual who may have access to association funds. Perform background checks and check references to screen community association candidates.
Monitor the Activity of Employees
Although a background check can weed out candidates with criminal backgrounds, it’s important to remember that fraud is often a first-time offense. Indeed, according to the Association of Certified Fraud Examiners, the average offender has no arrest or conviction history. A community organization must prevent fraud by monitoring the activities of its employees. HOAs should audit any community association official who exhibits red flags for potential fraud. Red flags include sudden increases in personal spending or an unwillingness to take time away from their responsibilities.
Create Protocols for All Transactions
Any ambiguity in financial protocols can open the door to fraud. Establishing clear guidelines for procedures is vital to eliminate potential misunderstandings. Community associations can do this by consulting with an accountant who specializes in accounting for homeowners’ associations. Work with this professional to create a financial structure for the organization and ensure a system for accountability, too. Protocols must always include documentation of any financial transaction affecting the association’s funds or budget. Leadership should audit these financial documents regularly to ensure compliance with protocols.
Invest in Insurance for HOA Communities
Many homeowners’ associations often research fraud prevention strategies when it’s too late. When funds go missing and association officials behave suspiciously, it’s time to investigate the situation. Fraud isn’t always preventable, though, and that’s why community organizations need to invest in insurance. Excess liability coverage for a homeowners’ association may offset the costs associated with fraud and financial crimes. Fraud will quickly drain an association’s resources and destroy trust. Insurance is the best protection a community can have against this possibility.
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.