Members of a homeowners association must take aggressive methods to prevent HOA fraud and ensure fairness. Because HOAs represent the interests of a large group of homeowners, the ramifications of fraud or theft may be severe. Furthermore, the high degree of trust inherent to serving the collective interests of the association could result in fraud going unnoticed for an extended period.
Methods to Prevent HOA Fraud
Here are some ways that HOAs can safeguard their memberships against this formidable threat.
Seek Out Guidance From Auditors and Crime Insurance Providers
Getting input from knowledgeable sources can equip HOAs to take well-targeted measures to prevent fraud. Accounting firms are an excellent resource for insight into financial controls. When they prepare reports, they commonly address account management practices in their findings.
Associations should take advantage of their input to avoid negative remarks on final reports and get up to date with the current best practices for HOAs. Likewise, information from crime insurance providers can inform associations about new trends in fraud that associations are dealing with and offer practical guidance on preventing HOA fraud.
Implement Rigorous Financial Controls
Limiting board members’ access to an association’s funds is an essential element of financial management for HOAs. Creating a formal process for approving expenditures requiring multiple signatories for large sums is an excellent practice.
Use a Good Account Program and Tier Access Levels
In general, it is suitable for HOA boards to have full access to information about the association’s finances. However, being able to alter information could facilitate fraud. For example, someone could increase the value of a budget line item and keep the difference for themselves. Adjusting user authorization settings on programs thwarts this type of fraudulent activity.
Avoid Conflicts of Interests
One of the most prevalent forms of financial dishonesty in HOAs involves conflicts of interest. Fraud or theft may occur when someone on a board gets compensation in exchange for awarding a contract to a particular company. This compensation often comes at the expense of an HOA’s membership.
In another typical example, board members may use their position to award a contract to a company they own or have a financial interest in. Sometimes, board members fail to recognize that they are committing an ethical breach. Awareness of HOA fraud risks and conflicts of interest can help officers and directors avoid this potentially severe misstep.
Monitor Accounting Records Regularly to Verify Accuracy and Avoid Costly Crime Insurance Claims
Periodically reconciling expenses could alert directors or accountants when something is off. Sticking to a set schedule will catch fraudulent financial activity as soon as reasonably possible.
Early detection helps to contain the total cost of crime of insurance claims. By taking decisive measures to limit the scope of carriers’ losses, HOAs can continue to access affordable crime insurance coverage.
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.