Preventing Dishonesty Within the HOA

The last thing anyone on a homeowners board wants to see is dishonesty within the HOA, which can fracture the organization. Likewise, property owners who belong to an HOA entrust the board members who they have elected to represent their legal and financial interests. That trust measure is fundamental to HOA management’s dynamics, but it also makes associations susceptible to theft. Consequently, board members or agents of the association may abuse this trust and take advantage of their access to the association’s assets.

Prevent Dishonesty Within the HOA

Effective strategies to prevent internal theft and other forms of financial dishonesty can protect HOAs against liability and loss.

HOA Boards Must Have Good Record-Keeping Practices

The records that an HOA keeps should reflect complete financial transparency. Thus, documentation about account management, expenditures, and collections must provide members with a clear and accurate understanding of how the board handles the association’s finances.

Strong record-keeping may reduce the likelihood that an HOA will sustain a loss resulting from fraud and theft. When individuals serving on a board or engaged in an agency relationship with a homeowners association are aware that it is keeping a close watch on its finances, they may be less likely to attempt to appropriate its resources.

Third-Party Audits Can Help a Homeowners Association Detect and Deter Theft

Crime insurance providers typically like to see that parties who have no direct affiliation with the association are reviewing its record-keeping practices and financial transactions. Audited financial statements that include an analysis of managerial procedures and security directives can offer carriers peace of mind that insureds are taking the proper steps regarding HOA fraud prevention.

Third-party audits can bring suspicious activity or problematic procedures to light before they escalate and cause irreparable harm to a membership. With a third party looking on, criminal actors will have difficulty concealing any incidence of wrongdoing.

Conflicts of Interest Are a Major Area of Concern

Board members can steer the association’s activities to benefit them personally. Ultimately, this is the greatest example of dishonesty within the HOA. Awarding a project or service contract to a company in which a board member has a direct interest may amount to a fiduciary breach and also cause an association to incur unnecessary expenses. Therefore, HOAs must establish and enforce policies prohibiting conflicts of interest that can lead to dishonesty or embezzlement.

Full Compliance With Regulations Governing HOA Management Is Essential 

HOA board members must ensure that their management activities are consistent with statutory law and their governing documents. Additionally, many of these regulations are in place to safeguard the rights and interests of their memberships. Comprehensive compliance with applicable mandates helps to protect HOAs from themselves.

Ultimately, insurance agents should work closely with their HOA clients to help them identify risks involving internal theft. Recognizing red flags and appreciating the potential magnitude of the harm that could result from criminal activity will help HOAs take targeted measures to mitigate their risk exposure.

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.