Recent Arrests and Reported Losses Demonstrate Lack of Financial Oversight.
Community Associations simply cannot function without adequate cash flow. Community leaders have a fiduciary obligation to monitor and protect the Association’s funds. Handling the finances of the Association can be a daunting task, especially if the volunteer leaders do not have any background in accounting or finance. There are many state and federal laws governing budgeting, financial reporting, taxation and the like and a lack of sufficient oversight exposes the Association to loss from theft.
Community leaders cannot abrogate their responsibilities solely by hiring management or contracting with a bookkeeping service. Recently it appears there has been an increase in Associations that have been victimized by these professionals. The Sun-Sentinel reported some Associations lost hundreds of thousands of dollars as a result of alleged theft by an employee of the management company. One Association found out there were problems with its account when checks bounced. The management company had the authority to write checks, balance the books and make deposits. The directors of each of the Associations involved apparently did not review all the source documents to verify that payments were made and the balances on each of the accounts.
A similar situation occurred in Collier County, Florida. Authorities arrested a bookkeeper working for a management company for 21 counts of grand theft. The Naples Daily News reported that the bookkeeper made fraudulent bank transfers from the Associations’ accounts into her personal accounts.
Communities comprised of older residents are especially susceptible to fraud schemes. The Charlotte Square condominiums in Port Charlotte, Florida reported over $1 million in losses.
Community leaders are encouraged to:
- Store blank and canceled checks in a secure location;
- Notify the bank/financial institution when officers change immediately and keep control of bank signature cards;
- Create precautions for Internet banking and bill paying;
- Review source documents (invoices, bank statements, deposit slips) with management reports and consider having the bank send duplicate statements;
- Avoid master vendor accounts and place low limits on credit and/or store charge cards; and
- Obtain adequate fidelity bonding and employee dishonesty coverage for all persons authorized to sign checks or drafts.
Always be alert to new or different spending patterns. While the volunteer leaders are not expected to become experts, they must have a basic understanding of the Association’s finances, its expenditures and obligations, as well as seek out the relevant information to make informed decisions.