HOW TO DETECT AND PREVENT HOA FRAUD
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Fraud and theft are unwanted situations in any HOA. However, even a volunteer organization like an HOA can often be a target for fraud. In this article, your trusted professionals on HOA management in Greenville, SC, list some common warning signs of fraud in an HOA and the ways to protect it from those activities.
Fraud and Theft
Fraud is a wrongful or criminal deception intended to obtain an unfair or illegal profit. The main types of business fraud are corruption (bribes and extortion), theft of assets (cash, bloated expenses, and employees who get paid but don’t work), and figures massaging. According to some studies, the total losses caused by fraud represents 68%, while asset theft represents 21% and corruption, 11%.
HOAS AND CONDOMINIUM ASSOCIATIONS HOAs and Condominium associations tend to be frequent targets of embezzlement and fraud because they bring together a combination of factors that makes them a tempting target for embezzlers (weak controls and enforcement and part-time volunteer boards in charge of accounting)
EMBEZZLEMENT OF HOA FUNDS It typically occurs in small amounts over a long period; for this reason, in some cases, it may go undetected for years. On the other hand, HOAs do not report this type of criminal activity out of fear of the bad publicity of announcing the theft.
Measures
Auditing all books and records by a reputable and licensed Certified Public Accountant (CPA) is vital to prevent embezzlement. Furthermore, some HOAs fail to secure blank and canceled checks in a locked location. Therefore, saving and protecting these documents is indispensable. Also, HOAs must implement measures to avoid direct embezzlement that consists of the theft of cash or inventory.
Bribes and Kickbacks These practices occur when a board member controls big contracts for local providers. In this sense, they can conspire to receive profits from a contractor in exchange for HOA contracts.The best measure to prevent kickbacks is to reduce the chances of influence from both contractors and board members by ensuring transparency during a bidding process for large capital projects. Thus, professionals recommend sealed submissions of bids and having bid openings with multiple witnesses when choosing a contractor.
wmdouglasgreenville.com
wmdouglasgreenville.com