The occurrences of fraud or embezzlement in homeowners' associations are prevalent. HOA fraud isn’t exclusive to just board members. Managers, employees, and even volunteer homeowners are known to have committed fraud if the HOA has lax rules and standards. Fraud as you might know is a deliberate act of deception for personal or financial gain.
Embezzlement or theft within the Homeowners association is a form of fraud. It involves a person taking property that was entrusted in his/her care by the association and using it for him/herself. HOA embezzlement comes in different forms. It can be a board member issuing checks made out to their name, collecting dues and payments but pocketing the funds, or altering financial documents.
Mismanagement or misappropriation of funds is another form of embezzlement. It involves a person taking HOA funds and using them for his or her personal benefit.
Kickbacks, another term we often hear about are another problem for HOAs and happen when a vendor offers a payment or gift to a board member in exchange for hiring their company. It is also HOA fraud when a board member receives a portion of the contract money.
Election fraud within the HOA can be claimed and said to occur when the board skips annual elections or postpones them indefinitely to keep their positions. Individuals may also rig the election results to produce their desired outcome or forge proxy signatures to collect votes.
Fraud for the most part can be prevented through proper oversight. This is done by establishing and enforcing internal controls and procedures requiring checks and balances. In addition, it is prudent to have periodic visits by a Certified Fraud Examiner which can be viewed as a fraud prevention measure and to investigate suspicions of fraud. These steps if taken will make board members, managers, and employees accountable for their actions, thereby reducing the potential for fraud or embezzlement.
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