From time to time, a story is run about a homeowner association that has had thousands of dollars embezzled by a trusted manager or board member. More times than not, the story is never told.
Because of the embarrassment to the Board caused by these events there is a natural tendency to sweep it under the carpet. But let's face it, when tens of thousands or millions of dollars are dangled as bait, someone, sometime is likely to take a bite.
It happens and it could happen to your HOA. But there are things you can do to avoid such calamity. Use the Cover Your Assets formula.
If Managed by a Property Manager: Maintain control of your funds by keeping both operating and reserve accounts in the name of the homeowner association.Limit the size of the check the management company can sign keeping in mind regular expenses like utilities and service contracts. In other words, don't limit the manager to $500 if the monthly water bill averages $1500. Set a limit that allows the manager to deal with the routine. Anything above that amount should require the signature of the Board President or Treasurer or other officers included on the bank signature card. It's best to have the President sign whenever possible.Writing checks or transferring funds from the reserve account should be restricted to authorized Board members only since the need to access reserves is infrequent.Make sure your manager has a fidelity bond in an adequate amount insuring the HOA against loss. The recommended formula is the amount held in reserves plus two months regular assessments.Send duplicate bank statements to the Board President. It may cost a bit extra but it's a deterrent to a would be embezzler to know someone is watching.
If Managed by Board or Employees: Purchase Fidelity/Employee Dishonesty Insurance in an adequate amount that includes wrongful acts of officers and managers.Restrict check signing authority to the President and Treasurer.Require the checking account be balanced within a week of receipt of statement.Send a duplicate bank statement to the President.Never pre-sign checksKeep blank checks secured
Have a CPA perform a full audit at developer or property manager turnovers or at least every three years, annually if the budget is large ($100,000+) or when state law requires.
When it comes to handling HOA funds, a CYA policy is absolutely essential. Setting boundaries is healthy for all money handlers, reminds them that others are watching and builds trust among the members.
Remember to cover your assets and you won't have to cover your...well, you know.
For more information on how to safeguard HOA funds,