Although no one wants to look upon other board members with suspicion or doubt, there is a risk of fraud and mismanagement with any HOA board. There should always be checks and balances, and your board should always be on the lookout for any red flags that may indicate that your funds are being handled incompetently or even dishonestly. Here are eight warning signs to watch out for in your HOA finances.
Mistakes in the Bookkeeping
Mistakes in the bookkeeping could be just that: mistakes! However, consistent mistakes should be cause for concern. They can be a sign of sloppiness or incompetence on the part of a board member. In more serious cases, these mistakes can also be an indication that fraud is being perpetrated from inside the association. Always check into consistent mistakes.
An Unexpected Decrease in Revenue
Any unexpected or unexplained decrease in the revenue of your HOA should be investigated. It could be a sign that residents are not paying their dues on time, or it could be that someone is illegally leaking funds into their own pockets.
Statements that Do Not Match
The financial statements should always match the bank statements. Do consistent checks to make sure that all monthly, quarterly, and yearly statements match your bank statements. If there are any discrepancies, you should investigate the cause immediately.
Checks Written to Individuals
Any checks from vendors, partners, or residents should always be made out to the association. if any checks are being made out to individuals, this is either a sign of ineptitude within the board, or of fraud.
No Checks and Balances
One person should not be in charge of all of the finances in your HOA. Your board should choose one individual to write all of the checks, while another should deposit them and record them.
Checks Written to Illegitimate Companies
If the name of a company written on a check is unfamiliar or suspicious in any way, this is a huge red flag for fraud. Your HOA board should always be double checking, whether through the internet, in person, or by phone, that the vendors on your checks are legitimate companies.
Sudden Increases in Vendor Pricing
Any sudden increase in vendor pricing should be investigated. It could simply be that the vendor has raised its prices, in which case you can consider negotiating with them or seeking out a new company. However, if the vendor does not acknowledge an increase in pricing, this should be considered with suspicion.
Less Cash Depositing or Checks Written to Cash
Some individuals can commit fraud by depositing checks but reserving a certain amount to be taken out in cash rather than deposited. If this is happening, take this as a serious warning sign. In addition, checks should never be written to CASH.
Fraud and ineptitude are possible in any homeowners association. Board members should always be on guard, and should look out for these warning signs to make sure that the association’s money is always being handled honestly, professionally, and accurately.