What to do if Fraud is Suspected Within Your HOA

It’s human nature to think and hope for the best when interacting with others. Perhaps more so when working with volunteers on a mutual interest project, such as a Homeowners Association (HOA.) Personal relationships can make learning your HOA is or could be the victim of fraud a shocking and uncomfortable thought. It’s better to be informed about prospects for problems in your HOA than to be caught off guard.

Non-profit organizations that take in large sums of money and are run mostly by volunteers are susceptible to fraud and embezzlement. The proficiency in accounting practices, managing budgets, balancing books, and working with vendors is often low among board members. Combining potentially high trust levels among board members and volunteers who have busy lives outside the board creates a ripe situation for financial crime and misdeeds. 

Most Frequent Types of HOA Fraud

Within an HOA community, the following types of fraud are common.

• Embezzlers usually siphon small amounts of money off the books. Embezzlement can go undetected for exceptionally long periods in the right conditions.    
• Financial Statement Fraud is often part of an embezzler’s scheme. They cook the books by altering financial documents to give them access to divert funds dishonestly for personal gain.
• Election Fraud happens when a group conspires to rig the condo board election—they band together to vote to choose their board members. With enough votes, the group can steer business contracts to their cronies.
• Bribery and Kickbacks often involve election fraud when money or favors are illicitly funneled back to the board members who voted to award contracts. Another example is a local supplier offering cash, event tickets, rounds of golf, or gift cards in exchange for being a preferred vendor. Even though such gifts can seem innocuous, accepting them creates conflict-of-interest conditions that board members should resist.

What to Do When You Suspect HOA Fraud

Prevention

The best way to avoid financial crime problems within an HOA is to put preventative measures in place. 

• Start with sound financial account practices. 
• Hire a manager or an outside firm to review the books annually. 
• Require review approval and double signatures for purchases over a specified amount. 
• Make board review and approval for all recurring contracts mandatory.
• There are other practices to prevent fraud. Your professional advisers, such as your NJ Condo Association Insurance program provider, can provide you with expert advice. 

Actions to Consider When HOA Fraud is Suspected

For many reasons, it usually is a delicate matter for someone who suspects fraud within their HOA. The severe implications of such accusations are a cause to proceed carefully. Having personal relationships and proximity in living spaces adds to the challenge of understanding what has happened. However, when the situation calls for it, taking action to figure out what is going on, who is involved, and how they are pulling it off is crucial. 

It will take patience and persistence, but the board and community members have options to research HOA records. They can start with a request to review the HOA’s relevant meeting notes, financial records, audits, and agendas. They can obtain some information through civil record requests. 

As circumstances dictate, additional information from invoices, governing documents, tax returns, ancillary budgeting documentation, reimbursements, and vendor contracts may be necessary.   

After board members who suspect fraud and have reviewed the association documents to sufficiently support their suspicions, they can use the association’s bylaws to call a special session with the intent of discussing the potential fraud. They can also use the session to request additional information and documents from the board. 

If they are blocked from holding the session or receiving the requested information in the worst-case scenario, they can take legal action. Involving law enforcement is a serious matter that makes it especially important to have all possibly relevant data available to verify the allegations. 

Helping board members understand the management liability-related lawsuit risks they face is a service Dickstein Agency provides clients. We strive for the most inclusive coverage for Directors & Officers (D&O) Liability and Crime & Fidelity insurance to help protect board members against management liability claims. Our clients benefit from the decades of team experience we bring to underwriting NJ Condo Association insurance programs. Whether it’s Commercial Umbrella policy to extend the primary Liability limits in the event of a catastrophic incident or complete employee benefits packages, we’ve got you covered. 

About Dickstein Associates Agency

Dickstein Associates Agency has distinguished itself as a leading provider of personal and business insurance in the tri-state area for over 55 years. We pride ourselves on being advocates for our clients and providing them with quality and affordable coverages. As Trusted Choice™ independent insurance agency, we partner with various national and regional carriers, allowing for flexible and unbiased coverage for each client’s unique circumstances. For more information on how you can leverage all of your insurance to work best for you, and how we can secure the best insurance in the marketplace based on your specific needs and business objectives, contact us today at (800) 862-6662.