Financial Controls to Help Prevent Embezzlement and Fraud

Our law firm suggests that boards have the following accounting and financial controls in place to prevent embezzlement and fraud in their association:

1. Keep association records up to date;
2. Assign control of all reserve funds to the entire board;
3. Monthly financial reports should be prepared and made available for board review (include in the monthly report, a balance sheet, a statement of revenues and expenses and a comparison of actual revenues and expenditures to budgeted amounts);
4. Require two signatures (including at least one board member) on all checks or transfers greater than a pre-designated amount;
5. Prior to signing checks, authorized check signers must review invoices and supporting documentation;
6. Review bank statements and reconciliations on a monthly basis;
7. Keep only a small amount of petty cash on hand and in a secure place;
8. Regularly review delinquent receivable balances;
9. Purchase adequate fidelity insurance to cover the volunteers and employees who handle funds. In addition, arrange for directors and officers coverage (D&O insurance) in the event the board is accused of financial mismanagement;
10. Hire a CPA to conduct an independent annual review or audit; and
11. If your board discovers that funds are missing from your association, remove the suspected fraud perpetrator from a position of control, put a stop on all bank account activity and check with your association attorney for advice on how to proceed.

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