Fraud and Embezzlement in Your Association-How to Spot It & How to Avoid It

It has happened; there are funds missing from the checking account. Figures do not line up and you cannot get in touch with anyone. The board always sees a financial statement at each board meeting, so what went wrong? Any organization that believes it is immune from the fraudulent use of funds is destined to become a victim.   Mulcahy Law Firm, P.C. encourages boards of directors to identify potential risks and implement steps and actions to correct any risk.

What should you look for? Examples of ways that funds are misappropriated include:

Theft of cash
Fake expenses
Extraneous employees included on payroll
Inappropriate transfers of funds
Use of association funds for personal collateral
False reporting of non-existent financial assets

A perpetrator will have studied the association’s approach to management of records and money. Therefore, proper accounting practices must be followed with complete reviews of financial records at the board meetings to help ensure that attempted fraud would be discovered in a timely manner. Additionally, pay attention to the details, listen to the financial report, everyone on the board must be aware of and be skeptical of any discrepancy that is noticed during the monthly financial review.

Finally, don’t forget that Arizona law (A.R.S. 33-1810 and A.R.S. 33-1243(J)) requires an audit, review or compilation of the association financials every year. Doing this could help prevent or curb fraudulent actions against the association.

For more information, please refer to our Cheat Sheet called Tips for Preventing Theft and Fraud of Association Funds. http://mulcahylawfirm.com/news/Tips%20for%20Preventing%20Theft%20and%20Fraud%20of%20Association%20Funds.pdf

By:  Beth Mulcahy, Mulcahy Law Firm, P.C.

This entry was posted in Board of Directors, Community Association Law, Homeowner Associations, HOA, Enforcement, Finances, Financial. Bookmark the permalink.

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