When I think of safety within community associations, I think of protecting the HOA’s most important asset: their money. We’ve all heard the news stories and articles about homeowner associations that have fallen victim to money fraud or embezzlement. In this article, I will provide some suggestions you can apply to your community to better protect itself.
Know who your signers are
Professional relationships must always be built upon a foundation of trust. Banks are required to run background checks on all bank account signers but there is no substitute for always being aware of who the current signers are, and being proactive when updates are needed.
Divide and define the labor
You can help avoid fraud and embezzlement by separating the duties within the accounting department. Most professional management companies already do this, but be sure to ask these questions to better understand the checks and balances involved:
- Who opens the bank statements each month?
- Who reconciles these statements, and how often?
- Who cuts the checks? Are they in numerical order?
- Who is responsible for obtaining check signatures?
- Are there past records of all checks (cancelled and deposited)?
- Who is authorized to speak to the bank with questions?
Complete and thoroughly review signature cards before directly sending them to the bank. As homeowners join or exit the board, you should complete a new signature card to make sure the bank is kept up to date. It’s best to have a blank signature card ready when new board members have been elected.
Do not put the entire bank account number in an email; use the last four digits of the account instead. You can type the word “sensitive” or “confidential” in the subject line when emailing the bank, and it will be flagged with sensitive information and automatically be secured.
Store it and keep it safe
Store your blank check stock in a secure location or in a locked drawer, which should only be accessible to authorized personnel only. Keep a record of canceled checks and old bank statements in a secure location as well, and know that you can always contact your bank to request past statements or copies of checks if needed.
Boards and the branch
Even though board members are the authorized signers of their association’s bank accounts, understand that the decisions to transact financial business must be decided at board meetings (with proper meeting minutes) and should not take place at a branch.
More and more community associations are utilizing a banking service called Positive Pay. This program provides another layer of protection by reviewing check transactions the bank shows, compared to what transactions your accounting software shows.
Be proactive and be aware
If you have witnessed fraud or even suspect fraud, you should notify your bank immediately. The bank can take the proper steps to verify legitimate transactions, and freeze the bank account if necessary. Be prepared to provide copies of checks and other proof or documentation to the bank.
Chuck Balacy is a Vice President with Mutual of Omaha Bank and can be reached at firstname.lastname@example.org
Content on this site is provided for informational purposes only. It is not intended as, and does not constitute, legal advice. While all content is believed to be correct within the scope of its purposes when written, it may be incomplete and/or the relevant law may have changed. Content on this site is not intended to comprehensively cover any subject, does not cover a number of related matters, and does not cover any person or entity's particular situation. As such, it is not reasonable for anyone to rely upon the information herein with respect to any particular legal matter. Rather, readers are encouraged to retain a licensed attorney to provide individualized and current legal advice.zany