Theft & Fraud Schemes and How Community Associations Can Avoid Them

By Roberto C. Blanch, for BHA News Spring 2016: – BHA property and community association managers, condo board members and other Brickell neighbors came together in January to arm themselves against fraud and theft in their condo associations. The session was presented by the law firm of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A. with experts from association managment and accounting firms.

Many community association members and directors share the fear that their association will fall victim to fraud, theft or embezzlement schemes orchestrated by unscrupulous managers, employees and/or board members. Such schemes take many forms and may result in severe damage to associations.
While it may be difficult to ensure a community association’s protection from all forms of these schemes, below is an account of some of the types of schemes that are prevalent along with some best practices association stakeholders may wish to consider to protect their interests.

One of the more elementary strategies used by fraudsters is the pilfering of cash received from owners for the payment of their monthly assessments. The illicit act is easily concealed by destroying copies of the receipts indicating the funds paid.

More elaborate fraud schemes often include the issuance of “under-the-table” payments, bribes or kickbacks from vendors who become co-conspirators in the wrongful act. These “kickback” tactics typically take the form of overpayments made to the vendors, or payments made on inflated contracts. The vendor then returns the consideration directly to the association employee or board member instead of to the association.

Association checking accounts are also used at times as a vehicle for the theft and embezzlement of funds. Forged signatures and counterfeit checks may be used, and some fraudsters create fictitious vendor entities to which payments are issued by the association for services or materials never provided to the association.  In similar schemes, association managers or directors have made improper use of credit cards issued to the associations.

A less conventional – yet equally effective – approach to defraud community associations involves obtaining control of a majority of an association’s board of directors in a fraudulent election process. The objective of those pursing this scheme is to gain control of the association’s purse strings. By tampering with the ballots, “stuffing the ballot box” with forged or counterfeit ballots, and destroying legitimate ballots, fraudsters have been able to gain control of association boards in order to hatch and execute elaborate schemes to filch thousands of dollars from associations.

How you can arm yourself

Some of the best practices associations may implement to avoid being victimized include employing a high level of vigilance to ensure proper accounting of all assessment payments, including verifying that the account number on the back of all of the returned checks match the association’s account.

Other associations have implemented measures to ensure that payments are received at remote locations or by means of electronic payment, thus removing the possibility that payments made and delivered to the association’s management office may be intercepted.  For any payments received in cash, it is best to use a three-part cash receipt book so that copies of the receipts go to the payer, one for the bank deposit records and one for the bookkeeper.

Audits, CPAs on the lookout

It is also important for the association’s board to independently select and engage a qualified accounting firm, experienced in community association accounting, as such firms are called upon to complete comprehensive annual audits that may identify questionable practices or expenditures.

Associations should also consider requiring two board members to sign all association checks and approve association expenditures above a certain stipulated threshold. If possible, the selected directors should be rotated from time to time.

While banks may not guarantee that a check signed by only one signatory will not be accepted, the requirement may nonetheless assist in the implementation of internal association checks and balances to be used by the association in its aim to reduce susceptibility to theft or embezzlement.

A designated board member should also conduct monthly reviews of the bookkeeping with the property manager, and this should include any credit card statements. Bank statements should also be required to be sent to the designated board member as well as the manager. The monthly review of these statements should include a careful review of all the checks that were issued and the signatures for each.

By implementing these and other precautionary measures, community associations can make it more difficult for deceitful individuals to deploy schemes aimed at defrauding associations. •

Roberto C. Blanch is a partner with the law firm of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A. He focuses on community association law, and the firm represents more than 800 associations throughout Florida. He can be reached at 305-442-3334 or at rblanch@srhl-law.com. See www.srhl-law.com and www.FloridaHOALawyerBlog.com to learn more.