Protecting your HOA from fraud and embezzlement

May 18, 2020

What controls and processes do you have to protect HOA funds from fraud and embezzlement?

The world of HOA's can be a tough place for board members. They are volunteers who often have a thankless job. However, our association management team understands that difficult position, and we thank you for your effort. To further aid boards in carrying out the fiduciary duties, we have built extensive protocols to protect an HOA and their funds. These measures are built off of sound financial management and controls developed in general accounting principles. Our owner and managing Director, Jay Raman, hails from a Big 4 audit background (PricewaterhouseCoopers), and has a masters in accountancy from the University of Texas at Austin. Using these experiences, Ashoka Lion has forged advanced controls that are in line with best practices from public audit procedures and review.

To put our processes and procedures to the test, we have found an article by the California based nonprofit, ECHO (Education Community for Homeowners). The article is a discussion of practices and controls that protect homeowners and communities from fraud of embezzlement. The table below lists several of the recommendations and points made by the ECHO organization to association boards. These are steps and protocols to reduce and prevent misuse of association funds. Please note that Ashoka Lion provides all these critical steps and more with our clients for either Full Service HOA management or Financial Management only HOA services .

"Protecting Your HOA from Fraud and Embezzlement"

ECHO Proposed Control	Explanation from ECHO	Ashoka Lion Process
1 Require two signers	If your management company or bookkeeper signs checks for regular bills, arrangements should be made to have a discreet list of those items they are authorized to approve	Our financial management HOA contract creates limits for expenditure and spending limits. The board is given a portal to approve other expenditures prior to payment.
2 Whenever there is a change in officers, your signature cards should be updated.	Important to insure appropriate signers are able to discuss with the bank issues or questions.	Ashoka Lion request board to update changes to signature cards.
3 Use a Lockbox for Assessment Collection	With a lockbox, homeowner payments are mailed directly to the bank and deposited directly into the HOA bank account. This eliminates unnecessary handling of checks and the opportunity for someone to misappropriate the money coming in.	We offer clients a free lockbox service to handle owners who mail in payments for Association dues.
4 Create Safeguards for Cash Receipts	In order to avoid complications with cash receipts, your HOA should consider adopting a policy that requires all monies received to be in the form of checks or money orders instead of cash.	Ashoka Lion request boards to avoid use of any cash based process, but if one is requested than we can work with the HOA to design appropriate controls.
5. Execute Controls on Bank Accounts	If your board of directors has the management company handle the bank statement reviews, at a minimum the treasurer should receive a copy of all bank statements.	Copies of Bank Statements Are Uploaded to Board Reporting Packages. We also can provide the name of the bank representative for HOA board members to obtain any information.
6. Budget Comparison	Budget-to-actual comparison should also show a budget discrepancy as the embezzlement unfolds. The defrauder has to make the cash balance; therefore the money has to be expensed somewhere, and since HOA budgets are usually tight, small differences can be noted and addressed. This comparison needs to be done quarterly so that any problems are promptly addressed and corrected. When associations use these procedures frequently and thoroughly, they discourage potential defrauders by increasing the odds of detection	Our monthly HOA reporting includes budget to actual variances package
7. Timely Reporting	The board should receive the association's month-end financial statements and bank reconciliations within the following month.	Our monthly HOA reporting packages are provided the following month to the board to review.
8. Proper Management of Accounts	The accounts should always be in the name of the association, not the manager or an owner or anyone else.	Ashoka Lion works with banks to establish all accounts in the HOA name and Tax ID. Association Board representatives are added as signers to the account.