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Fraud and Embezzlement Challenges Handout

Home | Fraud and Embezzlement Challenges Handout

With difficult economic times over the last several years, the community association industry has seen a rise in thefts and embezzlement in homeowner and condominium associations. Many associations believe their money is safe and it is difficult to steal funds belonging to the association.  This is an unfortunate and incorrect assumption.
For the information on a current case of fraud affecting local HOAs quoting VF Law’s Rich Vial, see the Oregonian article at: http://www.oregonlive.com/business/index.ssf/2012/06/northwest_empire_community_man.html

 

  1. WHAT IS FRAUD?

An intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage.

 

  1. TYPES OF FRAUD
  • Asset misappropriation
  • Fraudulent statements
  • Corruption

 

III. WHO HAS ACCESS TO FUNDS?

  • Management company
  • On-site manager
  • Bookkeeper
  • Board members
  • Officers

 

  1. FRAUD TRIANGLE
  • Opportunity
  • Pressure/Incentive
  • Rationalization

 

  1. PREVENTION
  • Do not commingle funds: Establish separate accounts in accordance with ORS 94.670 and 100.480 under association’s Federal Tax ID number
  • Require at least two signatures for all withdrawals (or over a minimum amount)
  • Establish separate reserves accounts in accordance with ORS 94.595 and 100.175
  • Require duplicate bank statements
  • Enable online viewing
  • Check invoices against checks cut
  • Impose caps on debit and credit cards
  • Conduct financial reviews and audits
  • Obtain adequate fidelity insurance