Some of the telltale signs of potential malfeasance include unusual payments for unbudgeted purchases, payments remitted to unknown vendors, and/or unauthorized signatures appearing on checks or other official documents. Some of the telltale signs of potential malfeasance include unusual payments for unbudgeted purchases, payments remitted to unknown vendors, and/or unauthorized signatures appearing on checks or other official documents.

The vast majority of community association officers, directors and agents act in the best interests of the communities they serve, and they are determined to uphold their fiduciary duty to the unit owners. However, unfortunately sometimes associations fall victim to financial fraud, theft, embezzlement, mismanagement and similar offenses that not only impact the operations of the communities but also create distrust among members.

In the community association setting, fraudsters can come in many forms including directors, property managers, bookkeepers, accountants, attorneys, contractors and others. Those who commit fraudulent acts typically pose as experts and work diligently to gain the trust of their victims, then these unscrupulous individuals deploy their schemes and begin to syphon funds from association accounts.

In many ways, modern technology has exposed associations to new sources of potential fraud and financial abuse. The deceit involved in some cases of fraud can be immense, and it often takes much more than cursory reviews of financial and account statements by board members and property managers to determine whether something is amiss.

Some of the telltale signs of potential malfeasance include unusual payments for unbudgeted purchases, payments remitted to unknown vendors, and/or unauthorized signatures appearing on checks or other official documents. However, the variety of potential schemes, which can also include bribes and kickbacks involving unscrupulous vendors, demands the upmost vigilance for effective prevention and detection.

Association directors, members and property managers who suspect they may have uncovered potential theft or fraud should tread extremely carefully in how they proceed. They should collect as much data as possible without alerting the potential fraudsters of their investigations, and should immediately contact their association attorney, or another experienced community association lawyer, as well as the association’s accountant or other licensed financial professional to assist with the investigation.

Under the guidance of scrupulous and experienced legal counsel and accounting professionals, investigations can proceed by gathering all the appropriate account statements and financial records, again in a manner that avoids alerting the possible perpetrator(s). Qualified legal counsel and accounting professionals should then analyze the information and determine the best course of action. In most cases, the association may need to engage a forensic accountant to perform an audit and analyze its financial records and transactions. A detailed review of these records will assist with identifying and confirming whether any frauds have been committed and, if so, the extent of the association’s damages.

Prior to divulging any findings related to the forensic audit and the association’s investigations in writing or in an open meeting, attorneys are likely to advise associations to contact their insurance carrier(s), as coverage is often contingent upon insurer approval of the association’s actions. Legal counsel may also suggest filing a formal complaint with the divisions of the Florida Department of Business and Professional Regulation that oversee community association boards and property managers.

In addition to filing a complaint with the state agency, legal counsel may also advise the association to file civil actions against the suspected individuals for damages and injunctive relief, and to contact law enforcement to report the fraudulent transactions so police can further investigate the claims prior to disclosure to all the board members.

Recovering funds can be extremely difficult, so associations are well advised to employ the soundest safeguards and precautions to protect themselves from fraud, theft and embezzlement. Some of the most recommended safeguards include requiring two signatures on all checks, keeping the stockpile of blank checks securely locked away, conducting monthly reviews of all account and financial statements by multiple directors/managers, and maintaining adequate insurance coverage to protect against the loss of funds through embezzlement, fraud or other malfeasance. Communities should also schedule and conduct independent audits of all financial records by certified experts on a regular basis.

Additionally, associations should always require multiple signors to withdraw/transfer funds or make changes to bank accounts, vendor contracts and insurance policies. Authorized signers should be limited to the officers and directors of association boards.

Communities should also avoid issuing and using debit cards in the name of the association. In fact, Florida law expressly prohibits condominium associations and their officers, directors, employees, and agents from using debit cards issued in the name of the association or billed to it.

By working very closely with highly qualified professionals of the highest integrity and employing the most effective preventative measures, condominium associations and HOAs can proactively help to ensure they avoid becoming victims of unscrupulous fraudsters.