6 Costly HOA Financial Mistakes

Each board role act as a check and balance for the others, but even still, fraud does happen. This doesn’t just doesn’t just have to do with approving the budget or other financial decisions, but also developing and enforcing policies. HOA board members with a bit of financial savvy can “cook the books” to embezzle money or collude with outsiders to collect kickbacks.

Regularly monitoring financial documents will also make it easier to spot anomalies or errors. Whether it’s an honest mistake or a sign of HOA fraud, the board can address the issue quickly. One way to safeguard the HOA is to have the board (or at least two members) independently review financial documents each month. This will make it harder to alter bank statements, inflate budgets, https://www.bookstime.com/articles/drop-shipping-sales-tax or duplicate reimbursements. According to the Community Association Institute, about 25 – 27 percent of the U.S. population reside in private communities governed by condominium, cooperative, and housing associations. Homeowners’ Associations (HOA) are established in many communities across the country to set out specific rules and regulations that all residents must abide by.

What Are the Warning Signs of An HOA Financial Problem?

As such, if they suspect foul play
they have a duty to investigate the suspected illegal behavior. If they ignore
the issue or wait too long to act, serious consequences could be in store. It involves examining all financial documents and records in an effort to determine the accuracy of your HOA’s financial statements and assess its overall financial health. If you take a look at your governing documents, particularly the CC&Rs, you will likely find a stipulation requiring your HOA to conduct an annual financial audit.

“Typical they come in from unit owner concerns or when a board turns over they
will want to investigate the old board. The worst outcome of financial misdealing at the board or management level is an association finding itself broke and without the funds to keep up with even routine maintenance. Property values can drop, and owners/shareholders who’ve done nothing wrong can find themselves at a significant monetary loss.

What Should I Do If I Have a Problem with My Homeowner Association?

A quick way to see whether an HOA is in good condition is to check its financials. However, as with other aspects of community management, mistakes are bound to happen. Here are some of the worst HOA financial mistakes you can commit and how they can affect your community. Being part of an HOA board is a job that comes with a lot of difficult responsibilities.

Ask questions of the board such as “what are you doing to collect delinquent HOA fees? ” Put these questions in writing and ask that they be read during the next board meeting. Also, the questions that you submit should be included in the minutes. Look at the reserve bank account to see if the proper amount of money was deposited, and question all withdrawals. If you suspect fraudulent activity within your HOA board, it’s important to gather as many documents as you can to support your suspicions.

Cutting Financial Corners

Some individuals can commit fraud by depositing checks but reserving a certain amount to be taken out in cash rather than deposited. Failure to faithfully and accurately record an HOA’s financial comings and goings is one of the most critical HOA financial mistakes you can commit. Cutting financial corners in property upkeep and maintenance may seem like a good idea at first. After all, you are saving money by using that cheaper material or hiring a cheaper vendor. Being overly positive about your finances can land your HOA in serious trouble. For instance, you may underestimate the cost of maintenance, resulting in a lack of funds when the time calls for it.

If checks are made out to individuals, this is either a sign of ineptitude within the board or of HOA fraud. To avoid an HOA financial problem, don’t accept any excuses for writing checks to individuals, even if it’s for the sake of convenience. However, to discourage potential fraud from your management, do not let them issue checks for their own services.

However, when it comes to your finances, pessimism will serve you far better. If you suspect wrongdoing, first, contact your association attorney, and you
also may need to contact state officials, the Florida DBPR or the local police
authorities if a crime has been committed. Take, for
example, an officer who was having the deli that delivered sandwiches to board
meetings also send food to the president’s apartment. A suspicious board member might raise this to other board members
and insist on an investigation.

• Remember that the HOA’s primary goal is to maintain the value and quality of the community for all residents.
• They will be the ones to handle the election process to prevent HOA corruption or fraud.
• You can have one person in charge of making the deposits while another is in charge of reconciling bank statements.
• Also, the questions that you submit should be included in the minutes.

This is why having insurance and competent, knowledgeable coverage advisors are essential. Having just one person in charge of finances — whether it’s the treasurer or the manager — makes it very easy to commit fraud. As such, consider delegating the financial responsibilities hoa accounting to different members of the board. Sometimes, for the sake of convenience, the board may issue checks to themselves or to certain individuals. Homeowners association fraud or embezzlement can happen anytime, anywhere, and anyone — even to the closest, tight-knit communities.

By working hard to keep accurate records, you can avoid inconsistencies. Moreover, one of the board’s responsibilities is to be financially transparent towards members of the community. Planning ahead is crucial to keeping your HOA above water and out of financial disaster.

• This is based on the facts of each case, so there is no bright line test to know if an action is or is not “reasonable.” Board members are simply expected to use reasonable, prudent judgments.
• While some homeowners simply settle the fine, others will challenge the violation and sue HOA board members.
• Moreover, without some knowledge of accounting, it is nearly impossible to check whether or not there are any errors.
• The worst outcome of financial misdealing at the board or management level is an association finding itself broke and without the funds to keep up with even routine maintenance.
• It involves examining all financial documents and records in an effort to determine the accuracy of your HOA’s financial statements and assess its overall financial health.
• Other remedies may include rewriting the financial agreement or replacing the person in charge of the funds.
• If there are any discrepancies, you should investigate the cause immediately.