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Strategies to Prevent Embezzlement and Internal Fraud in Homeowners Associations

This article provides essential strategies for homeowners associations (HOAs) to prevent embezzlement and internal fraud. It outlines effective internal control measures such as segregation of duties, regular audits, and comprehensive verification processes. The importance of bonding all individuals with access to funds is emphasized, along with the need for monthly bank reconciliations. These preventive measures aim to enhance financial oversight and protect the HOA from potential fraud, ensuring the integrity and financial health of the community.

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Strategies to Prevent Embezzlement and Internal Fraud in Homeowners Associations

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  1. Links • Police: Couple stole from homeowner group :: WRAL.com • NSPOA.ORG - Home Page for the North Shore Property Owners Association • Man invents killer to avoid food fraud rap - Crime/Safety - NewsObserver.com • http://www.ncrec.state.nc.us/bulletin/Jan2010Vol40-3/DisciplinaryActions.htm • Buck Island • Woman arrested in condo embezzlement case - WWSB ABC 7 Florida - Sarasota, Bradenton, Venice, North Port, Siesta Key Breaking News, Weather, Sports and Traffic on the Suncoast | • http://www.starnewsonline.com/article/20100710/ARTICLES/100719995

  2. Links • http://www.fraud-examiners.org/fraud_manual.pdf • Check Fraud Statistics • http://www.acfe.com/documents/Fraud_Prev_Checkup_IA.pdf • Check Fraud-Who is Liable for Lost Funds • http://www.acfe.com/documents/tone-at-the-top-research.pdf • Internal Controls and Fraudproofing • untitled - Powered by Google Docs

  3. Links • http://www.sansiveri.com/pdf/SKM_Fall_2008.pdf - Powered by Google Docs • It's All About Money: Embezzlement: What? Who? Why? How? Detection!! Prevention!! • Employee Fraud Embezzlement Prevention • How to Prevent Fraud and Embezzlement | Manage > Finances from D&B Small Business Portal

  4. Segregation of Duties for Internal Financial Control 1. Lisa orders dues payment coupon books and sets up homeowners drafts 2. Bill handles collections 3. Manager approves invoices for payment 4. Luci enters invoices and cuts checks 5. John Stone or board treasure verifies documentation and signs checks 6. Shelley takes cash and check deposits to bank

  5. Segregation of Duties for Internal Financial Control 7. Bobbie Sue downloads deposits from lockbox and handles EFT. 8. Bobbie Sue generates financial reports 9. Front desk opens mail 10. Charlotte makes manual bank deposits 11. Lou reconciles bank statements 12. Board reviews financial reports Annual audit conducted by an outside CPA firm

  6. Strategies for PreventingEmbezzlement Require fidelity bond certificate of insurance directly from insurance agent. Have bond evaluated by your agent or attorney Evaluate internal controls from management Board should select Auditor and receive audit directly from Auditor If management company does not have segregation of duties as part of internal financial control or if association is self managed a second party should reconcile bank statements

  7. Strategies for PreventingEmbezzlement 5. Require bank statements to be reconciled monthly. Understand that the second signature on a check is an internal control and offers no protection with the bank. 6. Have an annual audit not a review or compilation 7. Have everyone on the signature card bonded. Board members as well as management company

  8. Biometric Fingerprint Scanner: Located at Each Employee Computer

  9. Security Camera Over Front Desk

  10. Alarm System Panel with Individual Employee Logins

  11. Locked Server and IT Room Monitored by Security System

  12. Data Rack: Encases Protected Servers

  13. Security Cameras: Record for 6 Month Period

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