While no one wants to believe their HOA is susceptible to fraud, the fact is, the risks are quite prevalent. The effects of fraud can be devastating on a homeowner’s association including a loss of cash, reputation, and reserve funds to complete necessary projects. While the right Los Angeles HOA Insurance can help provide protection and recover funds in the event of litigation, here are some ways to prevent fraud from occurring in your HOA.
Implement Controls & Checks and Balances
According to Echo, a community association resource, states by setting up and using a system where one individual never has complete responsibility for the intake or dispersal of money, the association will be protected from the most devastating types of fraud. This means assigning a separate person for signing the checks, recording invoices, and reconciling the HOA’s bank statements.
Require Two Signatures
While this may be a hassle, this ensures that two separate people are reviewing the transaction, the date, the check number, and the amount. Although the Davis-Stirling Act requires that reserve fund checks get two signatures, large sums of money and even regular bills can require two signatures to prevent fraud, as well. Further, for bigger payments, consider using a separate account that can only be authorized by management rather than board members.
Get a Lockbox
Rather than have unnecessary handling of money, consider getting a bank lockbox and have homeowners mail their assessment payments directly to the bank, which are then deposited into the HOA’s account.
Cash Deposit Receipts
If your HOA accepts payments of cash, proper controls need to be implemented. For example, the treasurer or manager who accepts the cash payment should not be the same person signing checks or reconciling bank statements. Further, a verification process is required to ensure the money was deposited in the proper account. Or, consider adopting a policy that only accepts checks or money orders instead.
At Scott Litman Insurance Agency, we have a unique understanding of the HOA sector and how to properly secure it. Our comprehensive policies are custom written with you in mind to protect each facet of your operation. For more information about our products, we invite you to contact us today at (855) 999-4505, or fill out our online form.