Florida: The HOA/COA Fraud Capital


The HOA/COA Fraud Capital

By Cesar de la Noval / Published August 2019

Photo by iStockphoto.com/Cristina Munguia

Florida is ranked number one in the United States when it comes to fraud, according to the Consumer Sentinel Network Data Book. With 1,002 fraud reports per 100,000 people, Florida had more than double the number of fraud reports in the second-ranked state, Georgia.

     Florida also has more than 47,000 community associations, which is the most in the country. Residents of these associations pay billions of dollars in fees each year, making condominium owners associations (COAs), homeowners associations (HOAs), and other residential community management organizations very common fraud targets, especially for those with insider access.

     Theft of association funds can result in unpaid bills, uncompleted projects, increased member fees, and the destruction of general financial stability. Even when fraudsters are caught, it can take years to recover stolen funds, and in many cases, funds can never be recovered. No one wants to be a fraud victim; however, as Floridians, it’s something that we must constantly be watchful for.

How to Detect Fraud: Common Red Flags

  • Balances that exceed budgeted amounts
  • More than one payment to a vendor that was supposed to be a one-time transaction
  • Vendor’s address or name is the same as an employee or >board member’s
  • Delayed bank deposits
  • Duplicate payments
  • Missing petty cash
  • Discrepancies in accounts payable and accounts receivable
  • Suspicious “consulting” fees
  • Services that were paid for but >not performed
  • Checks made out to “Cash”
  • Copies of receipts and other documents, rather than originals

     Any of these incidents may be a simple error in isolation, but they can also indicate a problem if a pattern of multiple incidents is identified. It’s extremely important to be vigilant and report any suspicious behavior to the appropriate parties.

Preventing Fraud: Best Practices

     Eighteen months is the average length of time before a fraud scheme is detected. Rather than having to deal with the aftermath, we encourage you to practice operational efficiencies that help fight fraud year-round. The board of directors and association manager should prepare a list of different tasks and verification steps, which must be followed on a routine basis. Here are some items to include in your plans:

  • References and Verification—Ask your accountant for business references. If your community association manager will be dealing with the bank or financials, a background check is highly recommended. Perform similar verification processes for all employees and vendors, to include verification of educational accreditations, licenses, permits, etc.
  • Key Contacts—Have a list of key contacts and important phone numbers in a safe place. Know who to contact if any one person should disappear, change roles, or be fired. Make sure to communicate any changes to your bank as soon as possible.
  • Maintenance Fees—Do not accept cash from homeowners as payment for regular maintenance. All maintenance checks must be payable to the name of the community. Do not accept checks made payable to “cash” or to the management company. We recommend the use of a service like Property Pay, which allows you to simply and securely manage and accept payment within your community via an online portal.
  • Vendors—When paying vendors, verify the amount against the invoice. There have been many cases when an invoice is overpaid to accommodate a kickback. It’s recommended to work with an accounts payable software to manage invoices. AvidXChange Payables Lockbox provides you with management tools that integrate accounting, track invoices, preserve security, and streamline the approval process.
  • Banking—Segregate banking responsibilities and duties among trusted people. Document the names of every person with access to the association’s financial information. On a monthly basis, review financial statements and bank reconciliations. Verify checks and endorsements routinely, and ask to see copies of canceled checks. Review your bank statement for electronic debits or ACH transactions. It’s common to allow your local utility to complete electronic debits; however, other vendors should use invoices. By enrolling in eStatements, you have the ability to access your statements immediately, helping enhance security and minimizing fraud risk. Protect against fraud and unauthorized ACH debit transactions with ACH Block & Filter, which allows you to choose whether to block all ACH debit transactions or specify exactly which companies are allowed to post debits to your account. Set up customized automatic alerts via email, in-app notifications, and/or text message to stay informed on account activity.
  • FDIC Coverage—Speak with your bank about FDIC coverage for your accounts and make sure that all of your funds are insured. If you have more than $250,000, you may want to open an ECS or CDARS account, which can provide up to $25 million or $50 million in FDIC coverage.
  • Checks—Request all checks have the signatures of two authorized members versus just one. Verify these checks and endorsements routinely. If you need to issue a check with just one signature, communicate the request in writing to your bank. Be as specific as possible (check number, payee, etc.). With ACH Services, you can remit and collect secure electronic payments, which improve cash flows and minimize the need for paper checks. Positive Pay gives you protection from unauthorized checks. Simply prepare register files of all checks written against your account. Anything that doesn’t match up in the system review is presented to you; you’re then able to decide if you’d like to pay the item(s) or not.
  • Credit Cards—Do not issue credit cards in the name of the association. Credit cards are often misplaced and misused. It is highly recommended that associations stay away from credit card usage.
  • Passwords—When it comes to online banking access, ask your bank to require a new password for all users every 90 to 100 days. Request your bank to disable any online bill pay service.
  • Sensitive Information—Keep sensitive information, like bank statements, canceled checks, financial statements, deposit tickets, and receipts, locked in a safe location. Do not provide banking information over the phone. If a homeowner asks for the bank account number to “wire transfer” maintenance funds, kindly refuse.
  • Backup—Perform an annual checkup for all of your financial data. Make sure to properly back up all documents, whether to a USB, external hard drive, or cloud. Information that must be safeguarded should include copies of bank statements, financial statements, aged receivables, the association roster, insurance binders, contracts, warranties, copies of service contracts, etc.

     To protect the financial stability of your community, we highly encourage you to follow these guidelines whenever applicable.

Cesar de la Noval

SVP/Relationship Manager, Executive National Bank

If you have any questions about the mentioned products or services or would like more information on preventing fraud, please call our corporate office at (305) 662-4700 or email contact@executivebank.com. Executive National Bank has been serving the community association industry since 1992 and prides itself on offering customized banking solutions specific to the industry. BauerFinancial has awarded us a 5-star rating for 30 consecutive quarters. Cesar de la Noval, SVP/ Relationship Manager, has specialized in association banking and treasury services for more than 37 years. Visit us online at www.executivebank.com.