December 2017 Newsletter

Community Association Boards
of Directors Must Safeguard
Association Funds-
Arrests and Reported Losses
Demonstrate Lack of Financial
Oversight
By: Lisa Magill, Esq.
Community Associations simply cannot
function without adequate cash flow. Community
leaders have a fiduciary obligation to monitor and protect
the Association’s funds. Handling the finances of the
Association can be a daunting task, especially if the
volunteer leaders do not have any background in accounting
or finance. There are many state and federal
laws governing budgeting, financial reporting, taxation
and the like and a lack of sufficient oversight exposes
the Association to loss from theft.
Community leaders cannot abrogate their responsibilities
solely by hiring management or contracting
with a bookkeeping service. Recently it appears there
has been an increase in Associations that have been
victimized by these professionals. The Sun-Sentinel reported
some Associations lost hundreds of thousands
of dollars as a result of alleged theft by an employee of the
management company. One Association found out
there were problems with its account when checks
bounced. The management company had the authority
to write checks, balance the books and make deposits.
The directors of each of the Associations involved apparently
did not review all the source documents to
verify that payments were made and the balances on
each of the accounts.
A similar situation occurred in Collier County, Florida.
Authorities arrested a bookkeeper working for a management
company for 21 counts of grand theft. The
Naples Daily News reported that the bookkeeper
made fraudulent bank transfers from the Associations’
accounts into her personal accounts.
Communities comprised of older residents are
especially susceptible to fraud schemes. The Charlotte
Square condominiums in Port Charlotte, Florida
reported over $1 million in losses.
Community leaders are encouraged to:
• Store blank and canceled checks in a secure
location;
• Notify the bank/financial institution when officers
change immediately and keep control of bank
signature cards;
• Create precautions for Internet banking and bill
paying;
• Review source documents (invoices, bank statements,
deposit slips) with management reports and
consider having the bank send duplicate statements;
• Avoid master vendor accounts and place low limits
on credit and/or store charge cards; and
• Obtain adequate fidelity bonding and employee
dishonesty coverage for all persons authorized to
sign checks or drafts (legally required).
Always be alert to new or different spending patterns.
While the volunteer leaders are not expected to
become experts, they must have a basic understanding of
the Association’s finances, its expenditures and obligations,
as well as seek out the relevant information to
make informed decisions.
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