Protecting Your HOA from Theft of Funds

Ultimate Katy has reported on a homeowners’ association (“HOA”) in Katy, Texas that has been hard hit by the association’s treasurer who allegedly misappropriated over $78,000 of association funds. Making matters worse, it is alleged that Anthony Geffert used the funds to pay Advantage Lifeguard Services (a company Geffert owns) for services that were never rendered to the Association. 

Other than the obvious conflict of interest that Geffert had relative to Advantage Lifeguard Services, which was hopefully disclosed and handled appropriately, this theft of funds could have been prevented by the Association taking the following steps:

  1. Every HOA should implement a policy that requires two signatures on checks that are written for over a specified sum of money. Some associations require two signatures for checks over $500.00 and other associations set a higher limit of $2,500.00 or even more. This is a decision boards should make based upon the unique circumstances of their associations. In fact, many policies require two signatures on all checks. While it can sometimes be challenging to get checks signed, this is a great way to go! 
  2. The individual responsible for reviewing and approving invoices should not prepare or sign the checks. If you are on the board of a self-managed association and this individual does sign the checks, it is essential that the checks be reviewed and signed by an additional director. 
  3. Many management companies do not permit their managers to sign checks for the associations they manage. If you think about it, this protects the management company and manager from any allegations of fraud or embezzlement. If your manager signs checks for the HOA, it is recommended that you require a director to also sign those checks. However, some boards will permit managers to be the sole signer on checks for small sums of money.
  4. Every director should routinely review bank statements. If you are on the board of a self-managed community, you should ensure that the director who reconciles bank statements is not the only individual reviewing those statements.  Instead, every director in your community should periodically review the bank statements.

Directors of associations have a fiduciary duty to ensure the finances of their HOAs are being properly handled and protected. While directors have the ability to delegate duties relating to association finances, they cannot delegate the responsibility for ensuring the finances are properly handled. 

 

For more tips on handling association finances, check out Mark Payne’s blog entitled Fiscal Irresponsibility In Your Association? Embezzlement and What You Can Do to Help Prevent It. Another great resource to review is the Best Practice on Financial Operations published by the Foundation for Community Association Research.   

        

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