Intrinsic Threat: Who's Minding the HOA "Store"? PART TWO

This week's article concludes what I started last week -- talking about how associations can guard against "embezzlement schemes, financial scamming by trusted fiduciaries, and even outright theft by vendors and/or board members." Part Two of the "Intrinsic Threat" covers items 6 through 10 on the association's checklist of conduct to be wary of or actions to take to minimize the risk of directors'/vendors' unscrupulous actions.

6. Choose a bank that fits your security needs. Safeguards like requiring dual signatures on every check or prohibiting electronic funds transfer between accounts under different Fed ID numbers should be demanded of your banking services provider.

7. Be informed on association insurance coverage(s). Have the association's insurance agent(s) attend a monthly meeting of the board and review the association's coverage(s), plans, and other specifics. The board should keep copies of the polic(ies) readily available for review or consultation by any director.

8. Insure association funds as you would its property. Don't forget that you can also insure the association's funds by obtaining fidelity coverage that meets or exceeds the association's funds. Some D&O insurance coverage provides a measure of this protection, however, it may not be adequate. Check with your insurance agent to verify this. Make sure that property management companies dealing with the association also follow suit.

9. When in Rome, ... If the association utilizes an independent property management company, then require that these safeguards against theft and embezzlement be applied to the property manager's business practices as well. Two lines of protection is better than one, or none, in this regard.

10. An Auditor can be the association's best friend. Even if an annual audit of the association's books and records is cost-prohibitive, an audit should be performed every few years nevertheless. Bank balances should be independently reviewed annually for verification.

None of the above measures will guarantee that your association won't fall victim to the actions of a rogue director or some other sort of fiduciary bad actor. But by implementing these strategies, you can at least afford some protection against these threats and create an environment where checks and balances exist to improve the moral and operational efficiency of the association's leadership.

*Special Thanks to Darcy Mehling Good, Esq., "Whodunit?", Common Grounds, July/August 2007 from which excerpts of this article are attributed to.