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Community Associations Can Fall Victim to Fraud and Embezzlement.

Posted 3/11/2019

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When you’re a member of a privately managed community or homeowner’s association, the last things you expect to affect your community’s finances are fraud or embezzlement. One might think that those are typically risks for big businesses that deal on Wall Street, not small neighborhood communities. But that misconception is exactly what can make community associations easy targets.

Statistics have shown that once a fraud or an embezzlement scheme is set in place within an association, it can run for an average of 18 months before being detected. There can be a myriad of different tactics, but the majority involve shifting small amounts in financial records for personal theft.

Individually, the line items might be seen as minor discrepancies or mistakes, but over an extended period, they can lead to hundreds of thousands of dollars being siphoned out of a community’s finances. In many extended cases of embezzlement, it is not merely one long con, but a series of smaller fraudulent activities that add up over time. This is what makes them so difficult to discover if community members are not aware of the risks.

COMMON TYPES OF COMMUNITY ASSOCIATION CRIME

OVERBUYING

One common tactic of an embezzlement con is overbuying, where the invoice recorded by the accountant that manages the community’s finances is higher than the actual amount of goods purchased. The discrepancy between goods purchased and goods actually received is often not cross-referenced, and the extra money goes into the pocket of the perpetrator of the fraud.

FALSE PURCHASING

Another example would be the false purchasing and return of goods intended for the community. In this type of scenario, a person might be tasked with purchasing goods or materials. They do so, turn in the receipt of purchase to the bookkeeper, but then immediately return the goods and pocket the money.

These types of embezzlement and fraudulent activities often involve someone that is within or closely tied to the community itself. This is why, in many cases, these activities are not discovered before irreversible damage has been done to the community or housing association’s finances.And understandably so, because many would not want to believe their friends or neighbors would steal from them.

As with many things in life, awareness is the first step toward prevention. Making sure that the members of the community or housing association are aware of the risks—and the common tactics that are used—will allow them to keep a close eye on the finances. In addition, it is recommended that the community invests in an insurance policy that covers this type of crime.

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