Homeowners associations (HOAs) act as a self-regulating entity. An association enforces rules for the properties and their residences. Many provide services for the common area, such as irrigation, mowing, snow removal, security, and more. To provide these services the association will require the homeowner to pay HOA dues.
These dues are paid either monthly, quarterly, or annually. The number of dues collected can be substantial. The management of these funds is done by either elected board members or through a management company. Internal controls for HOA’s tend to be weak or non-existent.
Due to the lack of internal controls, HOA fraud happens more often than most realize. HOAs tend to have an increase in fraud were the homeowner does not reside year-round. This tends to happen in many resort communities.
Per the Association of Certified Fraud Examiners 2018 Report to the Nations, “Fraud can be especially devastating to small businesses. These organizations typically have fewer resources to both prevent and recover from a fraud, and they often require an increased level of trust in employees due to a lower ability to implement robust anti-fraud controls.”
Our experience in fraud investigation specific to this industry allows us to efficiently identify the areas of concern. We tend to see misappropriation (theft) of the HOA’s cash funds as the most common incident. These misappropriations happen by either the management company not properly reporting the activity, or the HOA president utilizing their position for personal gain.
Frauds we commonly see in an HOA investigation are:
To combat these fraud risks, we specialize in:
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