Types of HOA Embezzlement

Embezzlement in Homeowners Associations (HOAs) can take various forms, often depending on the opportunities available to those with access to the association's funds. By understanding the common types of embezzlement, HOAs can better safeguard their finances. Here are some prevalent forms of embezzlement encountered in HOAs:

Misappropriation of Funds

This is the most straightforward form of embezzlement, where funds intended for the HOA are diverted for personal use. This can involve outright theft of cash or transferring HOA money to personal accounts.

Falsifying Invoices or Expenses

An individual might submit fake invoices for non-existent goods or services, causing the HOA to pay for things it never received. Alternatively, legitimate invoices might be altered to increase the payment amount, with the excess going to the fraudster.

Kickbacks and Bribery

In this scenario, a board member or HOA manager might collude with vendors, contractors, or service providers. The HOA is overcharged, and the overpayment is kicked back to the individual who facilitated the deal.

Unauthorized Use of HOA Credit Cards

HOA credit cards intended for community expenses can be misused for personal purchases. Without proper oversight, these transactions can go unnoticed for long periods.

Skimming of Dues or Fees

Cash payments made by homeowners for dues, fees, or fines can be particularly vulnerable to skimming. This involves pocketing the cash before it's deposited in the HOA's account, often without any record of the payment being made.

Payroll Fraud

This involves manipulating payroll records to overpay oneself (if the individual is an HOA employee) or creating ghost employees whose paychecks are diverted to the fraudster.

Investment Fraud

HOA funds that are invested poorly or diverted into fraudulent investments can be a form of embezzlement, especially if those investments benefit the individual managing them.

Preventive Measures Include:

• Regular Audits: Conducting regular and surprise audits by an independent party.
• Strong Financial Controls: Implementing dual control policies for financial transactions and requiring board approval for large expenses.
• Transparency: Keeping financial records accessible to all members and reporting financial status regularly.
• Education: Educating board members and homeowners about the signs of embezzlement and the importance of oversight.

• Proactive Strategies to Prevent HOA Embezzlement

Understanding these common types of embezzlement can help HOAs develop stronger controls and policies to Prevent HOA Embezzlement.

Sources

• WYFF News 4. (n.d.). South Carolina HOA employee theft. Retrieved from https://www.wyff4.com/article/south-carolina-hoa-employee-theft/60308638
• Abacus Avenue Property Management. (n.d.). How do know if I have HOA embezzlement: 8 ways to detect and prevent fraud, and theft in HOAs. Retrieved from https://abacusavenuepropertymanagement.com/how-do-to-know-if-i-have-hoa-embezzlement
• Hovland Forensic & Financial. (n.d.). HOA embezzlement: How to recognize. Retrieved from https://hovlandforensic.com/hoa-embezzlement/
• Independent American Communities. (2022, December 6). HOA risks: The triple threat of homeowners associations. Retrieved from https://independentamericancommunities.com/2022/12/06/hoa-risks-the-triple-threat-of-homeowners-associations/
• McGowan Programs. (n.d.). Warning signs of HOA fraud and theft. Retrieved from https://www.mcgowanprograms.com/blog/warning-signs-of-hoa-fraud-and-theft/
• City Building Owners Insurance. (n.d.). Homeowner association fraud - What you need to know. Retrieved from https://citybuildingowners.com/blog/homeowners-associations-and-fraud-what-you-need-to-know/