Preventing Community Association Fraud: The Role of Your Property Management Company

Fraud can affect any community association, regardless of whether it's small or large or even has professional management. However, a reputable property management company can provide some protection through effective measures and safeguards. So, how can you assess if a management firm is taking those necessary precautions? What signs should you look for?

1. The company has strong internal controls

To safeguard an association's finances, a management company needs to implement robust internal controls. These systems and processes help prevent fraud and swiftly identify it if it occurs. A notable approach is to segregate duties so that individuals handling money are not responsible for recording transactions. Consistent invoice approval processes are also critical. A digital tool to manage payment approvals ensures thorough documentation and audit trails for each invoice. It is beneficial when a higher authority reviews and approves invoices that surpass a specific amount.

Multifactor authentication adds an extra layer of security, requiring users to verify their identity through a separate channel, safeguarding against unauthorized access. Automated bank reconciliations are essential, aligning internal records with bank transactions. This automation minimizes the risk of errors and fraudulent opportunities. Encouragement to work with banks that offer fraud detection services, like Positive Pay, provides additional safety by ensuring that checks presented for payment align with those issued by the association.

2. The company has the necessary resources

The effectiveness of fraud prevention lies not just in intentions but in having the right resources. A management company should have enough staff to properly segregate financial duties across payables, receivables, and record-keeping departments. It's also important for the company to provide a secure online platform for residents' payments to reduce check fraud risk. Strong cybersecurity measures are essential to protect against data breaches, which is why the company should have a competent IT department. Additionally, financial training for both company associates and community board members can enhance financial literacy, making it easier to prevent fraudulent activities.

3. The company demonstrates a desire to be accountable, transparent, and secure

Accountability is crucial for any management company and is best demonstrated through an annual financial audit by an independent certified public accountant. While public companies are required to undergo such audits, private companies should also be open to disclosing financial activities. Regular internal audits ensure compliance with local laws and the protection of community data and assets.

4. The company maintains insurance to protect you from employee fraud

In case an employee commits fraud, it's crucial to have a safety net. A responsible management company will maintain adequate insurance coverage to compensate your community for potential financial losses due to employee fraud. By choosing a diligent management company, your community can significantly reduce its fraud risks and ensure a secure future. While fraud might not be entirely preventable, a professional company committed to safeguarding your interests makes all the difference.