Condo Media - January 2013 - 52

FEATURE

ural disaster, is “something that won’t happen to us.” “It is happening more frequently to more communities,” Meskin says, because of “the convergence of bad economic times and ill-informed, often naïve trustees.” Personal financial pressures in a tough economy can make theft more tempting to managers or board members with access to association funds, while lack of attention by board members, lack of education or both can make communities more vulnerable to those threats. The best way for communities to prevent fraud, he suggests, is to make it more difficult. “If a thief sees two cars, he will go after the one on which the doors are unlocked,” Meskin notes. He suggests a number of basic precautions boards should take to lock the doors of their communities.

* Establish financial checks and balances. That means, among other things, dividing responsibilities. “Don’t have one person responsible for everything,” Meskin advises — for example, you don’t want the individual with check-writing authority also to be responsible for reviewing the bank statements. “I recommend finding the two people on the board who dislike each other most, and having each of them receive a copy of the monthly bank statement.” • Require original invoices to document expense payment requests. • Review financial reports and bank statements monthly. Simply knowing someone is watching can be a deterrent, Meskin says, “even if the people watching don’t know what they are looking at.” • Require dual signatures on checks above a specified amount. That can be something of “a pain,” Meskin says, but it is also an essential financial control. • Conduct background checks on association employees. • Make vacations mandatory for any employees or board members who handle association funds. Banks require employees to take two consecutive weeks off annually for good reason, Meskin notes — so others can spot irregularities during the normal accounting cycle. • Use a lockbox to store checks collected from owners. • Obtain an audit or a financial review annually. When boards tell him they can’t afford to do this, Meskin says, he tells them, “You can’t afford not to do it. Any vendor specializing in community associations will find a way to make it

affordable for you.” Regular financial reviews would probably have spotted the ongoing fraud at the New Hampshire community associations much sooner, reducing the losses if not avoiding them entirely. • Obtain the appropriate fidelity (employee dishonesty) and crime coverage (for crimes committed by non-employees), and review those policies annually. The fidelity policy should specifically cover directors, officers, association employees and property managers, and it should provide coverage equal to: The total of the association’s funds at risk, or (if greater) the amount required by the association’s bylaws or the minimum required by the secondary mortgage market — three months of assessments plus current reserve funds. It is essential to know how these policies are written, what they cover and what they exclude, Meskin emphasizes. • Require the association’s management company to have its own fidelity policy, and make sure the policy covers directors and officers of the company as well as its employees. A policy that covers employees only wouldn’t cover a theft committed by the company’s owner, he explains. • Obtain advice on the selection and maintenance of the associations fidelity and crime policies from a professional in the field. “Boards have a fiduciary obligation” to make sure their associations have the insurance they need to protect association funds, Meskin says, and most boards don’t have the expertise they need to make those decisions. This isn’t something boards can delegate to their managers, either, Meskin adds. “They need to hire insurance experts who know what they are talking about.” CM

CONDO MEDIA • JANUARY 2013

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Condo Media - January 2013

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