A North Carolina homeowners association recently discovered it is not immune from theft despite its efforts to minimize the risk of embezzlement.  The Parkwood Homeowners Association lost between $150,000 and $200,000 over a 2 ½ year period when it discovered its office administrator was using debit cards linked to the Association’s checking account to pay for gambling trips to Las Vegas, gambling websites, medical bills, shopping, gas, and the like.  The board of directors believed the Association was protected from embezzlement because Association checks required two signatures.  But in this case, the office administrator did not issue any fraudulent checks and limited the unauthorized expenses to use of debit cards.  How did this go on for so long?  According to the board president, the office administrator forged bank statements to match up with the false bookkeeping records.  What makes this worse is that the Association is not expecting its insurance provider to pay more than $25,000 to $50,000 on the claim, leaving the Association struggling to make ends meet and cutting out services such as landscaping.  What can we learn from this unfortunate situation?  The first, and perhaps most important, lesson is to make sure your association has adequate fidelity coverage.  As a general rule, you should have three months of assessments plus everything in reserves as the policy limit.  Does your association carry enough fidelity coverage?  Another lesson is to have adequate checks and balances in place to ensure any attempted fraud can be spotted immediately.  To do this, consider adopting a fraud prevention policy in your community.  Your attorney or a forensics accountant can assist the board in developing such a policy.  Read our article, “Association Safeguards: A 12-Step Program to Protect You and Your Association” for more information on protecting your association from fraud.

Elina B. Gilbert
One response to “Embezzlement Through Debit Cards
  1. How does an association lose THAT much over such an extended period without someone’s noticing it? I understand that the manager could alter the monthly financial reports, but wouldn’t discrepancies show up on reconciliations and in audits? Where was the association’s treasurer, whose job it is to oversee the financial affairs of the association?
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