It has been a while since we’ve heard a story of a big fraud in the local condo scene. We like to think that better education and more vigilant accounting and auditing may have reduced instances of fraud in recent years, and that might be true. It might be more true, however, that the current economic climate may increase the likelihood of a fraud taking place or improve the odds of detecting an ongoing fraud.
Attorney Mark Payne of the Colorado Homeowners Association Law Blog cites the recent case of the chief financial officer of a family-run property management firm in Virginia who stole $3 million from 350 homeowner associations. The Washington Post reports that the culprit confessed to the crime and was sentenced to 5 ½ years in prison and ordered to pay restitution. He also faces IRS action over undeclared income and criminal prosecution for a bizarre police chase and gunfight.
Mr. Payne then provides some simple but essential suggestions to help minimize fraud and recommends that all associations vigilantly protect against director conflicts of interest and carry fidelity insurance to ensure recovery in cases of theft. These are all good suggestions and are worth revisiting during these difficult times. Read the entire blog entry here.
Directors of any condo corporation should also ask their auditor from time to time whether reasonable systems of checks and balances are in place at their corporation to help prevent fraud and whether existing systems have remained effective over time. Unit owners have the opportunity to ask the auditor those same questions at the annual general meeting each year but no one does, maybe because it seems impolite or appears to question the integrity of the board or manager.
Questions about fraud prevention are both legitimate and important, and owners should be asking them. If weaknesses or problems in the financial management of the condo are detected, they can be addressed. Failing to ask the simple questions may result in a problem going undetected, leaving your corporation vulnerable to misfeasance and preventable financial loss. Being vigilant is more important now than ever.
Remember to check out the recently-revised Auditing and Accounting Guidelines for Ontario Condominiums, which we discussed earlier this year and posted here.