Community management companies, like the rest of the world, are being targeted for fraud and the threats are growing. This includes people attempting to cash fake checks at local banks, embezzlement, and cyber fraud via email and the internet.
It’s not easy or quick to determine fraud is happening, either; the average scheme takes 18 months before being detected, usually because it involves small amounts being siphoned-off over a long period of time as opposed to large amounts all at once. In fact, one study estimates it could take up to almost five years before your run-of-the-mill fraud — usually in the $145,000 range — is discovered.
Smaller businesses and organizations (like HOAs) often experience worse losses than big companies because they have limited resources to identify instances of fraud and implement effective anti-fraud measures. At CAMS, we are well-aware of the threats fraud poses, and work proactively with our HOAs to help develop strong internal controls and establish good relationships with partner banks.
All of our clients use our accounting services as part of their internal controls. These services include CAMS delivering monthly financial reports to Boards which cover cash disbursements, aged delinquencies, balance sheets, statements of revenues and expenses, GL trial balances, bank account reconciliations and copies of bank statements. This allows Boards to focus their attention on other areas like maintenance and landscaping or major amenities like pools, clubhouses, playgrounds, marinas and activity centers.
As previously mentioned, working with banks is an important consideration to prevent fraud. When it comes to HOAs and property management groups partnering with financial institutions, the biggest misstep I see is when professional community management companies are dealing with too many different banks. Another is management companies and community association Boards dealing with a number of unknown internet banks that may be located all over the world.
How can an HOA find the right financial institution to work with? I recommend that you work with banks that are familiar with the community association industry. There a lot of them out there which know the industry and products needed very well. Some of the more common anti-fraud areas banks focus on for HOAs include Positive Pay, an automated fraud detection tool matching the account number, check number, and dollar amount of each check presented for payment against a list of previously authorized checks; dual control and token authentication to protect wire transfers; and ACH (Automated Clearing House) protection for direct deposits, checks, bill payments and cash transfers between businesses and individuals.
Having close relationships with a reputable financial institution breeds familiarity with you and your organization’s processes, helping to build a sense of trust and making it easier for them to look out for you. Recently, we had one of our reliable partner banks call us to verify the validity of a check someone had brought in to be cashed. It turns out the check was fraudulent; within minutes, our bank sent us photos of the person trying to cash the check. We have also set certain rules with our partner banks; if they receive wiring instructions for one of our community associations, they are required to call to verify.
At CAMS, we’ve spent the last 28 years building a tech-savvy team of forward-thinking professionals helping our clients reach their goals of becoming strong, efficient and effective HOAs for their communities. Finding the right financial institutions to partner with our HOAs is an incredibly important part of reaching those goals.