Insurance Fraud! We All Pay the Price

Last year in New Jersey, a former property manager in Freehold Township was accused of embezzling $75,000 from homeowner dues. In a separate case, a woman, her husband and mother were charged with theft from an Aberdeen condo association after misappropriating $995,000 of the association’s money from January 2005 through September 2006, and in Readington, a former community manager of the Whitehouse Village Condominium Association admitted in state Superior Court to pilfering at least $200,000 from the organization.

Fraud and embezzlement in the workplace is on the rise. The Association of Fraud Examiners (ACFE) estimates business losses of $400 billion per year—or about 6% of total annual revenue.

When fraud is discovered in the context of community associations, or any nonprofit, it usually takes shape as embezzlement over many years by a trusted member or employee. Insurance companies that defend nonprofit clients from fraud can be victimized themselves.

“I’ve seen a lot of theft claims in homeowner associations,” says Paul E. Felsen, president of Felsen Insurance Services Inc. in Denville. “And I’ve been doing this for 41 years. One claim I handled was at an HOA in Freehold. A board member had a homeowner association credit card at Home Depot. And she’d go to Home Depot and buy the normal supplies that she was suppose to buy. She bought supplies for the community and some for herself. That’s stealing. By the time she was caught she had stolen $50,000 to $60,000 worth of goods. It wasn’t cash, but in essence it was. This happens a lot, theft of goods. What happened is that their accountant picked up on it and since she was an employee of the property management company she was prosecuted.”

Felsen points out that in the state of New Jersey prosecution is mandatory when employees commit theft or fraud. “If the insurance company is going to pay the loss, they insist that they person be prosecuted because usually part of their sentencing agreement includes that person making restitution,” he says. “So the association gets paid by the insurance company and then the insurance company goes after the person for restitution.”

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