Stop, Thief! Recent HOA Frauds Highlight Need for Oversight

Given recent headlines, condominium, cooperative and homeowner associations could be forgiven for thinking they need to put an armed guard and razor wire around the petty cash box. A wave of fraud appears to be hitting properties from New York to Florida and beyond.

In New York last December, a Rockland County treasurer pleaded guilty to taking more than $130,000 from an association and a managing agent last August was ordered to pay more than $628,201 to a Manhattan co-op he allegedly defrauded. In March, a New Jersey condo association president pleaded guilty to embezzling more than $50,000 from her association, and another business manager in Florida allegedly stole more than $856,000 from five area homeowners associations. Perhaps the largest case of fraud reported in recent months is that of a New York managing agent, who allegedly siphoned off $1.3 million in property taxes from six co-ops.

“It isn’t just condo boards and associations,” says Michael Kessler, a certified fraud accountant and owner of Kessler International in New York. “It’s all over the country—the amount of fraud that we see is just astronomical.” If it’s any comfort, some of Kessler’s cases make the co-op and HOA thefts look like chump change. His firm recently broke open a Ponzi scheme worth $463 million. But “condos and co-ops are up there,” he says.

That leaves associations and boards having to grapple with an often devastating situation in this struggling economy. Fraud can decimate a small condominium’s finances and leave boards of all sizes feeling violated and distrustful. But how can an association tell if there’s a problem without feeling like they’re suspecting everyone in their employ?

Red Flags

Take three hypothetical scenarios and see if you can spot the most likely thief: An HOA employee has been heading for Mohegan Sun on weekends. The treasurer just traded in his 10-year-old Pontiac Sunfire for an Audi TT. And then there’s the dedicated bookkeeper who’s been with the company 20 years and never takes a vacation.

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