Where the Dollars are Detecting & Preventing Fraud

Few things can be as upsetting as discovering that the funds that fuel a building or association have been mishandled—or worse yet, stolen. For residents, fraud undermines their sense of trust in the men and women who oversee and manage the place they call home. For managers and board members, it can breach the trust that exists between each other, wreaking havoc not only on the bottom line but on the very fiber of the organization itself.

A Perennial Problem

For the co-op and condo industry, the 1990s saw major scandals surrounding disreputable property managers and vendors involved in kick-backs and other fraudulent activities. The prosecutions that followed it put boards and managers on alert. Other headline-grabbing deceits in other industries (such as the Enron scandal) also prompted new safeguards and activities, including the Federal Accounting Standards Board.

Despite the changes that have occurred, however, industry experts agree that vigilance is required at all times when it comes to the financial well-being of co-ops, condos and HOAs. In these days of Bernie Madoff pyramid schemes and the tumult on Wall Street, knowing how to detect and prevent fraud has become even more important to owners and administrators alike. Responsibility, transparency and accountability have become the watchwords of financial management, and it’s a sensibility that has made its way to the world of residential housing.

Issues at Hand

There are two types of fraud, says Mindy Eisenberg Stark, CPA, CFE, of Scarsdale, New York. There is “on the book” fraud which involves activities such as commingling bank accounts, creating fictitious vendors, borrowing funds and creating fictitious employees.

By contrast, “off the book” fraud usually encompasses kick-back schemes, which another accountant describes as “money given to the superintendent or property manager in return for steering a building to a certain vendor.”

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