Protection from Fraud

Hi, So I am president of a townhouse HOA. We have a property management firm that keeps all the financial records and does our budget and manages our reserves, collects HOA fees from homeowners and takes care of all our accounts. When a check needs to be issued the HOA Treasurer (board member) receives the checks as well as a statement of what they are for. Two signatures on the checks are required. When the payment is to the property management company no signature is required but the documentation and the check are reviewed by the board members. When bids for services are required we have either let the property management company handle it or the board has done it on their own. We of course have a property manager for our association that we interface with who handles details such as how landscapers are performing, routine maintenance issues, homeowner complaints etc.

It is clear that we place a lot of faith in our property management company and take a lot of what they show us in fiscal reports on faith. We really don't know if these reports reflect the actual situation.

So my question is what safeguards do we need? Is there supposed to be insurance in place in the case of fraud by the property management company? Can we ask for our own independent audit of the property management company? I know I was told an external audit is done of the company every 3 years but that is done through the property management company who manages some 50 plus developments. They hire an outside company to do the audits.

Any suggestions or experiences are helpful. Color me "Still learning."!

Thanks and yes it is helpful. Does the insurance do anything to protect the funds in the accounts or does it just protect the board members?

It protects the funds. The Association is named as "the insured", and our Declaration spells out the dollar amount to be protected (not the actual amount but something like "not less than the greater of: annual operating budget plus reserves; funds currently in custody; or 3 months worth of assessments plus reserves".) The reason I said that it would protect me as a board member is that homeowners would be less likely to sue the board for not catching embezzlement, for example, if the association doesn't actually lose the money.

We also have Directors and Officers insurance so that, if somebody decides to sue the board anyway, we would be defended in court as long as we were acting responsibly and in good faith (ie, we weren't the ones doing the embezzling). But D&O insurance is separate from fidelity insurance. You should have both.

Cathy's advice is very, very good.