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Suppose you’re a new apartment association board member. Part of your duties is to oversee some of the accounting recordkeeping. But as you’re looking over the accounts, you notice mention of payments to a repair company. You call the number – not in service. You check the address – no known case of that company ever having operations there. Yet as early as a month ago, there was a payment to that company for services rendered.

Call it cooking the books, fudging the numbers, whatever you like. Your association board is looking at a potential case of fraud. One or more of your board members may be skimming funds and manipulating the accounts in order to do so.

But if you suspect another board member, should you go to the board with the evidence? Not before you notify the authorities. In cases of suspected fraudulent activity, the actions you take (or fail to take) speak volumes in a court case should your residents sue the board collective over the issue. If you show proper due diligence, you could spare your board a costly lawsuit.

All associations should have a process in place with which to handle fraud investigations. The following six items are basic guidelines. For more detailed advice and assistance, you need to contact an attorney.

- When fraud is suspected, board members should inform the board attorney and local fraud division authorities.

- Remove the records in question to a designated third party, typically the board attorney or an outside accounting firm. Seek your counsel’s advice on whom should be in possession of the suspect records.

- Hire a forensic accountant to conduct a thorough audit and investigation.

- Document the incident and case progression in association minutes. Maintain comprehensive files documenting the process from the first day.

- At your attorney’s prompting, notify the board of the suspicions and investigation. Make sure to coordinate this with your attorney’s permission so as not to hamper the investigation.

- Also, seek your attorney’s advice on how to handle the person or people in question. Ensure that you’re not violating anyone’s civil rights in an attempt to protect your board’s financials.

Walking into a potential fraud situation can be very intimidating.  If you follow these basic steps, and contact your association’s attorney, you can protect both your integrity and that of the association.  Associations are fraught with mistrust and handling the situation correctly will do a lot to ensure the fundamentals tenants of most associations.

Flickr photo credit:  !!sahrizvi!!