Flickr photo credit: seaworthy

Imagine half a million dollars. Now imagine it as the amount your association employee stole from you. That’s just the situation a Newport Beach, Calif. condominium association is facing this week after the arrest of its president, who has allegedly embezzled $530,000 from the group. Forging the treasurer’s signature, the president is alleged to have paid contractors for work they were to have completed on the complex. They in turn gave most of the money back to the president, expecting to be receiving work. The work, the police say, never materialized.

This could be your condo association employee. Even the most dedicated employees – and in some cases, especially the most dedicated employees – can be discovered to be stealing from your association coffers. Experts in fraud detection and embezzlement cases say the typical embezzler is a lifer – an employee who has been in the job a number of years, who rarely takes a vacation, and who has complete control over the finances. That’s because it’s too risky for the embezzler to take time off. Another set of eyes on the books could unravel the theft.

It goes without saying – Employee Practices Liability Insurance (EPLI) is a must for any apartment, homeowner or condo association. Where money is exchanged or handled, temptation exists. A comprehensive EPLI policy will cover your condo association for theft, embezzlement, wrongful acts, and more. To increase your protection, consider the following preventative measures:

• Required time off. All employees must take vacation time away from the office.
• Routine audits. While the accounting employees are away, condo associations should conduct audits to ensure all accounts and bookkeeping records are accurate.
• Designate more than one money handler. Trouble brews when one person is in complete charge of your finances. Spread the duties out among a few employees to lower the risks. And make sure each of these employees takes a required vacation away from the office.

Just a little housekeeping can help your condo association avoid a large, devastating loss. With a combination of a customized EPLI policy and a little risk management, your financial risks will be lessened considerably.

I mean we’ve all heard stories about the waiters and waitresses at our favorite restaurant swiping our credit card numbers on a little theft gizmo before running the charge through for the meal.  I’ve actually been a victim of something similar.  Although I love the restaurant dearly (it serves the best Mexican food) I only pay with cash. period. 

Every month large sums of money moves through your books.  Rents come in as income, and then there are expenses – utilities, maintenance, staff, supplies, insurance, taxes, advertising, legal fees, tenant damage, etc.  Do you have safeguards in place to deter sticky fingers?

Do you have one person write checks and another person sign them?  Who reconciles the bank statement each month?  Direct theft is one form of employee dishonesty. 

Another form would be when an employee uses tenant information – credit card numbers, social security numbers, birthdates, etc. to make fraudulent purchases for personal gain.  This form of theft is more difficult to identify.  And yet, you could be named as a party in the lawsuit.

All forms of theft are damaging – not only to the Apartment owner but to the reputation of the property and the ability to keep maximum occupancy. So, what’s the remedy?  Aside from the obvious of doing everything yourself, which assumes you’re an honest person, is to have certain policies in place.

1.  Bond your employees.   Fidelity bonds protect you (the policyholder) for losses incurred as a result of theft or dishonesty by the bonded employee.

2.  If your business is a corporation, LLC, etc. you should have Directors and Officers (D&O) liability insurance in place.  This coverage will protect the organization from legal/litigation costs resulting from mistakes (yes, that’s a broad term) for which they are liable.

3.  Is it a standard part of your application process for prospective tenants to provide proof of tenant/renter’s insurance?  What about the maintenance person or exterminator who likes bright shiny objects?  Proof of tenant/renter’s insurance should be standard for all approved applications.

When you protect your business, you’re protecting others from losses that can and will occur.  Legal fees and shattered reputations can ruin a business.  Be proactive and have policies (employer and insurance) in place to deter dishonesty and prevent holes in your office.