Our law firm suggests that boards have the following accounting and financial controls in place to prevent embezzlement and fraud in their association:
1. Keep association records up to date;
2. Assign control of all reserve funds to the entire board;
3. Monthly financial reports should be prepared and made available for board review (include in the monthly report, a balance sheet, a statement of revenues and expenses and a comparison of actual revenues and expenditures to budgeted amounts);
4. Require two signatures (including at least one board member) on all checks or transfers greater than a pre-designated amount;
5. Prior to signing checks, authorized check signers must review invoices and supporting documentation;
6. Review bank statements and reconciliations on a monthly basis;
7. Keep only a small amount of petty cash on hand and in a secure place;
8. Regularly review delinquent receivable balances;
9. Purchase adequate fidelity insurance to cover the volunteers and employees who handle funds. In addition, arrange for directors and officers coverage (D&O insurance) in the event the board is accused of financial mismanagement;
10. Hire a CPA to conduct an independent annual review or audit; and
11. If your board discovers that funds are missing from your association, remove the suspected fraud perpetrator from a position of control, put a stop on all bank account activity and check with your association attorney for advice on how to proceed.
