Avoiding Fraud

Fraud takes motivation and opportunity. The board of directors cannot control the motivation; that comes from the fraudster. but it can control the opportunity. In the tight economic conditions that now exist with foreclosures, tight credit and job layoffs, every board needs to be diligent in watching and guarding association monies.

Typically a person planning to perpetrate a fraud is a trusted long-term employee, not a new hire or a slick operator. The defrauder is someone who knows the association and its systems well and knows how to get around the controls that are in place. However, he or she has had a change in circumstances—sudden medical expenses or other money problems, a job loss, an extravagant life style, stock market reversals, gambling debts, or alcohol and drug abuse—that makes him or her look to the association as a target for theft. Often they justify twhat they do as a temporary borrowing or loan from the association.

A good system of internal controls—the checks and balances—is what either keeps the fraud from taking place or allows it to happen. By setting up and using a system where no one individual is completely responsible for the intake or dispersal of money, the association will be protected from most significant fraud.

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