Condo Association Embezzlement Case Demonstrates Need for System of Financial Checks and Balances

A St. Louis bookkeeper recently pled guilty to wire fraud for embezzling more than $70,000 from his condominium association. His scheme spanned more than two years and involved more than 50 unauthorized wire transfers from the association’s financial accounts to the bookkeeper’s own personal bank accounts.  Unfortunately for condominium and homeowner associations, this type of activity is all too common and demonstrates the critical need for associations to prepare and implement systems of financial checks and balances.

What each association’s system should entail to sufficiently reduce the risk of improper financial activity (while also recognizing the need for effective and responsive management) will vary from association to association depending on several factors, including association size, level of involvement from the homeowners, and governing rules. However, many effective systems begin with distributing financial supervision and actions between several individuals. This practice includes:

• Having a different person reconcile the association’s bank accounts from the one responsible for receiving incoming funds and paying out bills/expenses,
• Requiring dual signatures on association checks for expenditures over a certain dollar amount, and
• Prohibiting the practice of allowing any one individual to write checks to cash.

A regular review of the association’s financial statements at monthly meetings (or subcommittee meetings, depending on the size of the association and number of transactions) may also assist in detecting and preventing unauthorized and/or improper distributions.

It is important to note that no system will reduce risks to zero, but an effective system of checks and balances can significantly improve to association’s likelihood of being victimized.  If you suspect a problem with your financial statements or want to reduce the risk of mismanagement of your association’s finances, it is important to consult with a law firm that has experience providing legal advice to condominium and homeowner associations.