How a Forensic Accountant Can Help with Homeowner Association Fraud

Homeowner Association Fraud - CJFA

Homeowner associations can be wonderful. They allow for community building, upkeep, and beautification of shared spaces and entire neighborhoods, and can increase property value. However, they do come with the risk of possible homeowner association fraud.

Homeowner association fraud happens when funds are used inappropriately, irresponsibly, or even criminally. It’s important to be informed about—and have a clear picture of—how and why funds are used. Unfortunately, it is not unusual for funds to mysteriously go missing or be unaccounted for.

What Do I Do if I Suspect HOA Fraud?

If you believe the funds your homeowner association receives are not being used appropriately, there may be some fraudulent activity or even embezzlement happening behind the scenes. When suspicions arise, you must seek professional help in the form of a forensic accountant.

A forensic accountant will sift through past financial statements to determine whether any type of fraudulent activity may be taking place on the board of your homeowner’s association. Fraudulent activity includes both misappropriated and outright stolen funds. The conclusions a forensic accountant can draw are crucial in removing and prosecuting the person or persons responsible for the fraudulent activity, and in proactively saving the members of your homeowner’s association thousands, or even millions, of dollars.

How Can I Identify Possible HOA Fraud?

There are several ways to identify possible homeowner’s association fraud.

  1. Consider whether the budget of the homeowner’s association corresponds to the expenditures the homeowner’s association is responsible for.
  2. Pay careful attention to the vendors and services the homeowner’s association has chosen to use.
  3. Pay close attention to any financial statements the homeowner’s association sends to all members. It is important to note if all funds are accounted for. Additionally, focus on how much vendors and services are being paid. Do prices seem at all inflated, or do they match typical market rates for the area?
  4. Take stock of the areas the homeowner’s association is responsible for maintaining. Notice whether areas are well maintained. If maintenance is poor, it could be a sign funds are being used inappropriately.

Digging Deeper: How a Forensic Accountant Will Uncover the Truth

Even if all transactions are accounted for, fraudulent activity is still possible. Financial statements and accounting records can be modified and important information can be concealed, omitted, or even buried in financial jargon and complicated paperwork (it shouldn’t be).

Making sense of these documents—and determining whether fraudulent activity has occurred—is the job of a forensic accountant. A forensic accountant can piece together all record-keeping, or lack thereof, make sense of both available and lacking records, and determine and document the extent of any fraudulent activity.

A forensic accountant should also verify the existence of contractors and vendors, investigate whether contractors and vendors have official contracts and are being paid according to those contracts, and determine whether pricing matches local market rates. Because most HOAs are self-regulating, fraudulent activity is prevalent and continues unnoticed for a long time. The forensic accountant’s report is crucial in the legal process of recovering funds.

It is important to note a forensic accountant should be hired as soon as fraudulent activity is suspected; recovering funds requires litigation and time. Therefore, unearthing and prosecuting fraudulent activity in a timely manner is of the utmost importance.

If you need a forensic accountant, don’t hesitate – contact us today for assistance.