Protect Your Association’s Funds from Getting in the Wrong Hands
Sep 21, 2016
Recently, there’s been quite a scare regarding Management companies allegedly embezzling Association funds, leaving Associations to scramble and pick up the pieces while still trying to operate. Unfortunately, Association funds may not be available but rest assured that the bills will keep coming. The reality is that unless your Association has insurance to cover your expenses, it can really wreak havoc on the bottom line. Criminals attempt to steal Association funds anyway they can, with the hopes of not getting caught. And why not? Associations often have large amounts of money just sitting there! Consequently, criminals are becoming more creative in their tactics. It is vital that community Associations take measures to make sure they are protected as they are vulnerable targets.
Do we really need Crime Insurance? Fidelity insurance, also known as ‘Employee Dishonesty’ or ‘Crime’ insurance, can help protect your Association against employee dishonesty that may lead to theft, fraud, or embezzlement of Association funds, securities or property. Your Association should make sure that compensated employees, Directors and Officers, and employees of the Management company are insured under your Association’s crime policy. Unfortunately, the Property Managers bond, most likely, will not cover the funds of your Association. Nor are Principals of Management firms covered on the Management companies bond either. Plain and simple, your Association cannot rely on your Management company’s policy to pick up the crime coverage.
The million dollar question. “How much coverage does our Association really need?” The amount of coverage your Association may need can vary, depending on the requirements of your Association’s governing documents. However, due to lending requirements, your Association must have coverage in amounts equaling at least 3-months Association dues, plus all reserve funds (including amounts anticipated in the reserve accounts during the term of the coverage). The coverage amount needed can change frequently, based on the monthly assessments paid. For this reason, the Association’s policy should be re-evaluated often.
Protection is difficult if banking electronically. In today’s age, it seems that a majority of organizations are relying on online banking, computers and other sources of electronic cash management. It is difficult to fully protect your Association when using online services; the risk of being hacked is greater than ever.
A hot topic that your Association needs to be aware of is “computer fraud” and “funds transfer”. These coverages are important as increased number of hackers continue to target Associations using electronic means to embezzle from consumers. For a hacker, it’s easy to access your Association’s account and drain the funds prior to your Association becoming aware. Tracking transferred money, sent to off shore accounts, makes it extremely difficult to locate. To complicate matters further, a computer is not needed to commit fraud. Funds can be taken via cable, facsimile, telephone instruction, or telegraphic, for example. Often, this scenario may not be covered under ‘Employee Dishonesty’, as hackers are not included under the definition of an employee.
Protecting your Association from embezzlement. There are several ways your Association can set up safeguards to be better protected from embezzlement.
- Set up separate operating and reserve accounts. Co-mingling of money makes tracking your Association’s funds very difficult, causing missing funds to be easily overlooked.
- Board members should be counter-signing checks, or at least signing for expenses that are over established higher amounts.
- Do not have the same person sign checks and reconcile the checking account. Assign two separate people, one for each task, to insure that your Association can limit the likelihood of missing money.
- Consider having an annual audit completed by an independent CPA. This will give board members assurance that funds are being handled correctly.
- Secure your Association’s operating system by designating a specific computer or system for financial tasks. Be sure that this computer or system isn’t used for any other transactions such as web browsing, emails or other document storage.
- Use passwords that are complex, using a combination of upper case, lower case, symbols and numbers. Passwords should also be changed regularly and not shared with anyone, nor should they be stored on the computer or other electronic device.
- Recommended Anti-virus and IT Security software should be installed and updated on all computer firewalls regularly.
Adopting these protocols will help reduce the risk of your Association’s funds being hacked, causing significant financial problems.
Associations are hackers’ primary targets. A hacker’s primary target is organizations and Associations. Management companies and Associations are the perfect target for hackers, as they make large deposits and keep significant amounts of cash on hand. It is important that your Association has enough coverage to protect the funds in your accounts, taking preventative measures to ensure your Association funds are secure.
Next step. The folks at ABI are well-trained on insuring Associations like yours. Isn’t it worth the peace of mind to have a professional review your coverage? Give Vern and Sara a call today.