Suspicious Activity or Fraud in Your HOA: What the Board Should Do

HOA Money · Board Basics

If a board suspects fraud, the first job is to protect the money and the records, quietly. Lock down bank access, save every statement and record, then call the association’s attorney and insurance carrier before confronting anyone. Good controls, like board signers and monthly reconciliations, prevent most fraud in the first place.

Common warning signs

• Financial reports are late, or only summaries are shared
• Bank statements aren’t available to the board
• Old uncleared items or unexplained adjustments on reconciliations
• New vendors nobody on the board recognizes
• Payments just under an approval limit
• Reserve balance on the report doesn’t match the bank
• One person controls payments, records and reconciliations

See our guide to HOA bank reconciliations for how these show up.

What to do, step by step

1. Stay calm and quiet. Keep it to the board for now. Don’t accuse anyone publicly.
2. Protect the money. Review who can access each account. Remove access for anyone under question, change online banking passwords and add board signers if needed.
3. Preserve the records. Download bank statements, check images, the accounting file, invoices and emails. Don’t let anything be deleted.
4. Call your HOA attorney. They’ll guide what to say, to whom and when.
5. Notify your insurance. Crime or fidelity policies often require prompt notice.
6. Bring in an independent reviewer. A forensic accountant can trace the money.
7. Report it. With your attorney’s guidance, file a report with local police or the sheriff.
8. Tell owners what happened and what the board is doing, once your attorney agrees.

Owners’ role in Colorado

Owners have tools too. They can inspect many association records (C.R.S. 38-33.3-317). Owners of at least one-third of the units can request a review, and an audit if the association has at least $250,000 in annual revenue or expenses (C.R.S. 38-33.3-303(4)(b)).

Controls that make fraud hard

How we’re set up

We’re an accounting firm, not a management company. The board approves every payment and keeps its signers on the accounts. We can send board-approved ACH payments from the association’s own bank, and we never hold association funds. That structure keeps the board in control. See our HOA accounting services and pricing.

A note on audits

We don’t perform audits, reviews or compilations. If your board needs one, see our guide to audits, reviews and compilations for what each one is.

After the dust settles

• Rebuild the books from bank records if needed.
• Update signers, passwords and online banking users.
• Adopt or update written financial controls.
• Review insurance limits for crime or fidelity coverage.
• Schedule regular independent reviews of the books.

Most associations recover. The ones that recover fastest act quickly, keep good records and communicate clearly with owners.

What not to do

• Don’t confront the person before talking to your attorney.
• Don’t post accusations in owner emails or social media.
• Don’t delete, edit or “clean up” any records.
• Don’t wait months hoping it resolves itself.

Moving quickly and quietly protects the association, the board and the investigation.

Key takeaways

• Protect the money and the records first.
• Call your attorney and insurance carrier before confronting anyone.
• Bring in an independent reviewer to trace the money.
• Report to police with your attorney’s guidance.
• Board signers and payment approval prevent most fraud.

This is accounting education, not legal advice. Contact an HOA attorney right away if you suspect fraud.

FAQ

What should an HOA board do first if it suspects fraud?

Protect the money and the records. Limit access to bank accounts, save statements and records, and call the association’s attorney and insurance agent before confronting anyone.

Does HOA insurance cover theft by a board member or manager?

Many associations carry crime or fidelity coverage for this. Policies often have strict notice deadlines, so check yours and report quickly.

Can owners force an audit in Colorado?

Owners of at least one-third of the units can request a review. They can request an audit if the association also has annual revenues or expenditures of at least $250,000, under C.R.S. 38-33.3-303(4)(b).

How can boards prevent HOA fraud?

Keep board members as bank signers, approve every payment, separate duties, review bank statements directly and reconcile every account monthly.

Sources

• C.R.S. 38-33.3-303 (audits and reviews)
• C.R.S. 38-33.3-317 (association records)