Let’s be honest—no one wants to think about fraud or embezzlement happening in their community association. But as we’ve seen all too often, theft can and does happen, even in the most well-meaning communities. At Mulcahy Law Firm, P.C., we want your association to stay safe, informed, and in control. That’s why we’re sharing some simple but essential steps boards can take to protect association funds.

Here are our top suggestions for keeping your association’s finances secure:

  • Keep Your Records Up to Date. Don’t let financial statements, budgets, or records fall behind— the board should receive an updated copy of these records every month!
  • Reserve Funds = Team Effort. Don’t put one person in charge of reserve funds.  The reserve account should be set up in such a way that reserve funds should not be transferred without a majority vote by the Board (with minutes to prove it) to ensure that the funds remain safe.
  • Review Monthly Financials. Make sure your board analyzes and makes decisions on the monthly balance sheet, a statement of revenues and expenses, and a comparison of what you’ve actually spent versus what was budgeted. Don’t just file them away—look them over!
  • Double Up on Signatures. Require two signatures (including at least one board member) on all checks or transfers for the association’s general checking account above a certain amount (for example over $5k). It’s a simple way to increase accountability.
  • Inspect Before You Sign. Never sign a check without reviewing the invoice and supporting paperwork that goes along with it.  Make sure the invoice belongs to your association!
  • Check Your Bank Statements. Don’t leave statements unopened—review them (and the reconciliations) every month.  Don’t allow anyone on your board or the management company to have the ability to electronically transfer funds between accounts.
  • Petty Cash, Not Pretty Problems. If you keep petty cash, keep only a small amount and make sure it’s tracked with an updated log sheet and secured.  The board should review the petty cash accounting at the board meeting every month.
  • Review Delinquencies. Stay on top of overdue receivables to avoid surprises and cash flow issues.
  • Insure, Insure, Insure! Purchase fidelity insurance to cover anyone handling funds, and get directors and officers (D&O) insurance to protect your board from financial mismanagement claims.
  • Annual Third-Party Checkup. Hire a CPA to perform an independent annual review or audit. A “second set of eyes” is invaluable. Reminder, under Arizona law and association must conduct a review, compilation or audit of its books and records annually.
  • If Something’s Wrong, Act Fast! If you suspect funds are missing, remove the person in question from financial duties, put a freeze on bank activities, notify your insurance provider, and check in with Beth Mulcahy, Esq. from our firm right away for next steps.

And remember: these are just the basics! For a guide you can use and share with your board, check out our Cheat Sheet— Preventing Fraud & Embezzlement of Association Funds. Have specific questions or need more information? Please contact our firm at info@mulchaylawfirm.com.