This week, we discuss how to react if you do not bulletproof your HOA against embezzlement and discover your HOA is the victim of fraud. Finding the proper authority to investigate allegations of fraud can prove to be extremely 
difficult. If your association has been a victim of the “condo confidence game,” gather as much evidence as possible. Double-check all bank statements, checks paid, check endorsements, invoices, receipts, and any other related financial data. Call the police and file a police report. The police will ask the following questions:
- Who is taking the money?
- How is the money being taken?
- Where, if know, is the money going?
- Who are the victims?
- What are the dates and times of theft, if known?
Even with the information, calling the police and filing a report does not guarantee they will make an arrest. As cities are under tighter and tighter budgets, police departments are generally wary of taking on anything that smells like a condominium or homeowners association. “It’s civil” is a repeated refrain that places the jurisdiction in the courts – not at the police level. Occasionally, arrests are made, but they are few and exceedingly infrequent – and the theft must be absolutely in-your-face blatant and outrageous. Remember the detective who stated, “They may have been stealing the money, but they have been given the authority to do it.”
Similarly, calling the state’s attorney or attorney general’s office will result in the same chilliness: “It’s civil.” Well, actually, it’s not civil at all, but that’s what they like to say because your local police do not have the manpower or time to investigate homeowner association theft when more serious and violent crimes are occurring every minute of every day, Your local legal aid society? It won’t help either.
If actual embezzlement or breach of fiduciary duties can be proven, one o the best first steps to take involves a multi-pronged approach: Prepare a detailed letter outlining the facts. Document the proof and include attachments in the letter. Demand the violator(s) “cease and desist.” Have the letter signed by as many owners as possible. Simultaneously send the letter via USPS Certified Mail – with return receipt requested – to both the board attorney and the association’s insurance company.
If the fraud or misconduct involves a board member acting unethically, there is a strong likelihood the member will not be covered by the association’s directors and officers policy.