February 2023

How Secure are Your Assets? By Michael Mezzo, CPA, WilkinGuttenplan

“In order to limit your association’s exposure to fraud risk, it is helpful to know the three components of the fraud triangle...”

Y ou never think it will happen to you, and hopefully, you are right. However, the reality is that theft and fraud cases occur in businesses every year. While these cases show their face in many different forms, the most common type of fraud within the CIRA (Common Interest Realty Associations) industry is the misappropriation of assets. Common examples of this type of fraud would include: • Fraudulent disbursements (through creation of fictitious invoices and vendors) • Abuse of an association’s debit or credit cards to pay for personal expenses In order to limit your association’s exposure to fraud risk, it is helpful to know the three components of the fraud tri angle: rationalization, motivation, and opportunity. While the association may not be able to impact a person’s ratio nalization or motivation, it can still have a direct impact on opportunity. Proper design and implementation of internal • Creation of fictitious employees • Theft of supplies and materials

controls can effectively minimize the chances for perpetra tors to commit fraud. Below are examples of these controls, and “best practices” for boards to help reduce their expo sure to fraud. 1. Bank Reconciliations: Ensure that all cash accounts are reconciled monthly. Items to keep an eye out for include old outstanding checks or deposits and any differences between the reconciliation and the association’s balance sheet. 2. Disbursement Approvals: Require multiple approvals for disbursements over a certain dollar threshold. Invoices should also be made available to the entire board for review. (See point below.) 3. Segregation of Duties: When one person is responsible for too many tasks, an opportunity for fraud is present. For example, if one person is responsible for receiving, approving, and paying invoices, it would be challeng ing to discover a fraudulent disbursement. Therefore, ensuring that you segregate these tasks amongst varied people will help reduce opportunities for fraud. CONT I NU E S ON PAGE 22

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