With a rise in condo board fraud, your condominium corporation requires total transparency with a set of carefully monitored internal financial controls. Here we look at how third-party controls and monitoring through outsourced accounting really can help mitigate risks for condo board fraud.

Understanding Where Fraud Commonly Exists

Third-party accounting firms understand the following common types of condo board fraud to introduce effective steps that reduce risks:

• Kickbacks received from board member recommended vendors or improper tendering processes (conflict of interest)
• Setting up accounts for fake vendors through shell companies
• Forging signatures and/or cheque payee names to transfer money to personal accounts
• Automatic payments from corporation bank accounts to board member accounts, or shell accounts
• Investment deposits into Illegitimate accounts
• Adding fictitious employees to payroll
• Borrowing funds from corporate accounts, petty cash, etc.
• Fraudulent contracts not prepared or reviewed by the legal team to allow for illegal fund transfers
• Collecting common element fees (particularly cash) not recorded or deposited into corporation accounts

These common fraudulent activities can be detected quickly through increased bank statement reconciliation and more restrictive processes overseen by an outsourced accounting team.

Introducing Common Controls

An outsourced accounting team can reduce the risk of fraud by developing and monitoring controls including:

• Introducing review processes to heighten scrutiny of invoices before payment is made
• Confirming receipt of payments with vendors for account payable transactions
• Having limited bank accounts
• Removing condo board members from the accounts receivable process
• Creating purchase orders to ensure all invoices can be confirmed and reconciled before payment is made
• Introducing review processes that confirm preferred vendor payment processes and accounts to ensure they receive payments
• Increasing bank account reconciliation beyond monthly bank statements to ensure discrepancies are caught early
• Introducing a process to act on suspicious activity to increase the chances of recovering lost funds and ensuring the corporation has an accountable zero tolerance policy
• Providing up to date financial reports for review by board members to help spot discrepancies easily
• Conducting due diligence on all investments to confirm legitimacy prior to fund transfers
• Not accepting cash for payments, especially common element fees
• Requiring two signatures for all transactions
• Controlling account access
• Creating a process that allows residents, staff, and board members to report suspicions of fraud
• Using a property management team to oversee vendor selection to avoid conflicts of interest that increase risk for director kickbacks

Taking on Critical Roles

Professional accounting services can take on critical financial roles such as treasurer, payroll, and bookkeeping. They provide the financial skills and expertise the average director lacks. Not only does this reduce the risk of fraud, but it also provides valuable insights and trusted oversight to alleviate board member stress. Directors are free to focus on other aspects of their role to become more effective at serving the community.

Self-managed boards present the highest risk for condo board fraud as they lack the skills and time to effectively oversee finances. Outsourcing accounting or using a property management company to oversee your finances will introduce and monitor controls that improve financial performance.

At CPO Management Inc., a property management company in Toronto and the GTA, we leverage innovative accounting tools that set a new standard for financial and property management. We reduce the risk of fraud and empower your board to find financial efficiencies and cost savings. Contact us today.