Last year the co-owners of a Chicago realty company that managed dozens of condominium properties were charged with fraud for stealing more than $2 million in assessment payments between 2005 and 2008. They trio covered up their fraud by creating false monthly financial reports for the accounts of each property managed and used the money to pay off personal debt they had on a real estate project.
Fraud and embezzlement in the workplace is on the rise. The Association of Fraud Examiners (ACFE) estimates business losses of $400 billion per year—or about 6% of total annual revenue.
Sadly, when fraud is discovered in the context of community associations, or any nonprofit, it usually takes shape as embezzlement over many years by a trusted member or employee. Insurance companies that defend nonprofit clients from fraud can be victimized themselves.
“Fraud happens quite a bit in condo associations,” says Marshall N. Dickler, a principal of Dickler Kahn Slowikoski & Zavell Ltd., in Arlington Heights. “The truth of the matter is that it’s everywhere. People are tempted and they’re human and sometimes there’s no rhyme or reason to it. There have been a number of property managers who have actually gone to jail in Illinois the past couple of years. In most of these cases, rogue property managers took thousands of dollars from association accounts. An association we represent, the accountant actually came to us and showed the books to us, and we went to the management company and insisted that they refund the money and they did. They paid the money back, but the management company ended up doing it again, but the second time they did it, they folded and disappeared.”
On the other hand, notes Joel Davis, regional marketing director for Community Association Underwriters in Hoffman Estates, community associations have been known to perpetuate fraud.