It’s an unfortunate reality that fraud can happen in any organization, including housing co-ops. While instances of fraud are rare, prevention is key which is why financial auditors check and report on internal financial controls through the annual audit process.
Catching fraud early is vital, so we thought it would be valuable to go over some of the tell-tale signs and red flags to watch out for, as well as what to do when you suspect fraud may have occurred.
Red Flags
Ultimately, what enables someone to commit fraud is when there is a lack of oversight and proper internal controls. Having good systems in place that provide checks and balances when it comes to finances keeps everyone honest. Cash should never be accepted.
When there are no regular financial statements to the board, no spending approval systems, a co-op credit card with little oversight, or missing documentation on requisitions, these are all signs that something could be amiss.
An area to pay particular attention to is procurement. Things like multiple payments on invoices or awarding contracts to the same individual or company despite evidence that pricing is excessive or not the lowest bid are activities that could indicate fraud. Procurement policies will usually set out expectations on competitive practices for different spending levels.
Finally, when it comes to how finances are managed, it’s important to pay attention when a single person is managing the co-op with little oversight and segregation of duties. While is this not uncommon in smaller housing co-ops, good internal financial controls are particularly important. Frequent adjustments to financial records, or undocumented overtime and overtime payouts should be questioned.
Discovering Fraud
If fraud is suspected, your co-op’s first step should be to contact your co-op’s auditor to begin a forensic examination. If evidence is found, report your findings to your insurer. After that, contact your local federation for assistance or the police non-emergency line .
Preventing Fraud
Again, we can’t stress enough that the first and best step to stopping fraud before it happens are good systems of control and oversight in place. Many co-ops have policies like prohibiting directors in arrears to act as a moral safeguard and send a strong message to members that the co-op takes internal controls seriously. The Agency has produced a video on internal financial controls for our HomeRun website that goes into more detail on other measures to take.
Your co-op can start by reviewing its policies for financial management. Start by looking at your by-laws (or rules) and policies, and then consider working through our online Self-Assessment tool that has guided questions that can help you find gaps in your policies.
CHF Canada has also produced resources that look to help with financial accountability:
Depending on your co-op’s needs, you can look at investing in accounting software that provides an audit trail and makes it more difficult to manipulate records. Finally, it’s important to try and foster a culture of transparency at your co-op. Encouraging open communication among staff, board members, and co-op members about financial matters and potential concerns can help everyone understand how the co-op’s money is being used and managed.