Significant Fraud Losses Increasing: Protect Your Management Company and Associations

While community associations are the heart of many neighborhoods, they are also all too often at the center of cyberattacks and other fraud. The industry is increasingly becoming a target for criminals, and financial fraud is now a significant threat to community management companies, particularly in the two most common forms: spoofed vendor emails and check fraud. These scams can drain resources, compromise trust and result in financial loss.

Fortunately, your trusted banking partners have the resources to help your community management company and associations implement fraud prevention measures. Your relationship officer can provide information and safe strategies for cybersecurity best practices that can help protect your communities’ finances.

Beware of Spoofed Vendor Emails

Cybercriminals are infiltrating vendor networks, spoofing vendor email addresses and sending fake payment requests to management companies and board members. These requests appear accurate but include payment remittance information that directs funds to the criminal, not the management company. We can work carefully and take the time to recognize red flags that help identify and mitigate these attacks by:

1. Verify the request by phone and call back: Always contact the vendor directly by phone to verify the payment request. Use a phone number previously provided by the vendor and already on file with your company to confirm the details of the payment request, including the amount and payment instructions such as routing and account numbers. Do not contact the vendor via email or use the phone number provided with the payment request, as it might be compromised.
2. Compare previous payments: Review previous successful vendor payments and confirm that the routing number and account number are consistent. 
3. Look for red flags: Be aware of unexpected requests, poor grammar or spelling, urgency tactics, last-minute changes, and payments to uncommon banks or prepaid debit card brands. When in doubt or feeling rushed or pressured, do not send the payment. 
4. Get secondary approval: Have a second person review the request, confirm the information and examine the callback confirmation. The secondary approver should be skeptical, reviewing the request closely and looking for red flags.

In addition to the steps above, it is also important to closely manage and regularly review the vendor setup and payment system, including the following: 

• Examine vendor setup: Carefully review and manage the process for adding and updating vendors, especially for electronic payments. This activity requires the highest level of scrutiny. You’ll find more detailed information in this article about vendor management protocols.
• Verify new payment methods: Be cautious when vendors request new payment methods, particularly ACH or wire transfers. Establish a verification process with dual control (including a verification phone call) for adding new vendors and updating payment methods.
• Consider a third-party solution: Explore using a third-party accounts payable company to manage this process. 
• Test the process: Always send a small/initial payment and verify receipt with the vendor before sending larger payments.

Prevent Check Fraud with Positive Pay

The rise of cybercrime doesn’t mean the end of traditional check fraud — the unauthorized alteration or creation of checks, which can lead to financial losses. This typically occurs when criminals intercept checks in transit to a vendor through the postal service.

To combat fraud, Positive Pay¹ with Payee Match is a vital solution for all community management companies and associations. This service verifies the details of each check presented for payment against a list of checks that have been issued. Here’s how it works:

• Match checks: You provide the bank with a list of authorized checks issued by your company, typically this list is provided automatically from your accounting software. When a check is presented for payment, the bank compares the details (payee, amount, etc.) to your company’s list.
• Prevent fraudulent payments: Any discrepancies trigger a flag for further review by you and the bank.
• Automate this process: Most HOA accounting systems can digitize this verification and payment method for greater efficiency, accuracy and safety.

Connect With a Trusted Banker

Alliance Association Bank is devoted exclusively to the rapidly growing HOA and community association industry. We work with community management companies nationwide, providing top-tier banking and technology solutions to safeguard your finances.

Our experienced community association relationship officers use their knowledge and expertise in the industry to develop a fraud prevention plan and other strategies to help protect your association’s funds. For additional information about fraud, Positive Pay or any other services, please reach out to our dedicated banking team. We are committed to your financial security and answering your questions.