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Who can move money, and howLesson 14 of 27

Academy/Banking, Cash & Internal Controls

Check controls

One person should never be able to write, sign, and reconcile the same check.

Check fraud is easiest to prevent by splitting the job three ways: one person prepares checks, a different person signs them, and a third person reconciles the bank statement. Require two signatures, including a board member, above a set dollar amount, and route the bank statement to someone other than the signer first.

01

Split the check job into three hands

A property management fraud-prevention source is direct about where the boundary goes: the person who prepares a check should not be the person who signs it, and the person who signs it should not be the person who reconciles the statement it appears on. Three separate people, three separate jobs.

This is called segregation of duties: no single person should control authorization, custody, recordkeeping, and reconciliation for the same transaction. A volunteer treasurer who writes the check, signs the check, and balances the checkbook alone holds all four. That is not a comment on the treasurer's honesty; the control exists to remove the opportunity, independent of anyone's character.

"The person who prepares checks should not be the person authorized to sign them."

Source: HOA Fraud: A guide to detection and prevention, FirstService Residential

02

Require two signatures above a threshold

An HOA attorney's embezzlement checklist recommends a second signature, including at least one board member, on any check or transfer above a pre-set dollar amount. Two people have to agree before money moves, which is exactly what stops one person from acting alone.

"Require two signatures (including at least one board member) on all checks or transfers greater than a pre-designated amount."

Source: Danger! Warning Signs of Embezzlement, Mulcahy Law Firm, P.C.

No source reviewed for this Course sets a universal dollar threshold or a required number of signers, because this is governed by your association's own bylaws or board policy and by your bank's signature card requirements, not by a national rule. Check both before assuming a number.

03

Route the statement away from the signer, and reconcile monthly

Send the bank statement to a board member first, ahead of the treasurer, so a dishonest signer cannot intercept or alter it before anyone else sees it. Then reconcile every month, not once a year. A CPA firm advising HOA boards names monthly reconciliation as a key detective control for catching errors and unusual activity while they are still small.

Watch for the same signs an HOA attorney lists as embezzlement warning flags during that reconciliation: missing bank statements, a general ledger that will not balance, photocopies where an original should be, and duplicate payments to the same vendor. Any one of these is worth asking about; several together are worth escalating.

04

Positive pay adds a layer, it does not replace the other two

Positive pay is a bank service that checks every presented check against a list of checks the association says it issued. A mismatch gets held for the association to approve or reject before it clears.

"Whenever the bank receives a check for payment, the positive pay system verifies the date, dollar amount, and other details against the check-issue file. If the system doesn't identify a match, the bank adds the check to an exception report, which it sends to the business for review."

Source: Positive Pay 101: A Guide to Preventing Payment Fraud, Bill.com

What it cannot catch: a check that an authorized signer wrote and reported as legitimate, even if the payment itself was dishonest. It matches against what was reported issued, not against whether the check should have existed. That is why it sits on top of segregation of duties and dual signatures, not in place of them.

Check yourself

Answer before you read the explanation, recalling it is what makes it stick.

Your treasurer writes checks, signs them alone, and reconciles the bank statement every month. What is the control problem?

The board wants to require a second signature above a set dollar amount. Where should that threshold come from?

The treasurer, an authorized signer, writes and signs a check to a vendor account she secretly created for herself. It looks like every other check the association issues. What happens with positive pay?

Sources

Banking, Cash & Internal Controls

Next, see how these same duties split across the whole board in Separating duties.

Whether your association even relies on paper checks, how many signatures are required, and what dollar amount triggers a second signature are set by your own governing documents and your bank's signature card, not by a universal rule.