Spotting unusual transactions

Documentation gaps beat round numbers

Most boards are trained to get nervous over a suspiciously round check amount. That instinct misses the stronger signal. The patterns that actually predict trouble are missing paperwork and unexplained gaps, not tidy numbers.

A forensic accounting framework built for HOAs names several patterns worth watching: reserve balances that are materially lower than expected with no documented explanation, vendor payments with no invoice, contract, or work order behind them, duplicate payments or payments to unfamiliar vendors, owners or directors with a documented right to inspect records who are repeatedly denied access, and explanations for missing funds or accounting discrepancies that change each time someone asks.

None of these prove fraud by themselves.

"A red flag is not a finding. But unexplained financial activity should be tested, documented, and understood."

Source: 10 Warning Signs of HOA Fraud and Embezzlement, Blake Files Forensic Solutions

Where the paper trail gets checked first

A bank reconciliation is the routine check that catches most of this early. It compares what the association's own books say against what the bank statement says, and it forces someone to explain any difference before it becomes a bigger problem.

"A necessary control to safeguard cash against fraud and losses, and to ensure the accuracy of accounting records."

Source: BARS GAAP Manual, Bank Reconciliations, Washington State Office of the State Auditor

How often, and how formally, your board is required to review this reconciliation varies by state and by your governing documents. California's statute, for example, requires the board to review a current reconciliation of both operating and reserve accounts every month, alongside the check register and delinquent assessment reports. Check your own state's statute and your bylaws for what applies to your association.

What to do when something looks off

Ask before you accuse. If a payment has no invoice, contract, or work order attached, request the missing document by name and put the request in writing. If a director or owner with a right to inspect records is told to come back next month, and then next month again, that pattern itself is the thing to document, not just the underlying transaction.

Keep a simple log: what you asked, when, who answered, and what they said. If the explanation changes between the first ask and the second, that shift is itself part of the record. Route anything you cannot resolve through your governing documents, whether that means the full board, the management company's supervisor, or an independent CPA engagement.