Financial Fraud in 2023

November 2023

Technological change creates new ways to perpetuate fraud.

Condominium corporations are particularly susceptible to fraud.  Fraudsters are attracted to them because of large cash balances maintained in accounts combined with potentially poor oversight.

Virtually all fraud is preventable with proper practices and procedures.  Here we provide examples of fraud that can occur when these are not undertaken.

Electronic Bank Deposits

At one time payment to contractors was made by a physical cheque that had to be deposited at a bank.  Cheques can now be deposited by taking a picture with a phone without visiting the financial institution or providing the actual cheque for deposit.  Anyone in possession of the physical cheque can change the payee information or amount, then deposit it to their own account via ATM or photograph.

A condominium corporation that does not reconcile its bank statement monthly would not be aware of the fraud for some extended period.  By the time it is noticed, recovery of funds may not be possible.

Electronic Transfer or Electronic Payment

An individual, perhaps a former employee, obtains the condominium corporation’s branch and bank account numbers.  They could establish an automatic payment or electronic transfer from the corporation’s bank account to their account or one used to redirect funds.  The charge would appear on the corporation’s bank statement.

If undetected or the statement is not reconciled in a timely manner, these funds may not be recoverable.

Investment of Reserve Fund Money

Investing reserve fund money in a guaranteed investment certificate (GIC) is a responsible practice when working with a reputable financial institution.  While it is possible to obtain a higher return by working with a less-known institution, be sure they are legitimate before transferring funds and verify the account number is correct.

Given the ease with which funds can be electronically transferred, condominium corporations can take steps to avoid being victimized.

  • Require that all revenues be deposited to the corporation’s bank account
  • Verify the legitimacy and correctness of invoices before making payment
  • Reconcile bank accounts at least monthly; act on any identified discrepancies or suspicious activities
  • Do not delay reporting any suspected fraud to the police
  • Prior to transferring funds to any financial institution, ensure they are legitimate and verify account numbers

Financial Advisors

Financial advisors provide a valuable service to condominium corporations.  They help structure investments so funds are available when needed and may work with institutions providing higher investment rates.  When transferring funds through a financial advisor, they should provide written confirmation for each investment and monthly statements.

The Auditor

The auditor’s role for a condominium corporation is not to identify fraud unless employed specifically for this purpose.  Communities that wait for an auditor to identify fraudulent transactions during the annual audit, and do not monitor for discrepancies, may never realize they are a victim of fraud.