State statutes in Maryland, Delaware, and Virginia require community associations to carry fidelity coverage — also known as crime coverage, employee theft coverage, or a fidelity bond. This insurance protects association funds from theft, fraud, or misappropriation.
Strong internal controls work hand in hand with proper insurance. Below are key practices every association should follow to safeguard community assets.
Strengthen Oversight
- Conduct an Annual Audit
Independent audits help evaluate internal controls and ensure compliance with accounting standards. - Review Financial Statements Regularly
Board members should receive and review monthly or quarterly reports from the Treasurer or management company. - Compare Bank Statements to Financial Reports Routine reconciliation helps identify errors or irregularities early.
Improve Internal Controls
- Separate Financial Duties
The person reconciling accounts should not be authorized to deposit or withdraw funds. - Keep Accounts in the Association’s Name
All bank and investment accounts must be titled to the association—not individuals. This applies even to very small communities. - Maintain Separate Operating & Reserve Accounts
No commingling of funds. Consider requiring multiple board members to approve reserve transfers. - Avoid Commingling with Other Associations
Management companies should never mix your funds with those of other communities.
Strengthen Banking Practices
- Use Positive Pay / E Pay Systems
Sharing the check register electronically with the bank helps prevent check fraud. - Require Multi Signature Approval
For expenditures and transfers—especially reserve fund movements—require written approval from multiple board members or the full board. - Avoid Association Debit or Credit Cards
Cards increase the risk of unauthorized spending and weaken oversight. - Update Authorized Signers After Every Election Ensure bank and investment accounts always reflect current board leadership.
Review Your Insurance Coverage
If your policy only covers employee theft, your community funds may be exposed.
Other coverages for theft of funds include:
- Forgery, or Alteration
- Theft Disappearance & Destruction
- Computer Fraud
- Money Orders & Counterfeit Currency
- Robbery & Safe Burglar
- Social Engineering
Review your crime and fidelity coverage with your insurance agent to ensure it matches your actual risk.
Questions? Comments? We want them all!
Our in-house Community Association Practice Team are ready to help! Reach out to Melissa Esham, Deeley’s Community Association Advisor today. Call or text her at 410.213.5579.
