This document discusses the importance of associations knowing where their money is located and being protected from financial fraud. It outlines that boards have a fiduciary duty to properly oversee association finances. Key recommendations include having formal check signing policies, requiring multiple signatures, ensuring board members review monthly financial reports, and purchasing fidelity bonds and insurance to protect against theft. Overall, the document stresses that boards are responsible for safeguarding community funds and preventing fraud.

1. 1--
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Fax: 305.476.9187

2. - 2 -
Dear Board Member,
At the start of 2013, we experienced great optimism when
the reported rate of unemployment was at 7.8% and home
sales were at 8.5% for single family residences and 2% for
condominiums.The statistical data reflected the substantial
decrease we were witnessing in the number of homeowners
who were behind in their association fees and in the amount
of money being spent on collection efforts by associations
as residences were being sold not only at an accelerated
rate but at an increased market value.
Our optimism was dampened, though, by the increased
reporting of financial fraud occurring in associations
throughout the state and the country. As a full service
management company whom has worked diligently for nine
years to promote professionalism, transparency and an
unrelenting pursuit of ethical behavior in our industry, we
were disheartened not only by the number of instances of
fraud reported by local print news, but by the number of
unpublicized cases that we learn about when we meet with
communities to educate them on what capabilities and
qualities to look for from a professional management firm.
Although precautions can be effectively implemented to
prevent fraud, Florida associations have lost an astonishing
$847,448.00 between operating and reserve accounts in the
past eight months:
• Volusia county HOA: $8,000.00 lost to fraud.
• Sarasota county HOA: $7,448.00 lost to fraud.
• St. Johns county Condo: $26,000.00 lost to fraud.
• Polk county HOA: $18,832.95 lost to fraud.
• Miami-Dade county Condo: $466,309.75 lost to
fraud.
• Lee county Condo: $290,000.00 lost to fraud.
As a result of this, we have decided to focus on fraud and
the legal and financial ramifications for associations
(including insurance coverage) in this edition of our quarterly
newsletter. We hope the ideas discussed within the articles
will prove to be valuable tools that you can use as a board
member to protect your association.
If you have any questions regarding any of the information
discussed in the newsletter, or you would like to learn more
about KW PROPERTY MANAGEMENT & CONSULTING
please contact us at (800) 514-5770.
With warm regards,
Kelly Ann Vickers, LCAM
Senior Business Development Manager
kvickers@kwpropertymanagement.com

3. - 3-
President's Perspective
— by Michael Hinman, Meridian Condos..............................................................................P 4-5
Do You Know Where Your Association's Money Is?
— by Ellen Hirsch de Haan, Esq. ...........................................................................................P 6-7
Financial Transgressions — Lifting the Veil on Lies
— by Percy Legendre, CPA....................................................................................................P 8-9
Association Crime Insurance — Protecting the Liquid Assets
— by Barry Scarr, Community Insurance and Risk Management Specialist................................P10
The Language of Numbers — Learning to Read a Financial Statement
— by KW PROPERTY MANAGEMENT & CONSULTING ..........................................................P11
IN THIS ISSUE:
KW PROPERTY MANAGEMENT & CONSULTING, as a professional
organization dedicated to assisting its clients in achieving financial healthiness,
is proud to announce that it was successful in its efforts to recoup over $38,000
in erroneous billings from the previous management company for an
association in North East Florida.
Foiling Fraud

4. President’s Perspective
—By Michael Hinman
- 4 -
2020
Vision
I don’t think I truly understood how big the housing bubble
was until 2005, when as a real estate reporter for a regional
business newspaper, I wrote a story about an apartment
complex that had been converted into condominiums.
A developer had purchased a complex in Tampa’s
Westshore District, built in the 1960s, which the month
before saw tenants paying $650 a month. The developer
painted the buildings, added some landscaping and put in
new appliances, and wanted to turn around and sell them
for $200,000 … each.
I thought this was crazy, and while still trying to remain
objective, I had hoped that some of that would rub off into
the story. Instead, when the story went to press, I came into
work the next morning with more than a dozen voice
messages, asking what the phone number was because
they wanted to buy them.
When I bought my condo at Meridian Luxury Condominium
in 2007, I had really believed that while the housing market
was still on the downturn, it was close to the bottom.Yeah, I
was wrong. And now to say I’m upside down in my condo
would simply be polite.
I became president of the Meridian board in 2008, and our
board had a very tough road ahead of us.The developer had
not sold half the units, and those that were sold contained
very unhappy owners who had no idea how they were going
to get out of this investment.
The next few years would be challenging – like it was in
many communities. Paying bills, keeping staff on board, and
somehow finding a way to ensure that our communities were
livable. A couple years ago, I finally stopped to take a breath,
and looked around.
What I realized is that while Meridian was far from the level
I wanted it to be, we were out of the woods. No longer did
we sweat the bills, hoping they could be paid. No longer did
we find the cheapest way to do something and hoped no one
would question it. No longer did we fear a call from a
collector.
The storm was over. And now it was time to rebuild. But how
do you do that? And what do you rebuild to? Do you recreate
the magic that made me buy here in the first place, or do we
try to accomplish something different, knowing that housing
boom likely will not happen again anytime soon.

5. - 5 -
I developed what would become known as the Vision 2020
plan. It was first and foremost a capital improvement project,
spread out over nearly a decade, that would be manageable
not just from a coordination perspective, but a cost
perspective. And while I felt that our assessments were
competitive with other similar communities, I knew that we
would become even more attractive to buyers by working to
lower monthly assessments.
When Vision 2020 was first implemented, renters occupied
the vast majority of the units. While I have nothing against
renters (trust me, I miss my days as a renter), it’s tough to
buy into a community where the neighbors are, at best,
transient.
The housing market works in cycles, and while it wouldn’t
be a boom like 2005 and 2006, values would eventually start
to return. But Meridian isn’t the only community with owners
holding on as long as they can, hoping for more value. How
do we compete with these other communities when it
becomes a seller’s market again? What will Meridian have
that’s special that others won’t have?
Meridian sat down and looked at what we really needed:
building repairs (nearly $500,000 worth), extensive repairs
on part of our parking lot that is prone to potholes, and
aesthetics – landscaping, new mailboxes, a nicer swimming
pool, even a sign greeting residents as they come home with
important messages. We also felt it was time to try and cut
the expense of living here too.
So Vision 2020 is actually the combination of two parts:
Building a better community, but also building a much more
cost-effective community.
Yes, it requires investment. And we chose to do that
investment with the special assessment. Nearly everywhere,
“special assessment” is the same as cursing. But at
Meridian, we made it clear that this is a direct investment –
and one that stakeholders can be assured will take place.
If we were to just add money to the budget and say that we’re
going to spend that money on something like building
repairs, there is nothing specifically tying the board to spend
that money that way. Instead, with a simple vote, we could
just spend that money on a new hot tub.
Through special assessment, we have to not only say what
the money is for, but we also have to make sure that the
money we raise only go to that project. So if we are raising
$80,000 to replace our mailbox pavilion, we are only going
to spend that $80,000 on the mailbox pavilion. It gives you
the kind of guarantees you never really see in government,
and it ensures that the leaders of the community will fulfill
their promise.
The second portion of this comes in reducing the overall
budget. Our goal is to decrease spending by 3.5 percent
each year. That’s a lot – tens of thousands of dollars. And if
you already run a tight ship, there is not a lot of places you
can cut.
But the best way to achieve budget reductions is to find ways
to curb spending while you’re actually spending.That is why
each June, our property manager comes to the Board with
detailed spending cuts based on the budget she’s been
provided.These cannot be corners that were cut that affects
the quality in the community, but instead, innovative ways to
save money.
For example, we were spending nearly $1,500 on pool
maintenance each month. Yet, we could send our on-site
maintenance person to a training class and make him
certified in pool maintenance for around $350. So instead of
spending $18,000 on pool maintenance in 2013, we’re
spending $350 – a savings of 98 percent.
We also realized that using energy-efficient bulbs in common
lit areas can reduce the electric bill. That an audit of water
leakage in the community can reduce our overall utility bill.
There are plenty of ideas out there for cost-cutting, and by
presenting it in June, we can then apply those types of cost
savings to our upcoming budget.
But what about our staff, who is doing all the work looking
for ways to decrease expenses? Should they do it because
they are told to, or should they do it because they have a
chance to benefit as well?
Our staff is incentivized to find these savings because their
savings translates to an automatic pay raise for them. Any
savings up to 5 percent is matched in terms of pay raise for
the entire staff.
So if our staff reduces spending in that 12-month period by
3.5 percent, which is our annual goal, they will see a
payraise of 3.5 percent. And that doesn’t include any
normal pay increases they may get along the way.
This is something they have control over. Save the
community money, and you will get a bonus, so to speak. It’s
saving thousands of dollars at the cost of hundreds of
dollars. And everyone is happy in the end – owners, the
Board, our staff.
In the end, when we reach 2020, the goal is to have the
community dominated by people who both own and live in
their units, in a community that is both beautiful and secure,
with a financial commitment to the common good that is
more than reasonable.
It’s our vision of Meridian, and through our continued hard
work, we’ll make it happen.

6. - 6 -
It’s 2013 — Do you know where your association’s money is?
Ellen Hirsch de Haan, Esq.
2013 marks eight years since the real estate bubble burst in
which the loss of jobs and foreclosures of homes became a
national epidemic. Finally, the economy seems on the brink
of recovery with the job market showing improvements, and
the amount of foreclosures by Associations and lenders
slowing down. The boards of directors are now able to turn
their attention away from delinquencies and financial
shortfalls, and back to maintenance, repair and improvement
of the common properties. Unfortunately a new challenge
has arisen - the sudden surge of thefts affecting community
associations.
The incidents being reported run the gamut from a fifteen
year tenured manager employed by the association who
began stealing two years ago, an association treasurer with
a gambling addiction compounded by a terminal illness who
had possession of an ATM card linked to the reserve
accounts, and a management company employee who used
association charge cards for personal purchases and to pay
her bills. Amounts stolen from associations in Florida have
exceeded a million dollars thus far.
What are the legal impacts of theft of association funds on
you, as a director and an owner, and on the association as a
whole?
The Florida Business Judgment Rule
The corporate law provides that a director must act in good
faith, with the best interests of the community as a whole
foremost in his mind, and with the advice of experts, when
appropriate; and doing so, he/she will have no personal
liability for making a decision that a reasonable person in
similar circumstances, and with similar information, might
make, even if the result of the decision is problematic for the
association. But, are you protected if someone steals the
association's money?
The Buck Stops Here
The board of directors is ultimately responsible for operating
the community and the association, and each director has a
fiduciary duty to the association members. (Fiduciary duty
arises when you handle other people's money.) Under the
Law, the board can delegate tasks to individual directors, a
managing agent, or a committee, etc.., but cannot avoid the
consequences if something goes wrong and the directors are
not paying enough attention. For example, fiduciary duty
requires the treasurer of the association to keep track of the
finances and be familiar with the accounts even if the
finances are handled by a manager. Additionally, if the
treasurer is personally handling the day-to-day accounting,
then the remaining directors have a duty to be informed about
and familiar with the collection of assessments and state of
the association's accounts as well.
Who Signs The Checks?
The board should have a written, formal check signing policy
that should be part of the association's Official Records. If
your association is managed by an LCAM hired by the
association or by a management company, does the
manager have check- signing authority? Does a member of
the board also have to sign a check? Does a board member
have to review the invoices and approve payment of any bills?
Do you want to provide that the manager will cut and sign
checks for ordinary, recurring monthly budget expenses, but
not for reserve account expenditures? For self-managed
associations, how many signatures are required for each
check? Who approves invoices for payment? These
questions should
be considered and
answered by every
board every year,
and the policy
should be carefully
followed at all
times even when it
is a little
inconvenient to do
so.
Do Your Homework
The directors should receive a monthly financial report
including a check register for that month. As a director, it is
your fiduciary duty to review the reports and ask questions if
you see something which looks odd or you don't understand
(even if math and accounting are not your strong suit).
You don't have to prepare the reports, but you do have to
know the gist of what is in them.
Duty to Insure
Under the Law, and under the various governing documents,
each board has an affirmative duty to insure the property for
which maintenance and repair are its responsibility. In
addition, condominium associations are required to carry a
fidelity bond covering all individuals who have access to
association accounts, in an amount equal to the total
amounts available, including reserves, in any 30-day period.
For cooperatives and homeowners associations, the
governing ocuments may also require a fidelity bond be
purchased by the association.

7. - 7 -
Even if there is no such language in the documents, every
association should have a fidelity bond in place, to protect
the association from theft of its funds. (Also, be sure you
have Directors and Officers Liability Insurance, to cover the
directors if they are sued individually for breach of duty, in
case of a theft of association funds.)
If you hire a management company, be sure the company
has fidelity bonding for its employees to protect the
association's funds (in addition to the association's
insurance). Being able to make a claim under a fidelity bond
has saved a number of associations in the last three or four
years enabling them to be reimbursed for money stolen as
well as some of the legal fees incurred by the association in
pursuing the theft.
Criminal Act
Ultimately, stealing association money is a crime, and the
board will have to consider whether to report a theft to the
police for investigation and possible action. Be sure to check
with your fidelity bond carrier to determine whether a police
report is required in order for the insurer to process your
claim.
Warning Signs
Be alert to personal issues which impact your directors,
manager, or volunteers who have access to the
association's funds. In a number of the cases I have
personally seen, the thief
had a catastrophic illness or there was a family member with
a serious health issue. In other cases, gambling debts lead
to pilfering of association funds.
Luckily for one association, the gambler was good at it, and
she returned the money to the reserve accounts from her
winnings, from time to time. In the case of the Association
whose Treasurer had a terminal illness the association was
left with only about $1,000 missing that was covered by their
fidelity bond after the Treasurer succumbed to her illness.
Be Vigilant
There are potential legal consequences to directors for failing
to take care of the association's money.Theft is often a crime
of opportunity. Let everyone know that you are watching the
association's finances, and then do so. Don't rely on anyone
else to protect the association's money. As a director of your
association it is your responsibility. Do consult with the
association's legal, accounting and insurance professionals
for a review of the association's procedures and potential
risks, and both heed and adopt their suggestions for changes
and best practices to protect your association funds.
Ellen Hirsch de Haan of Becker & Poliakoff is the Managing Shareholder of
the Firm’s Tampa Bay Office, where she focuses her practice in the area of
Community Association Law, representing condominium, cooperative,
timeshare and homeowner associations. Ellen can be reached at (727)
712-4000 or edehaan@becker-poliakoff.com

8. - 8 -
Financial Transgressions — Lifting the Veil on Lies
The terms “embezzlement” and “fraud” are often used
interchangeably to characterize a financial transgression,
however; fraud is defined as a crime that involves cheating
somebody, obtaining money or some other benefit by
deliberate deception, and embezzlement is defined as a
misuse of entrusted money or property, and taking for
personal use money or property that has been given on trust
by others without their knowledge or permission. Simply
stated, fraud is an acts or acts of deception perpetrated to
promote personal gain, and embezzlement is fraud
committed for the primary purpose of promoting financial
gain.
Do Fraud and/or Embezzlement Really Occur at
Associations?
In the past nine years there have been substantial reports
(and the prosecution) of fraudulent activities occurring at
community associations including the embezzlement of
operating and reserve funds. The local news media has
reported on multiple cases including:
• $200,000.00 stolen by the President of the Board of
Directors in a condominium association in Davie, FL
(November 2007).
• $50,000.00 plus stolen by the President of the Board of
Directors in a condominium association (August 2007).
• $1,400,000 embezzled by four residents in a
Hallandale Beach condominium association through a kick-
back scheme (May 2007).
• $46,000.00 plus stolen by the President of the Board of
Directors through ATM withdrawals made at the Hard Rock
Casino in Hollywood, FL (May 2010).
• $1,000,000.00 plus embezzled from multiple Tampa
community associations by a bookkeeper (February 2010).
• $4,000,000.00 plus embezzled from multiple Port Charlotte
community associations by a bookkeeper (April 2005).
• $167,000.00 embezzled from a Jacksonville condominium
association by the manager (December 2009).
When we speak to an association that has experienced fraud
or embezzlement what we usually hear is, “We never thought
that they would do that to us.We trusted them.” In the twenty-
eight years we have been providing associations with
accounting services and consulting we have not once heard
anyone say, “You know what? When we hired that person we
felt confident they were going to steal from us. We aren’t the
least bit surprised!”
How Does it Happen?
The most common and costly type of fraud an association
can experience is financial collusion. In a scenario such as
this the property manager and/or board members partner
with a service provider (painter, landscaper, etc.) to steal
funds from the association through the method of false
billing where the vendor produces an invoice to the
association for $5,000.00, and the work performed, if
any, was worth $2,000. The manager signs off on the
invoice, and a board member signs the check for $5,000.00.
The vendor then cashes the check, and splits the $3,000.00
between the parties involved in the scheme.
The next widely used scheme to steal money from an
association involves the usage of a credit and/or bank debit
card, and pilfering from petty cash. Most associations make
it a point to have a credit card available to allow for the quick
purchase of every day or needed items such as paper towels
and hand soap for the pool restrooms or parts for the weed
whacker. However, it is far too easy these days for an
individual who is entrusted with the association credit card to
make purchases on behalf of the association for items that
aren’t really needed that they then return for cash, or even
for the individual to use the credit card to make personal
purchases or obtain cash advances.
Petty cash is also a vehicle for theft, and it can be used in
much the same way as a credit card. Unnecessary
purchases can be made to validate the expenditure of the
petty cash, and the items can be returned for cash
reimbursement. Being that the initial purchase produced a
valid expenditure receipt the association would never think
anything of the expense.
Additionally, fraud can occur through the falsification of payroll
records. Typically an association will employ individuals
directly or through a leasing arrangement, and the
association can be exposed to employees reporting hours
that were not actually worked including overtime hours that
are billed at time and a half and the submission of
reimbursable expenses such as mileage.
Lastly, although a relatively new scheme, associations can
be defrauded through cash receipts not being
deposited. When the real estate market turned in 2007,
associations began having difficulties collecting all of the
assessments owed by the membership, and the bad debt
began mounting. There are individuals whom have figured
out how to collect these moneys from the owners through
payment arrangements, but not deposit them into the
association account. Sadly, it is coming to light that this same
scheme is being used to divert rental income from
associations.
—By Percy Legendre, CPA

9. - 9-
What is the Greatest Exposure for an Association?
The greatest exposure to any association is the lack of
segregation of duties as it relates to the financial
requirements of a community. It is widely reported that most
occurrences of fraud and/or embezzlement occur in
communities that are self- managed, and the manager (or a
board member) is performing the operational and financial
functions for the association. In this type of environment the
individual has the autonomy and ability to solicit bids for
required services (financial collusion), purchase items on
behalf of the association using petty cash or an association
credit card, report their own hours and mileage
reimbursements without providing proof, and deposit
receivables into the operating account on behalf of the
association as well as reconcile the bank accounts. The
failure to implement a system of checks and balances in an
environment such as this can cost an association hundreds
of thousands if not millions of dollars over a period of time.
How Do We Protect Our Association?
The first step to protecting your association is to be involved
as either a member of the Board of Directors or an interested
and invested owner, and to hire ethical, competent and
professional service providers including a management firm.
In order to protect its assets the vast majority of associations
elect to hire a management company that segregates not
only the operational components from the financial
components of the association business, but who also
internally segregates the various sub-components of
managing the financials including accounts payable,
accounts receivable, and bank reconciliation.
A well-established management company will provide added
security to the association by requesting that the members
of the board of directors agree to (1) require payments of
association assessments be made to a lock box
processing center managed by the association’s bank, (2) all
checks for payables be signed by at least two board members
whom have diligently reviewed the supporting documentation
associated with the payment, and (3) appointed members of
the board of directors meet with a CPA from the management
firm on a quarterly basis to review the association’s finances.
Additional measures that can be taken include:
• Hire vendors who are known in the industry and have
performed similar, verifiable work at other associations
when projects are being undertaken.
• Require a scope of work for the projects being considered,
and request no less than three sealed bids from unrelated
vendors. Before signing off on any agreement or contract
make sure the language is clear regarding change orders
that could manifest later to increase the costs.
• Confirm that the vendor that is awarded the project is
properly licensed, insured and bonded, and has no
personal relationship with any board member or
association employee.
• Reflect in the minutes of the board meeting the bids that
were received, and the vote on which one to accept.
• Establish specific credit accounts such as Lowes or Home
Depot, and forego the usage of a general bank issued
credit card for random purchases.
• Discontinue the usage of petty cash, and instead
implement a system in which an association employee is
reimbursed for verifiable expenditures (receipts) through
the issuing of a check.
• Implement a policy where the only forms of payment
accepted from an owner for association assessments are
(1) checks mailed to the lock box with the corresponding
payment coupon, (2) credit card payments made on-line
through the management company’s payment portal, or (3)
a money order made out to the association.
• Be vigilant.
Percy Legendre is a Certified Public Accountant with over twenty eight years’
experience working with community associations, and he is the Managing
Partner of Bashor & Legendre, LLL, CPAs. If you have any questions or
would like to discuss his services, please contact Percy at (813) 961-3220
or by email plegendre@blcpas.com. To learn more about his firm please
visit their website www.blcpas.com

10. - 10 -
Association Crime Insurance — Protecting the Liquid Assets
The most controversial and
misunderstood, but necessary
aspect of any association budget
is the insurance policy. More
often than not the mere usage
of the word “insurance” can
evoke the rolling of eyes,
groans and a litany of
complaints at any given
moment, but the down
side is that the lack of the
appropriate insurance
coverage can inspire far
more detrimental
reactions and results on a
larger scale. Most
associations, when
receiving bids for insurance
policies, focus primarily on
the standard components of
the Master Insurance Policy
including the general liability and
property coverage, and tend to
purchase a Directors and Officers (D &
O) policy to afford protection to the Board
of Directors in regards to the actions they
make take on behalf of the association as a whole.
The aforementioned components, often classified as liability
exposures, protect the entire membership in regards to their
investment within the community.
Income exposures, which are becoming far more evident in
the state of Florida, are damages that result from financial
mismanagement such as fraud, theft and embezzlement.
Florida Statute 718.111 (11) (h) requires condominium
associations to specifically carry fidelity bonding and crime
insurance in order to protect the association.
The statute reads:“The association shall maintain insurance
or fidelity bonding of all persons who control or disburse
funds of the association.The insurance policy or fidelity bond
must cover the maximum funds that will be in the custody of
the association or its management agent at any one time. As
used in this paragraph, the term “persons who control or
disburse funds of the association” includes, but is not limited
to, those individuals authorized to sign checks on behalf of
the association, and the president, secretary, and treasurer
of the association.The association shall bear the cost of any
such bonding.”
Although the statute is precise in determining who is required
to be covered by the fidelity bond, it does not provide any
clarity regarding the amount of coverage that should be
purchased. To ensure that the appropriate coverage is in
place to protect the association it is recommended that the
formula to be used for the calculation includes three months
of revenue (operating income) plus reserve funds rounded
up. For example, if the “It Couldn’t Happen to Us”
Condominium Association is comprised of one hundred ten
units that each pay three hundred dollars a month towards
the operating costs, and the association is allocating fifteen
percent of the monthly income to the reserves then the
formula would be $33,000.00 + $14,850.00 = $47,850.00 or
$50,000.00 in coverage.
The association’s “liquid assets” represent the single greatest
risk of loss at any given point in time being that multiple
individuals have access to them on a regular basis including
members of the Board of Directors, managing agents
(management company and/or property manager) and
association employees. In order to protect those funds which
are in the care, custody and control of the agent for the
association, the bond (crime policy) must include a
Designated Agent Endorsement that specifically names the
contracted management company or agent. It is important
to note that a salaried manager, whom has no affiliation with
a management company and is employed directly by the
association, is covered as a defined employee under the
association’s bond.
In addition to having the fidelity bond in place to protect the
financial assets of the association the crime policy should
also include coverage for electronic transfer fraud (EFT
payments), forgery or alteration, computer fraud and theft,
and money orders and counterfeit money.
Although the association’s insurance policies are typically the
“big ticket item” on the annual budget the simple and
unavoidable truth is that it is the one expense that can
actually save the association money in the long run. If the
membership of the “It Couldn’t Happen to Us” Condominium
Association hadn’t harangued the Board of Directors to
reduce the insurance coverage at last year’s budget
workshop they wouldn’t be losing sleep over the $223,000.00
the book keeper diverted from the association through cash
advances on the credit cards opened in the association’s
name.
Barry Scarr, who is the principal agent and President of Scarr Insurance
Group, has been assisting associations with their insurance needs since
1984. He is a CIRMS (Community Insurance and Risk Management
Specialist), the past President and active board member of the Suncoast
Chapter of the Community Association Institute, the author of “How to
Understand, Buy and Use Condominium Insurance,” and he was an LCAM
(Licensed Community Association Manager) and CPM (Certified Property
Manager) for condominium associations for ten years.
If you are interested in having Barry review your association’s insurance
needs please contact him at (800) 299-5055 or by email
BScarr@scarrinsurance.com. To learn more about Scarr Insurance Group
visit their website at www.scarrinsurance.com.
“The expected never happens; it is the unexpected always.”
— John Maynard Keynes, Economist (1883 – 1946)
— Barry Scarr , Community Insurance and Risk Management Specialist

11. $3,500,000.00
- 11-
If you have any questions regarding the articles contained in this
newsletter, or would like to participate in an invitation only educational
seminar regarding reading financial statements as steps that can be
implemented to prevent fraud, please contact Kelly Ann Vickers, LCAM,
Senior Business Development Manager and Education Coordinator for
KW Property Management and Consulting, LLC. Kelly Ann can be
reached at (800) 514-5770 or kvickers@kwpropertymanagement.com.
KW PROPERTY MANAGEMENT & CONSULTING, a privately owned
management and consulting firm, has established itself as an industry
leader in the past nine years through its commitment to independence
and professionalism in the property management industry. With offices
throughout the state of Florida from Miami to Jacksonville, New York and
the Bahamas, KW PROPERTY MANAGEMENT & CONSULTING
employees approximately 650 professionals to provide exceptional
services to over 40,000 residents in the hi-rise, garden-style condos and
town homes, and homeowners communities managed by the company.
To learn more about KW PROPERTY MANAGEMENT & CONSULTING visit
www.kwpropertymanagement.com
Theoretically, the line between negligence and fraud is
separated by “intention”, and, as a member of the Board of
Directors for your condominium or homeowner association,
you can take steps to ensure that this line is never crossed.
One of the most important steps that can be taken is to read
and understand all financial documents that you receive from
your manager and/or management company on a monthly
basis. The key components of most financial statements for
associations are the (1) balance sheet, (2) the income
statement (income and expenses accounting for reserves),
and (3) the bank reconciliation with all supporting
documentation.
The balance sheet is a snapshot of sorts in the respect that
it represents the current financial position of the association
at the date of the financial statements. It reflects the assets
(funds in the bank account, accounts receivables, etc.) and
liabilities (accounts payables, prepaid assessments, etc.) of
the association.
The first order of business when reviewing the balance sheet
and understanding the current financial condition of the
association is to focus on how much operating cash the
association has in comparison to all of the current liabilities
of the association.
Current liabilities are usually comprised of accounts payable,
accrued expenses and prepaid assessments. The
association is considered healthy when the operating cash is
significantly above these amounts. Please note, do not
consider cash specifically assigned to reserves. Also,
consider the long term liabilities and the cash flows to service
these liabilities. It is important that the budget considers the
debt service requirements for these liabilities.
The other key component of the financial statements to
review closely is the income statement. Review all variances
from the budgeted expenses as compared to the actual
expenses. After obtaining an understanding of these
variances, consider how all of the variances combined will
affect the association over the remaining portion of the year.
This is important in conjunction with your review of the cash
and current liabilities above.
A financially healthy association will have sufficient funds to
cover any projected variances and/or shortages for the entire
year. Replacement of any shortages incurred in the current
budget can be replaced in the following year’s budget. This
will ensure that the current operating working funds will
remain healthy going forward.
The final key components to review in detail are the bank
statements and reconciliations. This will ensure that you are
familiar with the entire cash flows of the property. All inflows
(deposits) and all outflows are taken into account on these
documents. It is important that you have some basic
understanding of all cash flows so that you understand where
and how funds are being spent and collected.
The Language of Numbers — Learning to Read a Financial Statement
— Statement by KW PROPERTY MANAGEMENT & CONSULTING

12. A Professional and Independent Approach to Management
kwpropertymanagement.com
Tampa Office
2963 Gulf to Bay Blvd, Ste. 265
Clearwater, FL 33759