Embezzlement Defined. Embezzlement is a form of white-collar crime where a person misappropriates money or property entrusted to him. The theft is by someone in a position of trust or responsibility over the asset, i.e., a board member, an association employee, or management company. In each case, the person has been entrusted with the asset but uses it for their personal benefit. The fraudulent appropriation is a violation of the person's fiduciary duties against self-dealing.

Fraud Defined. Fraud is a false representation of a matter of fact. The misrepresentation can be by words or conduct or concealment of what should have been disclosed. It is done for the purpose of financial or personal gain.

Protections. To minimize the risk of embezzlement, boards should establish (i) internal controls over the association's assets, (ii) personally review financial records, (iii) adopt a conflict of interest policy, (iv) hire an independent CPA to review or audit the association's annual financial statement and (v) carry a fidelity bond.

Duty to Investigate. If the board has a good faith belief that embezzlement has occurred, it has a duty to conduct a reasonable investigation. The board does not need to spend $50,000 in a forensic audit tracking down a few hundred dollars. If the investigation discloses sloppy bookkeeping, the association's financial statement can be restated if the corrections are large enough to warrant it. If the investigation reveals embezzlement, the board can take action to recover the misappropriated funds.

Recovery of Funds. If the investigation reveals embezzlement, the board's action depends on the circumstances. If the amount taken is small and the person who "borrowed" the funds agrees to repay them, no criminal or civil action need be taken. However, the board should ensure the person has no further access to the association's monies. If the amounts are larger and the person refuses to repay, the board may seek criminal and civil actions against the person. The board should seek legal counsel on the best course of action.