How to Have Your HOA Investigated for Fraud: Key Steps

Well-meaning volunteers often manage Homeowners Associations (HOAs), but when money is involved, even the best intentions can create opportunities for fraud. With access to HOA funds and limited oversight, dishonest board members may misuse their positions to embezzle money, manipulate records, or engage in unethical deals. 

Unfortunately, many volunteers lack formal financial training and are too busy with work or family to catch the warning signs. That makes it easier for fraud to go unnoticed—until it’s too late. 

If you suspect something is wrong, here’s how to have your HOA investigated and protect your community’s finances. If these steps feel overwhelming, an HOA management company like Hignell HOA can help.

Common Types of HOA Board Fraud

Fraud can take many forms within an HOA, and it's not always easy to spot. Understanding the most common types of misconduct is the first step in identifying and addressing potential issues.

Embezzlement

California embezzlement laws define embezzlement as the act of fraudulently taking property that has been entrusted to him or her by someone else. This would mean an HOA board member covertly takes the HOA's funds for himself or herself.

Violating Corporation Law: Deceit, Exaggeration, and “Cooking the Books”

Another type of HOA fraud is related to violating California corporate law. HOAs are typically California nonprofit corporations called mutual benefit corporations. Directors of a mutual benefit corporation can be charged with a crime if they commit certain misconduct offenses within the HOA.

This includes:

• Lying about the HOA's finances
• Exaggerating information about the HOA's operations or finances
• Taking possession of any property of the corporation and not making an entry of this in the HOA's records
• Destroying or fabricating HOA records to defraud

Kickbacks 

An HOA board member or group within the board conspires to steer contracts to vendors who have promised kickbacks in return for the business they'll receive. Since the kickback money is a portion of the monies paid to the contractor, it's a form of HOA fraud.

Election Rigging 

A more complex form of HOA fraud is rigging elections to the HOA board. Individuals band together to get their friends and associates elected to the board. Once elected, those HOA board members use their power to steer contracts to companies they own, contractors who promise kickbacks, or to skim funds from the HOA.
People who participate in election rigging can be prosecuted for mail/wire fraud and forgery crimes, depending on the circumstances.

How Do You Investigate Your HOA?

If you suspect your HOA board may be misusing funds or engaging in fraudulent activity, it's important to follow a structured approach. Taking the right steps can help uncover the truth and protect your community’s financial well-being.

1. Gather Documentation

Start by collecting any documents you can that support your concerns. This might include financial statements, meeting minutes, budgets, or communications from the board. If you're not on the board, accessing records may be more difficult—but not impossible.

In California, for example, Civil Code Sections 5200–5240 give homeowners the right to inspect many HOA documents, including financial records, contracts, and board meeting minutes.

2. Request an External Audit

If you have concerns about financial mismanagement, request an external audit. This involves hiring an independent accounting firm that specializes in HOA finances to thoroughly review the books and identify discrepancies or suspicious activity.

3. Attend Board Meetings

Attend upcoming HOA board meetings to stay informed and voice your concerns. Bring up your request for an audit or review during open discussion periods. Participating in meetings helps keep your actions transparent and gives you a platform to advocate for accountability.

4. Call for a Special Meeting

If the board refuses to act or address your concerns, you can push for a special meeting. Most HOA bylaws allow homeowners to call a special meeting with the support of at least five percent of the membership. Use this meeting to demand transparency or a financial investigation.

5. Escalate to Legal or Law Enforcement Authorities

If internal efforts are ignored and you have strong reason to believe fraud or embezzlement is occurring, it's time to escalate. Report your concerns to local law enforcement or the appropriate government agency.

In California, homeowners can report suspected HOA fraud to the police or the California Attorney General’s Office for further investigation.

How Do You Approach the HOA Board to Request a Review of Records?

If you aren't an HOA board member and want access to the board's records, Civil Code sections 5200-5240 allows you access to the association's records.

You can review or request copies of the following:

• Financial documents about reserves, budgets, financial statements, and audits
• Executed contracts
• Written board approval of vendor or contractor proposals or invoices
• Tax returns
• Agendas and minutes of member meetings
• Membership lists
• Check registers, invoices, cancelled checks, purchase orders, credit card purchases and statements, statements for services rendered, and reimbursement requests
• Governing documents

You can also attend a board meeting and ask the Board for an audit. The HOA board members will then decide whether or not they will do an audit or just depend on their CPA's financial review on an annual basis.

HOA Board Member or Homeowner? You Can Call a Special Meeting

If you're a member of the board and you've reviewed the association's records and suspect fraud, you can call a special meeting of members as specified in the bylaws.

If you're a homeowner, you can gather the support of five percent of the membership to hold a special meeting.

If the special meeting is not held, it is a violation of California law under Corp. Code, Section 7510(e) and you can file a complaint with the Attorney General.

At the meeting, you can discuss your suspicions and any supporting documentation you may have. Call for an independent CPA to review the HOA's financials.

If no meaningful discussion takes place, or you're ignored, your next step may be to take your suspicions to law enforcement.

Steps to Getting Law Enforcement Involved

The California Attorney General's Office recommends that if you believe fraud, theft, or embezzlement by your HOA board or any of its members is present, report it to the police or sheriff's department.

Once law enforcement investigates the crime, the case may be sent to the county district attorney's office for prosecution.

The county district attorney will then decide whether it's appropriate or not to file criminal charges.

Take Action to Protect Your HOA with Hignell HOA

Discovering signs of fraud within your HOA can be unsettling, but you’re not powerless. Whether you’re a concerned homeowner or an honest board member, knowing how to investigate and take the right steps is crucial. 

If you suspect fraud or financial mismanagement within your HOA and need help navigating the next steps, contact us today. Our team can guide you through the process and help ensure your community’s finances are in safe hands.