Crime and Fidelity Coverage: Protecting the Association’s Money

Part of the Insurance Warehouse Coverage Explained series: what each piece of an association’s insurance program does, in plain English.

An association holds real money: operating funds, reserves for the next roof, and the assessments owners pay every month. Crime and fidelity coverage, sometimes called employee dishonesty, replaces that money when someone with access to it steals it. It is one of the least expensive lines on the program, one of the most often required by lenders, and the one boards most often carry at the wrong limit.

What it covers

• Theft or embezzlement by a board member, treasurer, volunteer or employee.
• Theft by the property management company or its staff, when the policy is written to include them.
• Forgery, funds transfer fraud and computer fraud, on policies that carry those endorsements.
• Money in transit and money at the bank, not just cash on the premises.

How the limit is set: the lender's formula

Federal lending guidelines are the yardstick. FHA and Fannie Mae expect the crime limit to cover at least three months of assessments plus all reserve funds. For a 100-unit community paying $300 a month with $250,000 in reserves, that is $90,000 plus $250,000, so a $350,000 limit after rounding up. We run that calculation at every renewal, because assessments and reserves both grow, and a limit that was right three years ago is usually short today.

Whose hands are on the money

• The treasurer and the board. Volunteers with signing authority are the classic exposure, and the one the policy was built for.
• The management company. Most management contracts require the association to carry crime coverage and to name the manager. If your manager moves money, the policy must say so.
• The bank and the inbox. A convincing email asking the manager to wire reserve funds is now the most common loss. Social engineering coverage is often a separate, smaller limit, so ask what yours is.

Controls that carriers reward

• Two signatures or two approvals on every payment above a set amount, and on every transfer out of reserves.
• Monthly bank statements reviewed by someone other than the person who writes the checks.
• An annual review or audit of the books, which many carriers give credit for in the premium.

Before your next renewal, check that

Tap or click a box to tick it off as you walk. The boxes reset when the page is reloaded, so print the PDF at the end if you want a record.

• The limit is at least three months of assessments plus reserves, recalculated this year.
• The property management company is named as an insured, if a manager handles funds.
• Funds transfer fraud, computer fraud and social engineering are included, and the board knows their limits.
• The deductible is one the association can absorb without a special assessment.
• Written procedures say who can move reserve funds and how.

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