I think you should ask the HOA for a hearing so that you can correct the record that your neighbor has laid.
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Surveillance cameras are increasingly affordable. You could even put a game camera in the yard to monitor your dog and find out if he is being harassed or let loose.
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Yes, you should be worried. One, the HOA can legally do this. Two, once Animal Control (which is the County) opens a file on an animal, with each complaint, the animal becomes more vulnerable to confiscation. Cities usually have very harsh remedies too. What is the underlying problem? You do not say. Usually, it is barking. Take care of the underlying problem.
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First, it depends on how your community's CCRs address dogs. The may be a provision which allows the HOA to demand that you get rid a dog that creates a nuisance or creates a danger to the community. If he CCRs allow for such action, the HOA can demand that the pet be removed. I have seen this happen.
Second, before the HOA requires you to remove the dog from the community, it must conduct a due process hearing in which you will be given the opportunity to explain your position and ask that the HOA allows you to keep the dog.
In the meantime, if you believe that the neighbor is attempting to let your dog out, you might consider locking your gate and/or keeping the dog inside when you are not home to supervise.
You might want to contact an attorney to assist you in this matterAsk a similar question