How Board Members Can Protect Their Development's Assets

Protect your building from fraud

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Condominium boards are generally made up of unpaid volunteers with little or no training in property management, accounting or law. Many boards rely on property management companies for advice on those topics. While property management fraud is fairly rare, it can and does happen. In June, a large, Boston-based property management, Premier Properties was accused of stealing more than $800,000.

Attorney William R. Moorman, Jr. is an attorney with Murphy & King, in Boston. He said several condo associations who are managed by Premier Properties have come forward to him alleging missing funds totaling more than $500,000. And he said the firm manages around 200 associations. He said it’s important for condo board members to act quickly as soon as they suspect there in money missing.

“Once you know that there's a problem and the money might be missing, the important thing is to at least do something about it,’ he said. “Don't just put your head in the sand,. Try to get the accounting, try to figure out the problem, put your insurers on notice and of course contact your attorney.”

The civil complaint filed in Suffolk Superior Court accuses Premier Properties of stealing at least $800,000 from the 30 Washington Square Condominium Trust. Court documents imply that board members did not have access to their bank account statements and instead relied on Premier Properties representations of their account balances, which were incorrect.

“Going forward, this should be a lesson for associations to not trust a manager if they're not willing to give your own statements,” he said. “Board members should insist on seeing their associations monthly bank statements, no matter what.”

Stephen Marcus, of Marcus Condo Law in Braintree agreed and added more tips to protect condominium associations from this kind of theft.

Condominium associations must have fidelity/crime coverage for the maximum funds that are in the custody of the condominium association at any time. The policy must be in the name of the association and name the management company as an employee and designated agent. The policy must cover all volunteers with access to the funds such as the Board of Directors of the condominium association.

The fidelity/crime policy above should include total operating funds, total reserves, total association loan proceeds in the accounts of the association, total insurance loss proceeds in the accounts of the association and any other funds.

All monies must be in separate bank accounts in the name of the condominium association and not commingled with funds of the management company.

Separate bank accounts must be maintained for the working account and the reserve account, each with appropriate access controls. The bank in which funds are deposited must send copies of the monthly bank statements directly to the HOA or co-op corporation.

The management company must maintain separate records and bank accounts for each condominium that it services. Also, the management company must not have the authority to draw checks on, or transfer funds from, the reserve account, association loan proceeds or insurance loss proceeds of the condominium.

Two members of the Board of Directors must sign any checks written on the reserve account, association loan proceeds account and insurance loss proceeds account.

All condominiums and management companies must have cybercrime insurance in adequate kinds and amounts.

The association shall be the first insured under the policy and shall be entitled to notice of cancellation and the notice of cancellation must be sent to the Board of Directors and not care of the management company.

Questions about how to safeguard your association’s funds from unscrupulous property managers?

Email Stephen.