Page 10 - New England Condominium July 2019
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10 NEW ENGLAND CONDOMINIUM   -JULY 2019   NEWENGLANDCONDO.COM  Facing Financial Mismanagement  When Boards or Managers Are at Fault  BY MIKE ODENTHAL  BUDGET & FINANCE  T  he board of a building or com-  munity association has a fiduciary  should be reported and that   duty to uphold its community’s  person held accountable,”   governing documents, act in good faith,  notes Robert E. Ducha-  and advance the interests of the commu-  nity at large. Occasionally, boards fail to  torney with Ducharme Law   carry out this duty – sometimes through  in Stratham, New Hamp-  mismanagement and poor decision mak-  ing, and sometimes through willful dis-  regard for the association’s bylaws. In the  where a board of directors   latter situation, there’s usually one uniting  has chosen not to report   motivator: money.   When a board or manager mishandles  ment or to file a civil suit,   association funds (whether they are from  and sometimes to not even   operating accounts or reserves), the nega-  tive ramifications can be felt across the  sociation’s insurance car-  entire community, impacting individual  rier – all for fear of word of   owners’ and shareholders’ investments.  mismanagement getting out   So it’s in everyone’s best interests to have  and affecting resale prices.  competent management and legal pros   helping  the  board  guide  members  along  a higher duty to society   the  straight-and-narrow path. It’s also  in  general to  report these   crucial to have a robust insurance policy  deeds,” he continues. “For   in place and to identify mismanagement  instance, there’s no way of   before it becomes debilitating.  Identify and Act  Budgeting and bookkeeping mistakes  board member – but that’s   are  inevitable, but  diligent accounting  likely to be uncovered in a   will usually catch them before they spiral  civil suit or  criminal  case,   out of control. It’s the willful mismanage-  ment and misappropriation of funds that  ing associations in the fu-  can lead to severe problems, which need  ture from the trouble that   to be rooted out.  “My advice to clients faced with mis-  management or misappropriation is to  way, an association that   gather proof – often via forensic account-  ing – and then, if criminal conduct ap-  pears to be involved, contact the office of  unwitting accomplice to fu-  the District Attorney,” says John J. LaGu-  mina, Partner at The LaGumina Law  petrator – and if that comes   Firm in Purchase, New York. “This usual-  ly results in swift enforcement action, in-  cluding requiring the perpetrator to make  agement.”  restitution of the misappropriated funds.   \[Without\] proof, it will be difficult to get  mismanagement in different ways, ac-  the district attorney’s office interested.  cording to Mary-Joy A. Howes, a partner   And a civil lawsuit would be problematic,  at law firm Goodman, Shapiro & Lom-  since you’d eventually have to prove your  bardi, which has offices in Massachusetts   case, and will incur legal fees while trying  and Rhode Island. “Unfortunately,” she   to do so.”  There’s also the reality that even when  board members and/or property manag-  an individual is caught engaging in shady  ers stealing from clients. In Rhode Island,   business, it can fall to that person’s friends  there’s a movement to change the statute   and neighbors to out him or her as the  to require that management contracts in-  perpetrator. For obvious reasons, this can  clude a provision that fidelity insurance   be tricky. “If someone commits a crime  will be carried. A similar such provision   such as theft or fraud, it   rme, a condominium at-  shire. “But  unfortunately,   I’ve seen multiple occasions   the matter to law enforce-  report  the  theft  to  the  as-  “I believe that we have   knowing whether this is   repeat behavior by a guilty   and could save unsuspect-  your association may find   itself in today. Put another   does not report such ac-  tions and/or sue may be an   ture bad actions by the per-  out publicly, it will likely be worse than  so very important for associations to have  claim  under  their  fidelity  bond  policy,   the initial outing of association misman-  Different states approach financial   says, “we’ve had many cases dealing with   is already in place in Massachusetts. It is  having the management firm submit a   their own adequate insurance to cover  a.k.a., crime or employee dishonesty.   bad acts as well.”  Insure Your Future  Insurance settlements in these cases  are increasingly requiring it as part of the   depend on who lost (or stole) the money,  management contract. If management   and how.   “Financial negligence and malfeasance  limit is inadequate to make the associa-  are different,” explains Edward J. Mack-  oul, President and CEO of insurance firm  mit a claim to its own insurance company   Mackoul Risk Solutions in Island Park,  under the commercial property/package   New York. “If the board finds out that  policy – or more likely as a separate fidel-  the property management firm has been  ity bond policy. For the most part, every   stealing association funds, the board can  association will maintain a fidelity bond   seek  to  have  insurance  reimburse  them  as mandated by the company holding the   for  some or all  of  the  amount  stolen  by  underlying mortgage on a co-op, or the   Most management firms have a policy   for instances like this, and associations   does not maintain this policy, or if the   tion whole, then the association can sub-  ISTOCKPHOTO.COM

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