Page 10 - New England Condominium July 2019

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