Page 18 - New England Condominium January 2020

18 NEW ENGLAND CONDOMINIUM
-JANUARY 2020
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superintendents, and co-op board mem-
bers to divert tenant funds into their
own pockets, the defendants siphoned
off the scarce resources that co-ops and
residents need to make critical repairs to
their buildings and to pay off their mort-
gages. ... Today’s coordinated response by
local law enforcement will go a long way
toward ending this cycle of greed.”
By all accounts, it has. While there
are undoubtedly still unscrupulous play-
ers continuing to pocket money under
the table from vendors, Scott J. Sandler,
managing partner at Sandler & Hansen,
LLP, a law firm in Middletown, Con-
necticut, says the industry has changed.
“Every now and again you do encounter a
bad actor; a manager walks away with as-
sociation funds, or a board member tries
to convince the board to hire his buddy—
but thankfully those are the exceptions
to the rule,” he says. Intensified scrutiny
from law enforcement—and from boards
and management firms themselves—has
led to a more ethical and accountable in-
dustry all around.
Know the Signs
That said, boards should still keep
eyes open, and act quickly if something
untoward seems to be going on. And per-
haps most importantly, says Wagner, “Ask
the question. Challenge authority. I’ve
seen some crazy things that were picked
up by board members who just didn’t un-
derstand and asked the question.”
Kickback schemes, shady bidding,
and the like are not always easy to iden-
tify—or prove. For that reason, it’s wise
to build some guardrails into contracts to
help prevent fraud. Here are a few from
the pros:
Don’t commingle funds. The funds of
one co-op/condo should never mingle
with those of others, or with those of the
management company. If discrete ac-
counts are not part of your contract with
management, that’s a big red flag, because
it opens the door to foul play.
Same goes for if a managing agent and
a sponsor share an accountant, contrac-
tor, or attorney. According to Wagner,
such intertwined relationships risk los-
ing the normal checks and balances that
come with independent professionals. For
example, if the contractor for the building
is also working for the sponsor, it’s possi-
ble that work performed on sponsor units
could be charged back to the building. It’s
possible for such relationships to be run
ethically, but all parties must properly
disclose their relationships and sign con-
flict of interest waivers, and board over-
sight must be vigilant.
Insure against fraud. Most communi-
ty policies stipulate that their managing
agent have insurance against fraud - so
double check to make sure you’re covered.
Additionally, arrange for the building to
be named on the policy as an additional
insured. That way, if management does
perpetrate fraud, the building can make
a claim directly, rather than having to sue
for the money.
Check the accounts. Standard practice
is to have a dollar threshold over which
purchases or contracts need board ap-
proval. If yours doesn’t, institute one
without delay. The threshold will depend
on your corporation’s or association’s
budget, but $2,000 is average. (A num-
ber too low would stymie day-to-day op-
erations; a number too high inhibits the
board from its fiscal oversight.) One way
to spot possible graft is by checking the
accounts for expenses just below that ap-
proval threshold. If there are a number of
them that don’t seem to align with normal
costs or known expenditures, it could be
a sign that there is some shady spending
going on. Also, if a vendor changes sud-
denly without notification to or approval
by the board, that’s another red flag. This
is another reason why a formal bidding
process should be used for large con-
tracts: it allows the board to have famil-
iarity with its vendors and the reasons for
selecting them.
Bids, Adieu
All this begs the question: does ev-
ery contract or project a co-op, condo,
or HOA undertakes really need to be
bid out? According to Richard Brooks,
partner at the Braintree, Massachusetts-
based law firm Marcus, Errico, Emmer, &
Brooks, there are no laws that govern the
bid process, and bylaws generally don’t
address bidding either; it’s really more
an exercise in common sense. Small jobs
certainly do not require soliciting multi-
ple bids - and in an emergency, obtaining
bids is not practical or justified. Brooks
adds that for long-term service providers
like a manager or an attorney, “There’s
no reason to go out to bid unless things
aren’t going well.” In fact, these relation-
ships benefit from their longevity, where
institutional knowledge, personal com-
fort, and familiarity with the property
have value that might outweigh price.
Brooks and other attorneys do however
advise against provisions for obtaining
bids that are not simply “at the discretion
of the board.”
Deciding how and on whom your
community spends its money is one of
the most important - perhaps the most
important - duty of a board and its trust-
ees; by understanding the process and
committing to transparency and ethics,
your board can know you’re upholding
your end of the deal.
n
Darcey Gerstein is an Associate Editor and
Staff Writer for New England Condominium.
BIDDING...
continued from page 17