Even before the economic meltdown and the media storm swirling around the thievery of money men like Bernie Madoff, financial mismanagement and fraud have been destructive problems for many co-op and condo owners.
A co-op or condo is a major investment and for many people—it is their largest investment. Residents expect board members and other building management to take their fiduciary responsibility seriously and act in good faith as the caretakers of those investments. While the vast majority of managers and board members want nothing but the best for their communities, not all management personnel are beyond reproach. Because of this, residents need to know their risks for being fleeced, and how to manage those risks through checks and balances that will ensure transparency and prevent fraud.
Certain things will make a building or HOA more vulnerable to fraud, such as a concentration of too much power in too few hands. When the board is controlled by a small minority, crooked activity is not only likelier to happen, it’s easier for thieves to get away with their crimes.
Along the same lines, if only one person is involved in approving expenditures, paying bills, cutting checks for vendor services and other such transactions, it means the building is only a person away from things going amiss. An obvious way to separate tasks and ensure some accountability is by hiring a property manager to handle operations. Management companies separate tasks through their own checks and balances systems. They’re also staffed with trained and licensed people, working for a firm that’s bonded and insured.
Jules Frankel, CPA, a shareholder with certified public accounting and consulting firm Wilkin & Guttenplan P.C., with offices in East Brunswick and New York City, urges boards to adhere to this concept of delegating duties to multiple individuals—a concept known as 'segregation of duties' in the accounting world—to lessen the chances of fraudulent activity.