Q&A: Missing Money

Q I belong to a small self-managed condo of six units. However, there are 2 serious concerns: 1) Recently, I discovered that two of the board members used fund money to repair their boilers so they could pass inspection. They led us to believe that all the boilers had failed inspection but there is no documentation to back this up. I have made some inquiries with the inspector and the plumber and have their report, which clearly shows only 2 boilers were in need of repairs to pass inspection. 2) Since I have my suspicions, I looked back several months and noted various checks paid to board members for "waiting around" for service and repairmen, as well as large "reimbursements" ($500-$750). I don't have actual proof of any impropriety. But, do you have any suggestions as to any legal course of action? Does this seem to be illegal? Isn’t this embezzlement? Can one individual in the board have the power to bring charges against them if they refuse to put the money back?

—Financial Fiasco in Franklin

A “There is no question that the situation you describe constitutes violations of various basic precepts of corporate law, and probably also violates provisions of your condominium’s governing documents,” says Joel Rosen, an attorney at DeCotiis, FitzPatrick & Cole, LLP in Teaneck. “Your board members’ actions are improper, of dubious legality, and clearly breach the board members’ obligation of fiduciary duty to the unit owners.

“Small, self-managed condominiums present various challenges. On the one hand, hiring a management company can be prohibitively expensive for a small project. On the other, irrespective of the size, corporate formalities and legalities have to be observed. In allowing, or even encouraging, board members to assume management functions, an association is, in a sense, inviting this type of behavior. The only real recourse may be for you or a group of you who feel similarly to commence a lawsuit against your board and the individual members of the board seeking an accounting and injunctive relief against this type of activity. Commencing a lawsuit could be expensive, and will obviously escalate any friction that may already exist at your community. Seeking criminal sanctions will probably be ineffective based upon the amount of money involved—the authorities may not be interested in pursuing it--and it certainly would not help achieve the goal of fostering a harmonious relationship with your neighbors going forward.

“The best long term solution would probably be to explore some type of outside management structure to at least take the recordkeeping function away from your fellow unit members. One possibility would be to contact a local accountant or realtor who might be willing to maintain the books of the association, write checks, and make sure that any expenditure has been approved with the requisite corporate formality. Such a party might be willing to do so for a nominal fee and, in doing so, add a level of accountability to the bookkeeping of your association, which it does not now have.”

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