Associations Walk Fine Line in Money Management
Byline: Jordan I. Shifrin
Imagine running a business and allowing just anyone to sign all of the checks, pay all of the bills, have exclusive signatory authority on all checking accounts and reserve accounts and have no accountability other than providing a monthly or quarterly report, with no independent review. Sounds like an accident waiting to happen, doesn't it?
A large number of board members of associations are business people, yet they would never apply the same business practices to their company that they permit with their association.
In fact, it is incredible how often property managers for cooperatives, condominium and homeowner associations are routinely granted full and uncontrolled authority over association monies.
At the same time, there are many associations that "micro-manage" every single detail and do not let the property manager do their job that they are being paid to do. The context of this column is limited to dealing with the former issue - the management company that "takes the money and runs."
Recently, two management companies that I know of closed their doors, after commingling their clients' funds with their own and utilized client funds for their own purposes. In each case the property manager convinced the board to sign a contract that allowed management control over all accounts. This type of scenario generally will occur when a board has little or no involvement in its own financial matters, and blindly signs a contract for management services without having it reviewed by legal counsel.
Some basic rules should be applied in these types of instances. For example, all reserve accounts should be in the name of the association with two directors being assigned as the authorized signatories. In order to have the requisite "checks and balances" from potential director impropriety, the manager would receive copies of all account statements.
Association operating accounts which are often kept as co-mingled accounts by the management company should not be permitted where an account may include monies from more than one association. …