Q&A: HOA director suspects theft by management company
Question: Our nearly 700 condo units are located near a major luxury shopping mall, yet the average owner’s income is below poverty level. Still, owners are being nickel-and-dimed for frivolously imposed fines, charged for questionable association invoices and ordered to pay indiscriminate fees for documents and management “research” time.
Meanwhile, the manager and her staff have been dining regularly at upscale beach-area restaurants billed to our association’s charge card. After scrutinizing association books and records, I learned that the manager and her staff have been helping themselves to at least $500 worth of purchases nearly every week for the past several years, all billed on our association’s credit card. They take extraordinary steps to cover up these purchases — none are reported to the board.
As a board member who is often out-voted, I brought this to the board’s attention. The other members said I’m bound by board confidentiality not to disclose these outrageous expenditures to owners. Is this true?
Answer: Those directors are wrong. Don’t listen to them. Management taking home hundreds of dollars’ worth of items that don’t belong to them is called grand theft. It is a criminal offense. With regard to criminal activity, there is no obligation of confidentiality. A board that learns of this theft and does nothing about it is equally culpable.
Directors must act in the best interests of the association and protect and safeguard assets belonging to the titleholders who fund association accounts and operations. Your duties prevent you from covering up crimes and compels you to expose this situation.
You have an obligation to get back the misspent and misappropriated funds, to ensure owners have access to books and records on written demand and to rein in unaccounted expenditures. If the board or management stands in your way, seek independent counsel, then management’s termination and director removals.
Owners need to make frequent requests for information pertaining to association accounts and expenditures. However, a failure by owners to make such requests does not give the board or management a blank check to go on personal spending sprees. Make no mistake: Misappropriating association funds and knowingly wasting association funds is illegal.
The board treasurer, who is responsible for timely and accurate audits, should have caught this a long time ago. Owners asking to substantiate those audits by requesting to view receipts and books and records to reconcile those published audits could have caught this as well.
If the treasurer and the owners are not doing their part to uncover waste and fraud, the lack of concern will be costly. Allowing theft and waste results in less money for the association to cover legitimate operating expenses, which inevitably means higher dues and more special assessments levied against owners.
Board directors who remain silent are complicit, especially when they are aware of ongoing corruption and criminal activity.
Turning a blind eye helps no one. Sharing information about known illegal activity with titleholders and taking steps to remove corrupt directors help to mitigate the damage done to the association and, hopefully, to keep you from sharing in any personal liability.
Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.
