Question: I asked the board about a budget item titled "Social Committee" showing thousands of dollars each year spent on "food." Our governing documents do not include creation of a Social Committee and the minutes do not show motions and votes establishing any committee. That Social Committee has no members.
I obtained all records detailing every charge made to that committee and it's just a ruse for funding groceries benefiting the manager and her staff. The board doesn't ask for it, but the manager and staff buy food for the directors at board meetings, staff birthday parties and other occasions fabricated for the sole purpose of buying food. They over-buy for each event, and our office employees complain that the manager uses much of the HOA's leftover food and budget money from "office functions" for her children's parties.
I learned the manager created our association's Social Committee to fund personal household food expenses. The manager and her staff are well paid and don't need our dues money for groceries or their household expenses.
The president sent me a letter stating the board found "all charges to the Social Committee account were within our HOA guidelines." There are no HOA guidelines in our documents for these charges, and none of these events are authorized in our governing documents. Owners are screaming foul and don't want to fund these escapades. Is there anything that prohibits these expenditures?
Answer: By definition, a "committee" consists of a group of people or members. Where necessary, and if the governing documents permit, the board may create a committee but it must contain members, and its creation must consist of a board motion, a second and a vote during an open meeting.
The authority to create a committee should be specified in the association's covenants, conditions and restrictions. Committees might include garden and landscape, architectural or others whose contributions to the self-governing nature of a common interest development and homeowner association are apparent and necessary. Because most associations have no per se mandate for "socializing" as part of an association's business, there is no need for a social committee.
Merely calling it a social committee does not mean its actions meet any required authority and/or standards set by the association's governing documents. Without that authority, board directors who have approved this so-called committee may have breached their fiduciary duty and may be personally liable to the association to return any misspent funds.
Moreover, if the committee spends its money only on groceries for the manager, the board should be seeking to recover those misappropriated funds immediately. The manager who has used those funds for personal use could be required to return the money taken.
Board directors are responsible for supervising vendors and preventing waste of association assets. Directors are also responsible for the collection and expenditures of all association fees. This board's failure to provide the authority, let alone rationale, for the creation of the Social Committee, and its failure to investigate the money spent by that so-called committee, is a breach of the fiduciary duty it owes to titleholders. The board must supervise the manager's actions, including the actions of any committee.
Spreading the word about your association's waste of assets is crucial. Titleholders who fund these frivolous expenditures have a right to know where their money is going. A lack of reaction by the owners is what the property manager is counting on. When enough titleholders get fed up with the association feeding the manager, her family and employees, they will take action.
The late Stephen Glassman, an attorney specializing in corporate and business law, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or firstname.lastname@example.org.