Tips for Keeping Tabs on Condo Managers

An estimated 6 million people in California live in 30,000 communities governed by homeowners associations, most of which collect thousands of dollars every month in dues.

Management of the state’s homeowner associations is a multimillion-dollar industry, and it is getting bigger all the time. By 2000, experts predict, one of every three Californians will be living in some type of planned community governed by a homeowners association.

And while new communities, and new associations, are springing up all over the state, so are reports of association mismanagement and, in a few instances, outright fraud.

Most of the time, association board members and management firms get into trouble because they can’t keep pace with California’s increasingly complex laws overseeing the industry.

More disturbing are the cases of deliberate theft and abuse of association funds by either a board member, an employee or an employee of the association’s management company.

If you are part of a community association, how can you protect your investment in your home?

Experts say the best way to head off financial disaster is to pay attention to those who supervise the day-to-day operation of your association.

Here are five tips to help homeowners guard against fraud.

1. Ask your property management firm for proof of expertise.

Karen Conlon, president of the Irvine-based California Assn. of Community Managers, says an association should start by hiring an experienced property management firm that has been certified. Her organization certifies both individual managers and management firms.

Watch out for pricing that is substantially below the rest of the competition, Conlon said. You should not hire a property management firm just because it offers the lowest rates. There’s probably a reason.

2. Demand evidence of risk management, including insurance. Check to make sure your management company practices risk management, including carrying the proper amount and type of insurance to protect against theft, worker compensation claims, and errors and omissions.

3. Review the management firm’s internal financial control systems. Not only should you check out the company’s solvency, you should also determine what sort of internal checks and balances system your management firm has for handling association funds.

The firm should follow proper methods of handling cash receipts and reconciliation, accounts receivable and revenues, accounts payable, purchasing and contracts. The board of directors needs to review the association’s original bank statements once a month and should not accept photocopies.

4. Know your subcontractors. Make sure you know which companies have been hired to perform subcontractor services, such as pool or landscape maintenance.

Look at the contract; ask if the property management firm owns any interest in or any portion of the business or has some other potential conflict of interest.

5. Participate. The best way to avoid fraud is to have a sense of what’s going on. Volunteer for a committee. Get to know your neighbors and their motivation for running for the board of directors. Vote in each election.

Most important, ask the tough questions if you have any doubts or concerns about the management of your association.