Manager’s generosity was unauthorized

Question: I am the new president of my homeowner association near San Diego. Three years ago, we hired a manager but no management company. We then learned that for the last two years the manager was writing holiday bonuses out of our operating account without the board’s knowledge. Employees, and even vendors who are not on our payroll, received generous bonus checks. The same manager solicited holiday bonuses of $75 per unit. What should I do?

Answer: These gifts use association money without consent and do not fall within the board’s duties to repair, replace and maintain common areas. A manager cannot gift association funds or solicit funds from owners on behalf of the association without board approval.

Without such approval, the gifts may constitute theft by the manager; with approval, they may be a waste of assets requiring the board members who approved them to reimburse the association. Solicitation for gifts also may have an unintended consequence of changing the association’s tax status from nonprofit to a for-profit entity.

It is your duty to raise this issue at an open association board meeting, allowing owners to comment, and then either approve or disallow the gifts, documenting the decision and reasoning in the minutes. Given that there is no line item in the budget for “gifts,” another item in the budget is being shortchanged without any input from the titleholders whose assessments fund the association. The open discussion should also determine whether to recover association funds from the manager as money disbursed without authority.

Depending on the clauses and terms contained in the contractual agreement with the association, the manager or a management company may be deemed an agent of the association. This makes the association liable for any promises made by management, including promises of bonuses.

If the gifts were unauthorized, the board should demand the manager stop making them and, if rebuffed, consider filing a police report for theft against the manager. Terminating the manager may also be necessary.

Because the board is responsible for overseeing association accounts, including how money is spent, no director can be excused from his or her malfeasance simply because the board hired a manager or a management company.

Titleholders need to take control of their association. Electing board members and then leaving the management to a vendor or employee can destroy the underlying legal foundation or organization of these housing developments and eat into each titleholder’s personal financial wealth.

Send questions to noexit@mind spring.com.