Board Member provides contractor services to HOA

There is a HOA Board member that has a janitorial service who presently has a contract with the HOA to provide Common Area servicing (landscaping and electrical work) to the HOA. At one point or another a few years ago, this was not known to the current Board members. It was determined that a portion of the HOA dues were being transferred to the person directly. The Property Manager indicated this was the practice for a long while. When I heard about that I figured something shady was going on.

In reviewing my Bylaws, it states that "no Director shall receive compensation for any services rendered to the Associations; provided, however, that a Director may be reimbursed for his reasonable expenses actually incurred in the performance of his duties as a Director of the Association."

Am I wrong to think that there is a conflict of interest here? I have read where some people think it's good that a Board member who also acts as the HOA's contractor can save residents a few bucks, but isn't there some ethical boundary being breached. The person is usually really involved in the whole maintenance contractor selection process, which seems to benefit their business. Shouldn't they be given a lesser role if they choose to promote their business to the HOA? And does the Bylaw not apply to this person in this case?

I'm currently just a member of the HOA, seeking election to the Board. Your thoughts are appreciated.

Jay,

If you’re seeking election to the Board, I would caution you to tread lightly and gather data and information before you make any claims of impropriety.

It is certainly possible that he has a legitimate business with proper insurance and licenses; that he received the contract fairly (was selected as the winning bid among other sealed bids); that he was not part of the selection process himself; that he did not try to influence the selection process; that he performs work in accordance with the contract; and that he doesn’t make checks out to himself.

However, it is equally as possible that he undermined the selection process, ensured his own company’s selection, and does all that he can to pocket other homeowners’ money.

The verbiage that you provided from your by-laws though pertains to his work as a Board member. It’s saying that he cannot be paid to serve as a Board member, but doesn’t (in my opinion) pertain to him while he is wearing his contractor hat.

You need to carefully gather data and see if this is a fight you want to have at this point in time. Perhaps if you get elected to the Board, you would have more insight to the process of his selection and payment for his services. If you then think it is a serious issue and most certainly a conflict of interest, you would be in a stronger position to point it out to the other HOA members and see to it that he is removed from the Board.

Jay,

There is no conflict of interest if a majority of the board members agree to having this contract with the board Pres. There may be an "appearance" of impropriety when none actually exists.

Seems recently many people spend day and night trying to find some wrong doing when none may exist.

Can a HOA buy the MC a lunch? Major criminal activity found here.

Can an HOA actually try to collect dues even if the property owner doesn't think they need to pay?

Should you make accusations about Board members behavior when you lack any understanding of the rules or process under which they operate? Someone is stealing because I have a feeling.

Can Board members gather in a group at any time without first sending out notices to all the property owners with a time and date for the officil "meeting". I have to wonder how many Board members are currently serving time for that infraction?

Isn't there anything more important to address?????

They throw around words like illegal, unethical, criminal and stealing when in most cases they have no concept of what each of those charges in fact represents.

They have read one section of the documents and lack any real understanding of what those papers really mean. Just their interpretation which supports their beliefs.

They wish to find wrongdoing without considering the possibility of some people doing what is right and cost effective for THEIR property.

And then in many cases after making accusations they are shocked at the response they recieve from the members of the Board they have accused!

Before you level accusations you should have FACTS. Not feelings or suspections based on what you heard or someone told you.

Before you run for the Board you should have SOME knowledge of the reality under which this form of property ownership operates. Not YOUR belief as to how things should be.

So you have a owner who serves on the Board who provides a service to their own property. Is that wrong? Well you need to do some work and find out the facts not assume something is out of line.

MAYBE, this owner takes pride in his home. Maybe they give the property MORE attention because they own there. Maybe they are more familiar with the property and their services act as cost saver for the property. Maybe there is someone who is not dealing off the bottom of the deck, who is self-serving and robbing the property blind while the other members of the Board and perhaps a MC company sit by oblivious to all this wrong doing.

Do you need someone licensed to perform every job? Not unless you have lots of money to waste.
Can a janitor or handyman change a light bulb without any major risk? In most cases YES.
Is it possible the members of the Board have found a way to have services provided in the best interest of all? Lets hope so.

After serving 25 years on our Board it is amazing to me how people think they now have all the answers without any knowledge, without ever having served one day on any Board, without any effort on their part to learn how this type of property operates. Just magically they have come to a place when they can find fault, suspect the actions of others based on nothing, and complain about a group of people who meet to protect their property while they remain oblivious to what that effort requires.

If you wish to find fault with how your property is managed. Or perhaps with how the Board makes decisions. Don't look outside to blame others just look in the mirror and more than likely the problem lies with the person you see standing before you and those like you who sit by and do nothing but complain about how things are and who they feel is to blame.

Maybe if you were to find the truth a simple thank you may be in order. But of course that is not something most people in today's world are capable of.

A little background...the person that is receiving the contract is not the President of the HOA...just a Board Member. Prior to this person's existing contract, this person had been serving on the Board for a long while and was being paid a large amount ($700+ credited to their account) for work that was not documented nor did any contract exist. When the new Board Members came on board, they found out about the large monthly sum that was going to this person for no apparent reason; according to that person, they were being paid to upkeep the grounds...what did that entail? No one knew. So, I have every reason to believe that this person (along with the HOA manager) are shady, as they did not inform anyone prior to it being brought up. And recently, I learned that this Board Member was asking the HOA's accountant to transfer HOA funds to their account directly. If it's for a legitimate business expense, then a check should be issued for that work, while proof of that work should also be provided.

All contract work on HOA property requires a licensed contractor to protect the HOA from liabilities. Hiring a non-licensed person to do work that could be damaging to the property or to themselves, is dumb. I agree, changing a light bulb or blowing of sidewalks is not a big deal...unless you factor in the light bulb is 3 stories up and you need a 30+ foot ladder or the sidewalk is slippery with ice and the worker slips and hurts themselves. Does the HOA need a lawsuit?

Maybe this person is saving some money, but it can't be determined if that person is meddling with the whole hiring process. Of course, if you have an existing Board that defers to that person because they've been around the longest, then you're not going to get the proper check-and-balancing required for managing finances. I was told that this person contracted to do some electrical work for $35/hr; used their High-school aged children to change the lightbulbs (which I witnessed) and when it was determined that an electrician was required, tried to change their contract price to $100/hr. Yeah, saving our HOA some money...shame on me for thinking anything might be wrong.

Jay,

From what you are describing you definitely have an appearance of impropriety. Perhaps even an appearance of a conflict of interest. However, it does not necessarily indicate something is wrong.

A contract can be a simple handshake. Preferably, the contract should be in writing being as specific as possible as this protects the Business (your HOA) and the contractor from misunderstandings. However, just as if you told your landscaper, who is there to cut the grass, that since he is there to trim the hedge and they agree, you entered into a verbal contract with him to trim the hedge. A smart thing to do - probably not. Legal - probably so.

Your posting gives the impression that the members assessments were being credited toward the terms of the contract. This is a very dangerous method of payment as it can easily cause issues if paperwork was lost, misplaced or the deed not actually recorded. The member might not have records indicating that assessments were paid. The Association might not have records indicating that the bills were paid in full. A huge potential problem. A smart thing to do - probably not. Legal - probably so. As you indicated, to correct this issue, the individual should pay his assessments and a check should be cut to pay any services.

You indicate he uses his children to change the light bulbs he is paid to do. Well, you don't get to pick who your contractor hires. For all you know your management company might consist of only people related to each other. As long as the contractor isn't violating any laws (like child-labor laws) it's not your concern. Even if they were violating any hiring laws - that is not a matter for the Association but one for the police.

Direct Deposit of funds. Requesting a direct deposit is not against the law. It may or may not cause issues for the Association in an audit by the IRS - as typically bills are paid by check and employees are offered payment by direct deposit. However, if your never audited, it will never be a problem. Is this a smart decision - probably not. Is it legal - probably so.

QUESTION: IRS rules require that 1099's be issued to each independent contractor you hire. Has this been done? If not, another potential problem if ever audited by the IRS or State Tax Assessor.

Jay, you are correct in having concerns.

I would recommend that you request to address the Board on these issues. When you address the board, it should be done in an effort of assistance rather then accusatory. Things like, I have concerns that by Mr. xyz might be considered to be an employee of the Association as based on IRS guidelines, see IRS website on how to determine if someone is an employee, which can have major financial issues for the Association. Then suggest how you believe this can be corrected - entering into a written contract, being billed by the individual for services rendered, writing checks to pay those bills vs. deducting it from assessments owed, etc. You should then mention your concerns on what would happen if he or one of his children were hurt while performing that work. Ask if he has liability insurance and workman's compensation insurance. Explain that if he does not have those, it could be placing the Association at risk for legal action if something happens.

The old analogy of getting more flys with honey then with vinegar.

Hope this helps.

Tim