If you use a PM or MC, does your Association have policies in place for trust but verify?

In a recent news article from the Carolinas, a there is a call for government regulations to prevent theft of Association money by MC/PMs. I disagree with that summary of the article. Instead, the article gives a good story on why an Association must have their own policies in place, follow them and use some common sense when dividing up the financial responsibilities of the Association.

Read the article here:
http://www.islandpacket.com/2015/03/27/3667868/lack-of-regulation-makes-condo.html?rh=1 Titled Lack of regulation makes condo regimes easy targets for fraud.

The story about Deb Bernsten. She says how the MC/PM had the associations passwords for the Bank (not the Board). How the MC/PM had full access to the money. How the Board never verified what the MC/PM reported about the financial status of the Association. A quotes by her in the story tells it all: "we had kind of given them [the MC] carte blanche" "We trusted them. Perhaps we gave them too much trust."

Again, government regulation likely wouldn't have prevented what the happened to Ms. Bernsten's Association. However, Association policy and separating powers would have.

Thoughts?

We don't use an MC or a PM. Therefore, other then what I believe is the correct thing to do, I have no actual experience with this situation. My suggestions for Associations that utilize an MC/PM is:

1) Allow the MC/PM to make collect assessments, track payments and make deposits. However, keep control of the bank accounts with the Association (you don't need access to the accounts to make deposits).

2) Bank Statements should go to the Association. If the MC/PM collects the mail, fine. However, the actual statement should be given to the Treasurer. This way, the Treasurer can verify what is going on.

3) If you want the MC to prepare checks for signature, fine. However, the MC/PM should not (in my opinion) have the ability to write checks themselves. If you want them to have some spending authority, then set up a petty cash account where the Treasure will transfer funds to keep that amount in the account upon receiving receipts from the MC/PM. This will minimize the risk if theft is done.

4) The Treasurer should prepare the financial statements with the MC/PMs input. This goes a long way to verification of what has been done.

5) Financial Reviews or Audits should be performed every year or two by an independent Entity. This verifies that everyone associated with the financials of the Association are being honest.

Although the article is about MC/PMs. I believe that the majority of MC/PMs are good and honest. They run there business professionally and are a credit to their profession. Unfortunately, it's the few bad ones that make the press. Regardless, the previous procedures, in my opinion, could go a long way in making sure your Association is protected in case you get a bad MC/PM or a bad Treasurer/Bookkeeper.

Any other suggestions or practices that your Association has in place that isn't mentioned above?

Most banks today allow account holders to view their statements online. The treasurer should be looking at the online statement regularly instead of waiting for the mail to arrive. Checks can be a problem because they show up on the statement as just something like "Check #1234." My bank allows you to click on that check number to see an image of the check. I am not sure how common this is.

One way of limiting loss is to open one or more operating accounts independent of the main account. If your average monthly expenses are $10,000, the HOA deposits that amount once a month and only after receiving an accounting of the prior month's expenses with the supporting receipts. We do something similar for our roads manager, who often needs to make large purchases on short notice; we opened an account with a debit card just for his use and the amount of money in the account is limited to what we can afford to lose. Operating accounts limit potential losses to a fixed amount and may be so small as to make them unattractive targets for embezzlement.

We had a 2 signature system. The Accountant issued and signed the checks but we had to have 2 designated officers to sign them. Plus we had a monthly statement produced with ALL our expenses listed. That was distributed and basis of our meetings. We made that expense report available to any interested homeowner to review.

Have to tell you that is one of the hardest things for HOA to grasp. To be open with their expenditures. Once you get the concept that the HOA's money is NOT the board's money but ALL the member's money. The board was just elected to manage it on their behalf. I found that once you put the "checkbook" on the dining table for all to see, you establish trust.

You still have those people who still want things or don't understand why the answer is no to what they want. Our new HOA that took over after I left misread our budget and blew it all. They saw we had $5K in the bank at the first of the month. Thought that was a "profit" and promptly bought stuff I had told them "No" to. They did not realize that $5k was for our monthly bills that equaled $5K for the month. We basically spent exactly what we collected in as we did out each month. Which is what a HOA is to do. Yes, they had to pass a special assessment and raise dues... Not exactly a "trust" builder...

So like to warn people that you need to put the budget in perspective before you jump to conclusions your HOA is doing things wrong. You may see a balance or an expense but do not know the context of it.

1. PMC has access to only one bank account which never has more than 3 months of operating funds in it.

2. PMC writes and signs operating checks. We pay extra for a "seat" on the PMC's system. Any board member can log in and look at all of our transactions and ledgers at any time. We don't have to wait for monthly reports. We see the detail that the PMC sees.

3. Copies of actual invoices have been scanned and are visible on PMC's system.

4. Treasurer approves all invoices and payments - but Treasurer is not a signer on our non-PMC managed bank accounts.

5. We have on-line visibility to our bank accounts.

I think you misread the article.

The issue was that after the overhaul the Board had asked for an appraisal (what's that $600 max), the PMC balked and said that there wasn't any money for that.

It should be noted that the MC they had used is one that apparently took over 1.2 million combined from multiple Associations. See: Property Administrators closure: Where's the money?

Several of the replies to date list policies we use to assure safety of HOA funds. Most posters are looking at this as only a problem of theft by the CAM (community association manager). We also monitor those persons who are signers on the accounts. But one key consideration has not been discussed. All associations should have crime fidelity insurance which includes the CAM. Colorado now has a law which requires the HOA and the CAM to have fidelity insurance of at least the total of reserve funds plus 2 months of assessments.

Our MC basically does everything for us. Our only real check and balance is our dues are collected quarterly so that is about the most money our MC has its hands on thus about all they could beat us out of. We get monthly statements form them. I will check on us being able to "real time" see what is going on. They have no control over our Reserves.

Our dues are collected via a national bank lock box system with payments to the MC. We also get monthly statements from the bank. The BOD could stop those payments to the MC with a simple "code word" phone call.

I think in any system one could be beaten by the fact that cheaters cheat. About all you can do is be sure they could not hurt you that bad, keep a close eye on things, insurance, etc.

GlenL, first I think you mean insurance rather than "bond". I know of no HOA which would want to pay for their MC cost for a bond since the MC would include such cost as part of their fees. Furthermore, for our management company the agent is listed as additionally insured on the HOA's fidelity insurance because this is more cost effective. Again this is done to lower the HOAs monthly fee.