California Board Restrictions

Hi,

So I'm looking for some information. I currently serve on the board as the treasurer. I took over for the previous treasurer, mainly because no one else would do it.

We are a very small association on the west side, only nine units and getting people to pitch in is always a struggle.

Our association had been embroiled in a very long battle with one unit owner. The battle lasted about seven years, I've only been here for two.

This guy who was treasurer, secretary and de-facto president (We had a president but she just didn't do anything) really was the only person holding the place together. However, there do seem to be some things that I think are concerning.

First, the hoa struggled financially for a long time because when you only have nine units and one refuses to pay that really impacts the money coming in and we were basically breaking even every month, or that's what I was told at least.

As I've been going over the books, it appears that the former treasurer was paying himself 200 dollars a month for about six years. This is over and above his reimbursement of expenses like stamps, copies etc. Reimbursement is totally allowed in our CC&Rs but he was paying himself for his time and his work. He had not been "Hired" by the board or HOA.

So basically he was making 2,400 dollars a year from the association when the association desperately needed the money. That's 14,400 that the HOA really could have used, especially considering how dilapidated the building is. In our CC&R's it states very clearly that the board is voluntary and no one is allowed to take money for their time, but I'm curious to know if it's actually illegal in California to do this.

This "salary" also seems to be why we were only breaking even.

I have been the treasurer for a little over four months now and do not take money, because I'm pretty sure it's illegal and also because we need every penny.

No one seems interested in making this person pay back the money and to be honest I'm on the fence about it as well since it feels like a law suit sort of thing which of course costs money.

However, since every unit owner seemed to be aware of this, they all say they'll volunteer to be on the board if they too are compensated, which I always shoot down.

These same people do not want to raise dues and constantly complain about how little money we have...ugh!

At the very least a bad precedent has been set.

I seem to be the only person in the building that didn't know this was going on and feel a bit naïve and stupid. When I started looking at the books though, I sort of got upset because this was still going on after I moved in and that's money I paid toward the association going into this dude's pocket.

Now that I'm treasurer and we have a new president, all he and his girlfriend seem to do is complain about the building and how it's now being run. They want rules enforced except when they don't want to follow them and want credit for all they've done and do not want to be blamed for all they did wrong or didn't do at all.

Their excuse is always that the HOA didn't have money, yet they were taking money from the HOA when it needed it most.

The bad owners are out of the building (as of last week) and we in fact were totally reimbursed for what they owed plus attorney fees.

So is what this man did simply in violation of our own CC&R's or is it actually illegal in the State of California. Because it seems like embezzlement to me.

Secondly, when he announced his resignation as treasurer, his girlfriend made a big deal about how he actually couldn't be treasurer because he's a hedge fund manager and a CPA and his company doesn't want him signing checks for the association and that legally he really couldn't be treasurer because of his job.

This seems very odd to me, because it was very sudden that his company made this decision and I've scoured the internet for legal reasons and I could not find anything about professions not allowed to serve on a board or companies prohibiting their employees from serving in certain capacities.

I actually found the opposite of this, that people in certain professions are actually encouraged to serve in various roles because of their experience.

I'm not a money guy, I would think a CPA is far more qualified to be treasurer than me.

I am really under the impression that his girlfriend came up with this little white lie because she was sick of listening to him complain and that's fine, though less than honest.

I guess I just want to know if this is actually a thing in California or, much like him paying himself, have we (I specifically) been bamboozled.

Or could it be even worse, like they knew what they were doing (taking money) was illegal and are trying to distance themselves from any potential trouble. Which seems a little silly since it's all laid out in the books.

There are tons more problems but these are the two main ones.

Sorry for being long winded and thanks in advance for any help.

Best,

Steve

Ouch indeed. Thanks for the reply. Yeah, he was paid for his position, at least that's what the check stubs say and I am sure was never issued a 1099.

Thanks for your reply.

Do you have an opinion regarding his reason for stepping down? Just looking for answers.

Thanks,

Steve

Thank you very much Sheila for your helpful reply.

Yeah I have very seriously been considering selling my unit and just running like hell, a small cottage seems nice and you are absolute right about the level of crazy. When I'm the sane one in the group something has gone wrong, very wrong.

Unfortunately the CPA is also the hedge fund manager who was the former treasurer so asking him to do an audit is probably problematic.

I went through the meeting minutes last night that go back ten years, and no he was never authorized or hired in the minutes.

If I decide to do anything I need to play this carefully and very close to the vest.

Though selling my unit and running away sounds promising :}

I'll look into the hedge fun state licensing aspect.

Thanks again,

Steve

Ha!

Stephen,

First and foremost, check past minutes from around the time the payments started and see if they were approved at a meeting.
If they were, then it was a board decision.
If they were not, there is an issue.

IRS Paperwork -
Depending on what the payments were for, was the individual Independent Contractor (Self-Employed) or Employee?
If an employee - W2s should have been issued, employer taxes paid to federal and state, and tax withholdings from the employee.
If an independent contractor - 1099-misc should have been issued

Catching up on IRS paperwork -
There are penalties for failing to file paperwork with the IRS and there are penalties for failure to pay employer taxes.
I know that the 1099-misc is $100 per form (see page 18 of the link)
Penalties for failing to pay employer taxes

Options -
If authorized, you may just want to let the issue be (as it will cost the Association more money to correct things).
If unauthorized, consider contacting the police about potential embezzlement.

Again, First and foremost, check the Association records.

Sorry Larry

I am going to disagree with you. The Board is the body to hire a contractor, not one individual. The treasurer has the right to say he or she needs help, but it is a Board vote, or are we back to one-person rules the complex. Was this expense budgeted and what was budgeted.

If 1099's were not done for the years the President was paid, prepare them and file them.

Sorry Jeff

Managers can't or shouldn't be Board members. No, $200.00 a month is not a lot, but they need to pay taxes on the income.

The penalties should be absorbed by the individual who caused the problem in the first place. And what if that same person never had authorization to pay themselves. Did the association really know, or was it hidden?

My understanding that in addition to serving on the board that this person was also the Treasurer, which is an officer's position. I do not know where the term "manager" came from nor do I understand how it applies to this discussion.

While I disapprove of this practice, it is almost universal in HOA's that officers are drawn from the board.

Whether this person has paid income taxes on his $2,400/year salary is not really the association's business.

Larry,

The physical act of signing a contract and the authority to sign a contract on behalf of the Board are two different things.

Granted, authority or not, such a signed contract would likely be determined valid.

Thank you all very much for you answers and input.

I am going to continue to look into this quietly, but again like some have mentioned I do not think pursuing it would in the end benefit the board or HOA as it would cost more money probably than we would get back plus the upheaval would be ridiculous.

I've scoured the minutes and there's nothing. The treasurer was never made a manager, but it does seem everyone but me knew about the payments he was making to himself. Perhaps they just figured, screw it, since they didn't want to do any work.

While he is employed as a hedge fund manager, the CPA thing is a side business. So unless his boss at the investment place actually told him he couldn't sign checks, I will continue to assume it was a white lie he and his girlfriend told so that some sucker (that would be me) would step up and take over the treasury duties.

In every check stub in the book it only states that he paid himself 200 dollars for "board business" if that means anything. Again these were separate from the reimbursement checks, which again are totally above board.

I've reimbursed myself for out of pocket expenses at kinkos, home depot and other places and that's totally allowed in our CCRs.

I think it is probably best to move on, but perhaps keep it in my back pocket the next time politics rears its ugly head.

And of course, move, should totally probably move.

Thanks again,

Steve

Perhaps that is the way it is done is some Cub Scout Troops and HOA's, but in the real grown-up world any officer normally has the authority to sign contracts although technically there should be a corporate resolution granting each officer his authority. In addition, any officer may accept service of process for the corporation.



Which penalties are you referring to? The penalties that the IRS would levy on the association for failing to file the 1099's?

I would love to see this land in front of a judge:
"Your Honor, our association is made of a bunch of worthless couch potatoes who neglected to exercise any oversight of our own association for year after year and it is just not fair that we should have to pay for our own negligence."