Fidelity Insurance

Started by PatriciaT1 • 14 replies • 4907 views

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PatriciaT1 (California)
Posts: 7

Posted:

We have a management company which handles all of our financial (pay bills, produce financial statements, etc.) They want our HOA to pay an annual bill for Fidelity Insurance covering their employees. I would think that the management company should pay to cover their own employees.

Does anyone out there have a better understanding of how and why this works? If the employees of the management company are already bonded by their employer, why should we also have to pay for a fidelity bond covering the same people.

We are in California.

GlenL (Ohio)
Posts: 5,491

Posted:

Maybe the employer doesn't have bonds on them? They may already be under your bond depending on your D&O insurance; ours covers the MC even though our CC&R's require the MC to provide their own bond at their expense. You need to read the CC&R's closely to see if yours says anything about it.

From our documents:
Section 2.10. Fidelity Bonds. The Board shall obtain fidelity bond coverage with respect to any person who either handles or is responsible for funds held or administered by the Association, in an amount no less than the maximum funds that will be in the custody of the Association or its management agent at any, time while the bond is in force. Provided, however, the fidelity bond coverage must at least equal the sum of three months’ assessments on all living units in the project, plus the Association’s reserve funds. A management agent handling funds for the Association shall also be covered by its own fidelity bond, at the sole cost of said agent, naming the Association as an additional obligee. All bonds shall provide for ten (10) days’written notice to the Association before the same may be canceled or substantially modified for any reason.

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BrianB (California)
Posts: 2,820

Posted:

I expect that if you refuse to pay the amount asked directly, you can expect to see an increase in costs in the upcoming year that equal or is greater than the amount. Bottom line, you are paying for it one way or another, just like you are paying thier work comp premiums, health insurance, electricity, water, property tax, and coffee costs. It either gets billed seperately, or lumped into overhead.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Patricia,

This is not an uncommon requirement of management co's. Instead of the mgmt co carrying a fidelity bond for their employees, they require the HOA to do so. I think the cost would be rather high for the mgmt co considering the number of managers they may employ times the assests of each of the HOAs they contract with. IMO, this may be the reason for requiring the individual HOA to cover the manager.

Unless there is a clause in your gov docs prohibiting the assn from covering a manager, then it would be up to the BOD to make a decision as to whether or not they are willing to extend coverage to the manager. Frankly, I don't think the cost would be any higher. I don't think the premium is based upon how many people are covered, but rather the dollar amount of coverage required. BTW, I'm sure the mgmt co is not requiring your HOA to cover all their employees, rather just the manager who is assigned to your HOA.

RogerB (Colorado)
Posts: 5,067

Posted:

Mary is right on. The Management company is normally is covered under the HOA's fidelity insurance. If the HOA requires the MC to carry an additional bond the cost of management for the HOA would increase accordingly and be a waste of money.

JohnK3 (Pennsylvania)
Posts: 967

Posted:

Patricia,

Would you pay the PM's utility bills? Probably not, as that's a cost of the PM doing business. So is insurance. I'd politely decline.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

We just recently had a big discussion about Fidelity Bonds.
Try and search this site with Search Feature, top of page.

PatriciaT1 (California)
Posts: 7

Posted:

Thank you all for the input. I have done some on-line research in the past several days and I have read our CC&Rs. Our CC&Rs require fidelity insurance to the extent required by the mortgage lenders, no mention of coverage for the management company or manager. Current Fannie Mae Guidelines contain the following: "Condominium projects with 20 or more units require fidelity insurance." We have only 18 units. Also "The following insurance is no longer permitted: (i) blanket policies that cover multiple unaffiliated condominium associations...." I believe that this is the type of coverage that we are being asked to pay for; the policy covers the management company employees, our Board and that of several other of their customers.

Even though our Board generally does not handle any currency or other assests and we have no direct employees, we should have some fidelity coverage of our own. This seems to be the concensus of HOA attorneys and advisors.

Any addition feedback would be helpful. Thanks.

GlenL (Ohio)
Posts: 5,491

Posted:

Patricia if you read the HOA news on the main page you will have no doubt seen the rash of thefts both by management companies and treasurers in these hard times. So whatever you do I would make sure that anyone who handles Association funds is covered no matter if the law doesn't require it because your too small and that provisions are in place to discourage theft.

One of the things you can do if the bank statements go directly to the MC is for little or no charge have duplicate statements mailed directly to your treasurer from the bank, especially of reserve accounts. That way you are not dependant on numbers from the MC or for copies of bank statements from them; because they can be faked by anyone halfway competent on a computer.

Studies show that 5 out of 4 people have problems with fractions

RobertR1 (South Carolina)
Posts: 5,164

Posted:

If I read right Patricia has 18 units and I certainly hope they are not paying a M/C. You advice concerning bank statements could be modified to have statements come to two Board members instead of one.

Regards Fidelity Bond, it certainly is a good idea but again with 18 units a close eye one the Board might serve. I would think also it would depend somewhat on location, type of units, construction, etc etc. All factors that should be considered.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Patricia,
I believe Fannie Mae stuff has to do with issuing of Mortgages and don't involve running the day to day operations of the association. If the associations operates out of the guidelines of the Fannie Mae and a buyer wants to buy he would have to find another mortgagor. Of course your documents or State Law may require something different. I do know that that Fannie Mae will issue mortgages to your association probably makes the association a little more attraction.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Glen,
I stand corrected, Patricia apparently has a management company. My advice still stands, they should be able to self manage with 18 units. I seems it would take more work to look over the management company than it would to do it yourself. I can see where I could be wrong about this also, but I think my thoughts are reasonable.

LisaJ4 (Illinois)
Posts: 1

Posted:

Does anyone have input on this one? We have fidelity insurance coverage and the former treasurer allowed a row of business checks to get away from her or perhaps she did it herself but the case is...... I was re-elected as treasurer to the board and performed an audit. I noticed 2 unrelated items appeared on our statements for $800 & 8500. The $800 check cleared the bank but the $8500 check was returned unpaid. The thing is the the check was forged with my signature. Mind you the old account I mananaged when I was on the board was closed by the new treasurer and a new one was opened. The bank rejected our claim because 6 months had passed. We approached our insurance company state farm and they said that act is is not covered under this our insurance policy. Any input?

Lisa

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Lisa14,
First Lisa, put your post on a new thread, please.

It is going to be difficult to give much input for you, as far as I can see.

Forging signatures is a criminal matter on the face of it and requires a legal process. Your Board should make the decision on what to do, and how to do it.

RogerB (Colorado)
Posts: 5,067

Posted:

Lisa, regarding the forged check the first thing I would do is setup procedures so that can not happen again. I suggest having one person prepare checks and different person(s) who is a Board member authorized to sign checks sign the checks; monthly review of all financial statements including a check register; at a minimum quarterly review of all bank statements and compare with financial statements; do an annual financial review; and check to see if you can get better fidelity insurance. I realize many HOAs require 2 signatures but this is a false sense of security only since banks usually look for only one signature and sometimes don't verify it.

After you setup procedures to eliminate future thefts try to determine who forged your signature. If found, ask them to explain the $800 check. Based on the circumstances it may merit trying to recover the $800.

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