Conflict of Interest

Owner applies for On Site Manager position. Not hired. New Board formed. Same Owner now President. 3 members of the Board are business associates of President. Owner's daughter is hired as a "vendor" with a 3-6 month contract to get the complex in order. I supported the short contract, and limited goals. This is followed by the Association learning through auditor that Federal govt. will consider daughter an "employee, and her status is changed. This has been extremely difficult for me. State law appears to me to be clear that conflicts of interest are not always feduciary, but oft times are personal. It has been clear that the owner wanted the daugter to have this $76,000.00 (+ non cash benefits of medical, etc) job. I acknowledge the high work ethic of the young lady. However, there are apparent control issues. Right now, she is doing the job of 2 people, and likes it that way. She doesn't want the Board of Directors being involved. Our Association also has a Property Agent which is law in Hawaii.
My Question: Would you be concerned about the conflict of interest? It's "eating" me up. I'm a senior citizen, owned small businesses, and have been very active in community projects. When something eats at me like this, and I can't let it go, I have learned to follow my instincts which usually prove my assessment accurate. I think I'm needing some reassurance. It appears that no one is prepared to question the President's tenacious stance that there is no conflict. Please let me know if you would be putting up a "red flag", and advise me what you would do.

Carol,

As you probably know, a conflict of interest doesn't mean it's illegal or improper. However, it can be perceived as improper or illegal. Therefore, steps should be taken to show that everything is on the up and up.

Since the contract is only for six months, I would recommend to the Board that at the end of the contract bids should be solicited prior to extending the contract. Explain to them that soliciting bids is not only prudent for the Association but it can help alleviate perceptions of any conflict of interest. You may also want to recommend that the Board farms the bid process out to a committee for recommendations to further correct any perceptions. Then volunteer to be on the committee.

Tim

On the other hand, hire the best people and get out of their way!!!

If she is reporting to the board and doing a good job, then why would the board want to "get involved" in any other way than to monitor it from the sidelines.

The relative to this employee should not vote on anything that has to do with the employee's contract. Other then that, it may even be an advantage to have a father/daughter working for the betterment of the HOA.

I agree with your first statement.
The contract was canceled because it was a "vendor" contract. The Board had to either let her go, or hire her as a full employee with industry standard salary(very rare in Hawaii)+ substantial benefits. Your suggestion to look into forming a committee for recommendations is interesting. I so appreciate your input. Can you believe I was introduced to this site at a local Dog Park where a few of us are on Association Boards? Thank you for your time.

Sounds like she had no "company" of her own, therefore she either had to start one, or become an employee. A professional management company would not require their employees to become employees of the condo.

They could have planned this strategy from the very start.

Roger has a good point except that the government gets the final say in who is a contractor and who is an employee. Even though an auditor really cannot say definitively whether a worker is a contractor or an employee (since the auditor doesn't work for the government), it is an indication that the government might judge the worker as an employee and the HOA can't do anything (that will work) to make the worker into an independent contractor.

Mary,

If you are audited by the IRS they are the determining factor. Here is a link to an IRS document
Independent Contractor (Self-Employed) or Employee?

Tim

I believe Boards would ideally like to rely on the Property Agent, and the On site Manager. The laws in Hawaii are very strict in regard to Boards. Management companies and employees cannot be held liable for mistakes in judgement,etc. The Associations can be fined and then the individual Board members can also be liable. Although in principal, I agree it would be great to "get out of the way", I think our Board members should receive a written monthly report. We get nothing.
Each state appears to have different standards. I'm find this site very enlightening, and I appreciate you taking time to respond to my query.

Carol,

I don't agree with your statement: "They want the taxes so the IRS is more prone to negate vendors, and go for the employee status."

The IRS doesn't get the employment taxes that are withheld by the employer. And, an independent contractor also must pay federal and S/S taxes. Instead of being deducted from his check they're paid with his federal tax return. Certain guidelines apply to meet the criteria of an independent contractor or an employee. That is what the IRS must look at if they are going to make this determination.

Well, the IRS guidelines are guidelines, not rules. You can satisfy all the IRS independent contractor guidelines but, even though it is unlikely, the IRS can still decide that your contractor is an employee, even after the fact.

I did mistakenly think that Roger was suggesting that the original poster try to convert the employee into an independent contractor. My bad -- Roger is smart enough never to suggest this. Making your employee get a business license, create a written contract or buy insurance to try to turn them into an independent contractor doesn't work because the IRS will see through the sham and determine that the person is still an employee.

CarolM4
Now that she is an employee, she isn't going anywhere. Dont kid yourself, you have been hoodwinked to the tune of $76,000 + medical, etc. No one sets up a medical plan and other benefits for a 3 month employee.

Too bad your HOA didn't get so interview other candidates and just appointed her the job. Seeing she didn't get the job the first time, she may not be the best candidate for the price.

Now you just need to see if she does a good job and if you think her cost is worth the benefit. But with her dad as the president, letting her go will be impossible.

I am a new member of our HOA Board of Directors. I recently found out another Board member who is also the Treasurer is also our insurance agent.

It's my understanding Directors or Officers of an HOA is not permitted to receive compensation of any kind in the state of Florida.

Would anyone be able to direct me to any backup material to support my opinion or am I just being overly concerned?

Ken as Melissa said it would be better to start a new post but in answer to your question - he is not receiving compensation for being a Board member but from his day job. Granted the money might come from the HOA but it's not for being a Board member.

Larry if you'll reread Ken's post his concern was that the treasurer/insurance agent was receiving compensation for being on the Board. My reply was solely about that issue not whether it was a good idea or a conflict of interest.