Condo Media - September 2010 - 14

MAINE N e w s

by Jack Carr, P.E., RS, LEED-AP

R e g i o n a l

Trick or Treat
Trust and Deceit
all brings to Maine colorful foliage, the autumn moon, the smell of distant camp fires and Halloween celebrations. I remember when Halloween was not such a big deal, but now it has almost become a theme park in Kennebunk. Perhaps the holiday is meant to remind us to be wary of the unknown and be prepared. Trust comes with a price, as seen in recent news articles about condominiums facing the real fear of embezzlement. Southern Maine was shocked to read about two recent cases of condos being allegedly robbed by trusted custodians of condo funds. The first case involved a Berwick, Maine woman who was the bookkeeper for two condominiums in Portsmouth. She allegedly stole more than $30,000 while maintaining the condo’s financial records. The second case involved the embezzlement of funds from a Biddeford condominium. This alleged theft also was related to the same individual misappropriating funds from Biddeford’s annual French culture festival, LaKermesse.

C A I

No Surprises
The news came as a shock, but it should not have. Theft from nonprofit organizations and for-profit companies happens more than we think. Often it is not reported due to the board’s fear of embarrassment or worry about bad press that could jeopardize the reputation or market value of a condominium. Small nonprofits are perhaps the most vulnerable to this type of crime due to their size and lack of qualified personnel to provide adequate internal controls. When I am hired by condominium boards to perform reserve fund studies or transition studies, my mindset is to

provide an engineering service to protect the condominium’s real and tangible assets through suggested maintenance programs or value engineered equipment or material replacement recommendations. But maybe that is not enough. I assume the protection of the condo’s monetary assets is the purview of the association’s manager, CPA or lawyer, or the fiduciary responsibility of the board. This latest embezzlement activity so close to home should be a wake up call to the board and its consultants to be more vigilant on noting irregularly high maintenance costs, odd equipment purchases or other unusual repair item histories. As difficult as this issue might be to put on a board’s agenda for discussion, it is necessary. When you talk with most people responsible for handling cash, they welcome frank and open discussions to allow the development of internal procedures that not only protect the condominium, but also themselves from any suspicion or gossip. In fact, the greatest cause of embezzlement is loose financial controls providing too much temptation in these hard economic times.

Responsible Parties
The condominium’s CPA could provide workable guidelines to install simple financial controls to fit any organization’s needs. The first step would probably set up a minimum of an annual audit of the financial records and systems. Next would be the establishment of a protocol for having multiple eyes see periodic monetary documents. This could include having the bank statement mailed directly to the board president who would then review and forward to the treasurer.

This also would allow the observation of what checks cleared and their respective signatures. The root problem often is too much responsibility residing in one person overseeing the finances. If possible, associations should avoid one person to be solely responsible for recording/ depositing checks; requesting, authorizing and recording expenditures; and reviewing transfers of funds between bank accounts. Also consider who opens the mail. Bonded association management companies can perform many of these duties as well. Also, it would be wise to require your insurance package to include fidelity insurance to protect the association when the worst happens. Further steps to protect cash include requiring all check expenditures to have two signatures and two authorizations over each cash disbursal. The policy also should prohibit pre-signed checks, even if one of the normal signatories is out of town. An invoice showing the payment is justified must accompany all check and cash disbursements. Finally, all designated sized contracts should be competitively bid and reviewed and approved by the board. There is a natural reluctance to discuss these matters due to the embarrassment factor resulting from the mere discussion of this touchy issue, which carries an implied mistrust of the people managing the cash. When these feelings arise, we should remind ourselves of President Ronald Reagan’s famous quote, “Trust, but verify.” CM Jack Carr, P.E., RS, LEED-AP, is senior vice president with Criterium-Engineers in Portland, Maine. He is a member of the Condo Media board and a frequent author and speaker.

CONDO MEDIA • SEPTEMBER 2010

Condo Media - September 2010

Table of Contents for the Digital Edition of Condo Media - September 2010