By Marylynne Newmark
Kickbacks from contracts are nothing new. It’s done everywhere, all the time. It’s that small percentage padded somewhere in the contract, or the open drawer in the office. I’ve heard several people say that it’s a ‘given’ to keep the manager/ purchasing agent/ board member happy enough to secure the agreement and cement relationships for future business.
When it involves a commercial entity, just like product breakage or loss, it is considered the ‘cost of doing business.’ But, when it involves money that is taxed or assessed from the public, investors or condo owners, that is outright theft and according to condominium laws, is fraud.
In the past few months, we became aware of several of these fraudulent acts perpetrated right here in Aventura when management had their ‘hands in the till’ for tens of thousands of dollars. Owners were happy with him. The manager was doing a good job, had a great relationship with everyone, went above and beyond and stole.
“We sort of know these things go on,” says a condo owner in that building, “but it’s hard to prove unless you actually catch someone in the act. When it comes to the surface and you realize how much the owners are paying for kickbacks or padded contracts, it really hurts,” he added.
Florida has more than 47,000 condo and community associations that house approximately 9.5 million residents who pay maintenance fees to pay for common utilities, grounds and amenity maintenances, as well as association insurance. Opportunistic individuals who have easy access to association funds are easily tempted to divert money into their own pockets. They know the angles and feel they would not get caught. Unfortunately, many do not.
In 2017, a former treasurer of a Boynton Beach homeowners association wrote $50,000 checks to himself from association funds and deposited them in three different banks. He got caught.
Same situation, same year, same amount in Bradenton.
A bookkeeper in a West Palm Beach homeowners association allegedly used the association’s credit cards to charge $95,000 in personal expenses.
A former treasurer of a Palm Beach Gardens homeowners association diverted association checks to a business she owned.
All got caught.
Of course, this problem is not limited to Florida.
In May, the New York District Attorney indicted three women for fraud in an alleged affordable housing scheme. Two co-op board members and an office manager allegedly falsified housing applications by claiming applicants were relatives of existing residents, which skipped a waiting list of 24,000 people. They are reported to have collected $875,000 in bribes. If convicted, the women face 15 years in prison and the applicants who submitted false information can also face charges.
In a different case of fraud here in Florida, the Department of Business and Professional regulation recently referred a case to the local police department of alleged ballot fraud in a condo's 2019 election. Evidence was produced that two of its incumbent board members were re-elected based upon forged signatures. In Florida, signature forgery is only a third degree felony and subject to fines up to $5,000 and as many as five years in jail, but suspicions prevail about how the condo money was being managed.
The owner of a property management company in South Carolina was sentenced to 2 1/2 years in jail and $770,000 in restitution to at least 19 condo associations for her conviction of wire fraud tied to fraudulent billing practices. Although the judge agreed that she probably would never be able to pay that amount, it does make one wonder where did the money go?
However, even when these criminals are caught, it can take years for the associations to recover these lost funds.
So, what should we do? Close scrutiny over those who manage our money would be a good suggestion. But, these people obviously are unscrupulous and know all the angles. Here are some ‘red flags’ to watch for, issued by the state:
Balances that exceed budgeted amounts
More than one payment to a one-time vendor
Vendor linked to a board member or employee by family name, address
Delayed bank deposits
Missing petty cash
Discrepancies in accounts payable or receivable
Suspicious ‘consulting fees’
Services paid for, but not performed
Checks made out to ‘Cash’
Copies of receipts other than the original
Individually, any of the above may be simple incidents, but a pattern of these ‘errors’ should alert you to an investigation by an experienced Florida fraud attorney, or at least a serious due diligence assessment by board principals.
Board members have a fiduciary responsibility to association owners. By accepting this position and being installed, board members take on the obligation of managing and protecting the property and finances of all of its members. So, the question is, if this theft is ongoing, where is the oversight?
As for contracts, the full board should be responsible for the following:
Get three bids from reliable companies.
Have several board members scrutinize why they are different.
Check promised product quality.
Check references and previous jobs personally on-site.
Have an attorney review the contract for protection in case of default.
Make sure the association is covered by the mechanics lien law.
Then, scrutinize the job before any additional payments are made. Are the products the same as those listed in the contract? Is the workmanship and time scheduled as stated? Draws can be held if stated in the contract.
As for theft of funds, it should be the responsibility of several board members to review accounts payable at least once a month and question any irregular payout.
So, are kickbacks a given? Only if the board lets it slip by. Thorough oversight could pick it up. Is your board doing its job?