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Trick or Treat

Trick or Treat

Article written by Jack Carr, P.E., R.S., LEED AP, Criterium Engineers
Published in Condo Media, September 2010
 
The coming October may be Maine’s best month. The colorful foliage, autumn moon, and smell of distant camp fires all bring back memories.  I remember when Halloween was not such a big deal. 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 over $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.
 
The news came as a shock. But it should not have. Theft from non-profit organizations and profit making companies happen more than we think. Often it is not reported due to the board’s fear of embarrassment or worried about bad press that could jeopardize the reputation or market value of a condominium. Small non-profits 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 property manager, CPA or lawyer. It certainly would come under the fiduciary responsibility of the board.
 
Perhaps this latest news of embezzlement activities close to home should be wake up call to the entire team of 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 issues might be to put on a board’s agenda for discussion, it is necessary. Indeed, 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, probably the greatest cause of embezzlement is loose financial controls providing too much temptation in these hard economic times.
 
So, where to start? The condominium’s CPA could certainly provide workable guidelines to install simple financial controls that would 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 monthly directly to the board president who would then review and forward to the treasurer. This would allow also the observation of what checks cleared and their respective signatures.
 
The root problem most often discovered is too much responsibility residing in one person overseeing the finances. Associations should avoid if possible one person to be solely responsible for recording/ depositing checks; requesting, authorizing, and recording expenditures; and reviewing transfers of funds between bank accounts. Consideration should be given to who opens the mail. Using property management companies that are bonded 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 should also prohibit no pre-signed checks, even if one of the normal signatories is out of town. All check and cash disbursements must be accompanied by an invoice showing the payment is justified. Finally, all designated sized contracts should be completive bid and reviewed and approved by the board.
 
As earlier stated, there is a natural reluctance to discuss these matters openly due to the embarrassment factor resulting from the mere discussion of this touchy issue which carries an implied mistrust of the person(s) managing the cash. When these feelings arise we should remind ourselves of President Reagan’s famous quote, “Trust, but verify.”       
 

© CRITERIUM ENGINEERS 2010