In recent weeks we have examined several situations where condominium managers appear to be engaging in questionable behaviours that suggest they are putting their own financial interests above the interests of their client condominiums. Specifically, a manager who hires a son for summer handy-helper duties in a condominium, and a manager who hires the admin assistant’s family member for certain contract services in a condominium.
In each case, the managers apparently are taking cover from accusations of conflict of interest because “the board president was notified” or “it’s only a small engagement” or some other convenient explanation.
From a fraud examiner’s point of view, both these situations suggest significantly elevated risk for the condominium corporations. Both property managers are displaying behaviours which point to self-interest as motivating factor in their decisions. And this opens the door to temptation of larger schemes and more audacious actions that can undermine financial integrity of the condominiums.
Yes, it may be convenient to hire a manager’s son, but at what pay rate? By what means will his performance be evaluated? Is this position truly necessary, or is it a fluffed-up summer job for an unemployed family member? What does this hiring tell other employees about the standards of management supervision and care in the building? Was a proper employment agreement entered into? Did the manager’s direct supervisor understand and accept this arrangement in advance? If so approved, by what factors did the supervisor evaluate its appropriateness? How was this decision presented to the board? Was it minuted and were detailed disclosures provided? What will happen in the event of a mishap or physical injury of the son, especially if the context or documentation of the employee is lacking? Did the board understand all implications and consequences? Why does the management company even allow this? Why does the management company not enforce a proper conflict of interest provision as part of their internal policies? The questions keep coming and the answers get more troubling…
Bottom line is that we see no circumstance where a family member of a property manager can legitimately be hired into that same condominium corporation. Any board officer who passively accepts such outcome is asking for future problems. The door swings wide open for a myriad of conflicting matters that can be papered over with with one comment: “you had no problem with my son being on payroll… so why not hire my uncle for the roof job… and my wife for the holiday party catering… and my brother for the IT support work…” And if a smart board member asks about getting three quotes for those projects, the manager’s reply will be, “What, you don’t trust me?”
Trust is not a control. You cannot rely on trust to protect your financial interests in a condominium corporation. From experience, we have witnessed what profoundly bad financial outcomes can follow for a condominium corporation when property managers are tempted to confuse the line between client-interest and self-interest, and begin using condominium operating funds like an ATM for personal or family gain.
We sincerely hope that property manager licensing provisions, as proposed in the new Condominium Act, will aggressively address the issue of conflicts of financial interest and provide very clear definitions of how these conflicts need to be disclosed, documented, reviewed and ultimately sanctioned.