A famous world leader once summarized his approach to nuclear arms reduction agreements in one simple phrase: “Trust, but verify”. That same balanced approach is highly recommended when your condominium board of directors deals with your property manager. Trust what your manager tells you and trust what your manager does, but also verify.
This prudent approach is appropriate because of the special contextual placement of condominium managers in most buildings, and the significant risks of property manager fraud that may follow if you never verify what’s going on under their management.
Your condominium’s on-site property manager is uniquely positioned at the center of every aspect of your building’s operations – but works with no direct supervision. Sitting alone in a hide-away office deep in your building, your property manager is the single-point contact who handles all correspondence, paperwork, processing of supplier invoices, drafting of purchase orders, issuance of cheques, hiring of employees, processing of payroll, hiring of contract staff, recording of petty cash transactions, reimbursement of credit card expenses, creation of RFPs for contractors, issuance of major project tenders, administration of contracts, and many additional business duties.
Sounds like a great deal. One person, dozens of duties completed. Your condominium corporation enjoys efficient use of a skilled manager, with lowest possible management fees…
In a majority of condominiums, property managers have multiple opportunities to commit fraud. Unfortunately, some fall for the temptation.
Except from the perspective of fraud auditors, we interpret this common circumstance as posing potential risk of fraud in condominiums, because there is no segregation of essential duties among multiple persons, each with separate lines of accountability. This is especially true for duties involving handling of cash, expenses, tendering and contract administration. One manager in charge of all these functions. Furthermore, that single manager also filters and controls how information is reported to the board of directors. Can board members trust that their property manager is reporting the full picture?
Your condominium’s management office also may have a full-time or part-time administrative assistant, but that person does not lessen your risk since the subordinate typically is given only as much responsibility and ancillary duties as your manager is willing to delegate.
There is higher risk of property manager fraud if your condominium building has a manager whose work performance has never been scrutinized or audited.
Your property manager may seem to be a wonderful person who magically gets everything done right, is friendly with residents, and is well-respected by your colleagues on the board. But you should not let that blissful circumstance blind you to your board’s prudent obligation, as a matter of duty, to verify your property manager’s true performance.
The fundamental fact is that one person with so much direct control over key operational details – in any business, not just condominiums – also has the ability to mislead, deflect, or divert your board’s attention away from problems or deeper issues such as kickbacks, theft or property manager fraud.
Your management company may claim that a regional manager has their eyes on things for you, but that’s usually nothing more than a drop-by visit once or twice a month to say hi to the on-site manager and see if any help is needed. We have yet to witness any management company that has diligent supervisory oversight over the on-site details that really matter (for management company executives reading this, we invite you to contact us if you believe your management company’s practices are better than the norm). We understand their rationale, because the pressure on costs is so great that most management companies don’t see much value to more aggressive staffing at the supervisory level. We would strongly disagree… but that’s the reality of costs in their business.
The troubling fact is that the vast majority of condominium property managers operate with minimal or nil on-site supervision from their head office. And that likely means nobody is on the lookout for important red flags that may indicate your condominium is being victimized. Your board may trust the manager, but trust is not a control. You need to verify.
A performance audit of your property manager is your best way to verify what’s actually happening in the management office and throughout your building.
When your board of directors engages Eagle Audit Advantage for an audit of operations and management performance in your condominium, we conduct deep inspection of all the areas in which condominiums have greatest vulnerability, including the office. We take your property manager along with us, as a collaborative effort to share our insights and knowledge. This sharing also acts as deterrence, because it’s important to demonstrate the scope and depth of the operations inspection process.
In the majority of engagements, this periodic inspection (we recommend 2 or 3 times a year) results in a common understanding between boards and their managers as to the level of service excellence and diligence that is expected for your building, and a checklist of items for remedy or improvement. We certify our findings in a formal inspection report that the board can share in summary form with your condominium owners. This builds owners’ confidence that their building is truly well-managed, and that the risk of property manager fraud is low.
In about half of our engagements, we find anomalies. Sometimes these involve sloppy record-keeping, lazy administrative practices or ineffective handling of responsibilities. Deeper and more troubling issues may also be discovered, such as inappropriate handling of contract tenders, mishandling of petty cash transactions, questionable payroll entries, or inappropriate credit card expenses charged to the corporation. As Certified Fraud Examiners, we have the expertise and objective judgment to examine the documentary evidence, conduct interviews in a fair manner, and then report our findings to the board, to the corporation’s financial statement auditor, and to the management company’s senior representatives. The fraud examiner’s role is not to judge guilt, but to determine truth and fact.
In situations that present evidence to support suspicion of property manager fraud, employee fraud, or that have resulted in quantified monetary losses to your condominium corporation, Eagle Audit Advantage has proven expertise to conduct detailed forensic examinations of management records, in paper or electronic formats. We also are trained to preserve and prepare evidence for potential insurance claims, legal claims, litigation or criminal prosecution. We are renowned for our extraordinarily detailed documentary work in support of legal proceedings against management companies, and in defence of ‘for cause’ employee terminations at Ministry of Labour appeals.
It’s time to verify what’s really happening, and protect your condominium corporation from potential losses due to property manager fraud.
YOUR SUGGESTED FOLLOW-UP: Discuss with your board colleagues by what measures you currently evaluate your property manager’s work practices. If your board has never verified what’s really happening in the management office, then it’s time to contact Eagle Audit Advantage for a confidential discussion of your situation: 416.599.1212 or firstname.lastname@example.org