At the outset, let’s be very clear: the majority of property managers and board directors are not likely to engage in fraudulent acts that victimize condominium corporations. It’s not in their character to commit such financial crimes.

But there does exist a segment of the manager population that actively seeks to exploit weaknesses in controls and absent management company supervision to rip off their condominium corporation clients for personal financial gain. And occasionally along with these rogue managers can be found rogue directors who also enjoy the opportunity to line their pockets with cash and personal benefits, such as suite renovations, derived from their trusted position as signing officers for their corporations.

Taken together, a rogue property manager and one or more rogue directors are the perfect storm for potentially massive financial crimes in a condominium corporation. And unfortunately, it’s an almost perfect set of circumstances to perpetuate significant losses against owners in those corporations.

Here is how it happens. A new manager arrives on site at a condominium and quickly finds affinity with one of the board members. It could be any number of factors, whether ethnicity, work history, or leisure time pursuits. With this basis of familiarity, discussion on business matters leads to an understanding that “privileges” can be arranged. Perhaps the property manager offers to the board president that his suite be repainted by the same contractor working in the common area lounge. And why not, it’s cool to have insider benefits. Once that ethical line is crossed, anything can follow, and both the manager and the board member know it. Together, they operate as a team to exchange special favours, on an implicit basis, with escalating financial consequences. Petty cash cheques are signed by the president without regard to back-up. The manager sends the president a case of wine that was “surplus” from the holiday party. The manager accepts generous expense claims from the president without any scrutiny. Both wheels continue to get greased generously over time.

The big payoff occurs when major renovations are planned under the reserve fund plan. For a million dollar project to rejuvenate the common elements, why not spike the manager and the board president each a cheque for $35,000 from the chosen contractor as kickback for awarding the bid? Secret commissions are a normal part of condominium business, are they not? Don’t worry, it’s OK, no one will tell the other directors.

And when the condominium corporation’s Annual General Meeting comes along each year, there may be an occasional challenger. That’s fine, the manager controls the process, controls intake of the proxy forms, and the paper shredder is conveniently positioned beside his desk. No one will successfully challenge this board for elected positions as long as this manager controls the process. And if any owner dares to request access to financial records, the manager rejects the query and directs the corporation’s lawyer to send a legal letter to the offending owner demanding that they stop harassing the manager and board with frivolous requests. How dare they question what we are doing with their money!

And thus the scheme perpetuates. It may never be caught, because it’s a self-reinforcing scheme of reciprocal fraudulent benefit. But one day, perhaps another director will pose some questions, and a crack of vulnerability will appear, one small thread will start to unravel.

And that’s when a call by one of the directors to Eagle Audit can help expose the whole sordid affair, and set things right again.

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3 Responses to Worst Case Scenario: Directors and Manager Colluding in Fraud Schemes

  1. (name deleted by moderator) says:

    Congratulations on a job well done! Excellent work!

    Our Condo does not have Property Management. It is run by a rogue board who is not accountable to anyone. They were the same ones who wanted Outside Management when they were not on the board now they have conveniently changed their minds. They have violated many items of the Condo Act and the By Laws.

    Request for copies of document as per Section 55 of the Condo Act is a fight and the first one for voting document we took to the lawyers and won.

    This government has clearly neglected us and Condo owners have no recourses other than to pay from their pockets. Voting is rigged to ensure that their cronies gets in as “YES” Director and who will share in the spoils.

    What do you suggest?

    REPLY:

    This is a common set of complaints, and often it is one determined owner that can lead the way to a resolution. But that requires professional assistance and advice.

    Eagle Audit Advantage is uniquely positioned with practical solutions for these scenarios. We know the Board experience. We know the owner experience. We know where condominium law can be applied to bring forth a fraud audit and uncover the facts behind your suspicions.

    (We have already engaged in follow-up discussions with this diligent owner, and we will update our blog with more news as matters develop.)

    William Stratas
    Managing Director,
    Eagle Audit Advantage Inc.

  2. (name deleted by moderator) says:

    We are in a very bad situation in my building. We are an equity co-operative and I think the Management and the Board of Directors feel very safe in exploiting many seniors in this building. We could use your help. Everything I have read in the Toronto Metro Newspaper is happening to us in this building. It is very scary and has made our retirement very unstable.

    REPLY:

    The Eagle Audit team is please to receive inquiries from regular owners in condos or co-ops. Thank you for asking… we understand your concern. Although you do not sit on the Board of your building, there are some tips we can offer for persons who believe they are under distress due to actions of your management or your board. We will make that a topic for an upcoming blog post.

    (We have already engaged in follow-up discussions with this diligent owner, and we will update our blog with more news as matters develop.)

    William Stratas
    Managing Director,
    Eagle Audit Advantage Inc.

  3. Condo Director says:

    ABSOLUTELY “THRILLED” I’VE FOUND YOUR WEB SITE…THANK YOU,WILLIAM…

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