The Pelican Bay Property Owners’ Association sponsored a seminar on March 10, 2022, “How to Avoid Property Management Fraud”. Because this program was so well received and members have been asking for copies of the handouts, your PBPOA thought it would be worthwhile to share Heather Zavod’ s excellent summary of the meeting. Heather is currently the Vice President of The Heron Board of Directors.
Thank you, Heather!
(Note from your PBPOA: See bottom of this article for links to event handouts)
The three speakers, a condo attorney Richard DeBoest, a CPA Mark Gerstle, and Danielle Pultrone a commercial insurance expert, made useful and interesting presentations. Some recurring themes or items that were of note:
From Attorney Richard DeBoest, of Goede, DeBoest and Cross:
- Fraudulent property managers have used software that produces bank statements that are identical to the authentic ones. At least one person on the Board should be checking the statement for unusual activity, e.g., in the middle of the night (not the ACH-type).
- Watch for the use of FBO accounts by property managers.
- Bank with a bank that does a lot of community association work, as they may be quicker to spot a management company’s manipulations.
- Don’t let a management company do everything. Have checks and balances.
- One Board member should not be in charge of all the finances.
- A Board member should establish a line of communication with each vendor, even when a management company is involved.
- Trust and verify.
- Do an audit.
- Board members need to be hands-on in order to avoid fraud.
- The recent fraud case with a property management company involves untold amounts of money, much more than is currently known.
From Mark Gerstle, founding partner of Gerstle, Rosen & Goldberg, Certified Public Accountants:
- “Board liability is going up. Board responsibility is going up. Board viability is going down.” Just at the time when Board oversight is crucial and Board members need to be involved with management companies, less owners are anxious to serve on the Board.
- Association needs an “active group” involved with finance. There should be a finance committee, not just one person.
- Should have an operating manual for everything. He offered to send it, and I took him up on it. As he said, it’s very basic, but it may have some useful points for us.
- Board oversight is crucial. He emphasized again that more than one person needs to be involved.
From Danielle Pultrone, Brown and Brown:
- Florida requires specific coverage for fraud. The State did it because of all the issues it saw with fraud. The coverage is affordable.
- Property management companies do not hold crime policies. The Association does. The Association should also know what coverage a management company does have for other policies.
- She has seen three major cases of property management companies committing fraud in 15 years; each case was for a huge sum of money.
- Applications for insurance must be filled out accurately, e.g., how many signers are needed for checks. If not, an insurance company can deny the claim. A Board member should be signing all insurance policies, never a management company.
- In some cases, condos did not know that their insurance bills had not been paid because the bills went to the property management company, which didn’t pay the bills. Thus, the policies lapsed, unbeknownst to the Associations.
Other General Remarks:
- Watch for reimbursements to Board members and residents, e.g., gas, light bulbs. Sloppy reimbursement policies allow for false or inflated reimbursement. If an owner needs to buy something on behalf of the condo, controls need to be established, purchase orders, or advance permission only.
- Managers should not sign checks.
- Must have a system of checks and balances by the Board, even with a management company. The Board has to be hands-on.
- Predictions for new laws:
- In the future, a greater majority of owners may be needed to waive reserves assessments.
- There will be more controls on keeping a higher level of reserves.
- The rules regarding infrastructure and the use of reserves for that will not be able to be waived.
- Mandatory forensic engineering reports will be due every 5-7 years.
- One participant predicted that condo costs will become so high (and onerous )that condos will dissolve and be sold.
Below are links to handouts given out at this meeting:
