"...Our management company's accountant is a close blood-relative of our managing agent. Recently, the management company attempted to form a trust in the name of our agent's deceased grandmother; shareholders were so skeptical, they hired a real estate attorney to probe the matter. At that, the whole trust scheme was immediately dissolved, and the management company has never mentioned it again. Is this management/accounting intersection really ethical?"
It goes without saying that the overwhelming majority of co-op and condo boards are run by honest, ethical people who work hard - often for no pay and little thanks - to make sure their building is not only a pleasant place to live, but a good investment for the people who own shares or units in it. Even when things go awry in a building, it's more often an issue of inexperience or ineptitude on the part of the board than one of bad faith or corruption. That said, questions just like the ones above are regularly submitted to The Cooperator by readers locked in conflict with their board members or managing agents. Sometimes the problem involves the dissemination of information about a building's finances or business practices; sometimes it's a question of graft or kickbacks from contractors. In a co-op or condo, where a board's fiduciary responsibility often entrusts ordinary people with millions of dollars, temptation exists - and while most people wouldn't dream of taking advantage of their position within their building, sometimes one or two leave the high road for murkier paths.
Corruption in New York City is legendary from Boss Tweed to present day - for as long as there's been a city, there have been people in it trying to swindle others. In the summer of 1999, the prevalence of greed surfaced and affected the residential real estate industry with the indictments of some 30 individuals and 10 corporations, who were charged with defrauding co-op shareholders and residents of millions of dollars through kickbacks and bid-rigging schemes. The indicted parties included board members, managing agents, vendors, and even building superintendents, and the 74 buildings they allegedly victimized included both prestigious co-ops and lower- and middle-income Mitchell-Lama and Title 8 buildings.
When money's concerned, the appeal of taking a little for oneself can be irresistible for some people. Even with safeguard protocols in place, your board can still be broadsided by fiscal incompetence and blatantly unethical behavior - but there are a few things you can do now to tighten up your proverbial ship.
The first step is to keep all accounts current and accurate and your building's funds fully accounted for. The more detailed you are in your record keeping, the slimmer the chance that money can slip through the cracks unnoticed.