Running a community association can be – and often is – stressful enough without the added issue of people in a position of power in the community using that position for personal gain in the form of kickbacks. Whether the offender is a superintendent, manager or board member, skirting the rules around bidding out projects, hiring vendors and service providers, or purchasing supplies in order to receive money or favors is rarely, if ever, worth the risk for the perpetrator. In the end, it can cause serious harm to a community and those who live there. Understanding what kickbacks are and knowing what to look for can help ethical board members and managers recognize and prevent them from infecting their building or HOA.
Plotting and Scheming
In order to snuff out a kickback racket, it’s important to know how it develops in the first place, and why.
“Kickback or bribery schemes often arise when a contractor or other service provider wants to gain access to or maintain a relationship with a building or community association,” says attorney Michael T. Reilly of Norris McLaughlin P.A., in New York City. “Board members and/or managing agents are likely approached and asked for their ‘support’ when it comes time to vote for the selection of a vendor at a board meeting. The illegal scheme may start with the vendor asking, ‘What will it take to be awarded a contract?’ The assumption being, of course, that the board or agent will not go with the vendor with the lowest price or the best qualifications, but rather with the vendor that provides ‘extras’ – be that cash, tickets, travel, free restoration work, or another benefit in exchange for them being selected. The frequency of providing these ‘extras’ may vary depending on the size of the contract and whether or not it’s a recurring service.”
Sebastian Buttafucco, a property manager with Kaled Management, which has offices throughout New York, laments that kickbacks in the industry are both real and very serious. “I have had contractors offer me kickbacks, and have immediately turned them away and notified my colleagues so that they too can steer clear,” Buttafucco says. “To me, when it comes to receiving kickbacks, the ones you need to look out for most are the boards. The boards hold the power to approve or reject proposals or quotes, and because of this will sometimes send friends to bid on projects. I once mistakenly received a quote that was meant for a board president, and which included a promise of profit. The individual was immediately removed from the board, and no work was done with that company. But it’s a very tricky field, as there are so many different people involved in these projects and decisions.”
The penalties associated with being caught engaging in a kickback scheme can be steep. “Managers could lose their licenses, and directors or officers could be subject to litigation for doing so,” says Gregory W. McCracken, a partner at the law firm of Jacobs, Walker, Rice & Barry in Manchester, Connecticut. “Statutes covering community association managers prohibit any act or conduct that constitutes dishonest, fraudulent or improper dealings. Directors and officers must similarly act in good faith in a way they reasonably believe to be in the best interests of the association. Kickbacks would clearly run afoul of these requirements.”