Keep an Eye Out Make Sure Your Building is Free of Fraud

It’s happened twice recently. In the summer of 1994, 72 New York property managers were convicted of taking kickbacks from contractors and extorting payoffs. This resulted in a $4 million restitution fund. Then, just last summer, 21 corporations and 62 individuals, including managing agents, superintendents, vendors, contractors, architects, and even board members, were indicted for bid-rigging (coordinating false bids so that the "lowest bid" was inflated) and other fraudulent practices. Just what can boards do to protect their buildings in the face of such widespread fraudulent activity?

In a perfect city, every building would know it could trust its managing agent. Most managing agents are honest professionals, but recent years have shown that it is not possible for boards to blindly feel confident that their buildings are being run legally. It is in their interest to actively prevent fraud from happening in their buildings, and there are simple, inexpensive, and specific ways to help make sure it doesn’t.

Checks and Balances

According to the Council of New York Cooperatives and Condominiums (CNYC), managing agents should, at minimum, provide two financial reports by the 15th of every month. One report should supply the opening and closing balances and summarize the building’s disbursements and income. The other report should list all disbursements, with exact dollar amounts, copies of invoices, check numbers, an explanation of any unusual expenses, and a copy of authorization to incur such expenses. P. Leonard Jones, president of the New York Association of Realty Managers (NYARM), agrees that this information is extremely important and suggests, "It would be important to distribute a package including invoices to the board president, treasurer, and one other officer and then a summary of that information should be distributed to each board member once a month. Each board member should carefully review reports for the corporation quarterly and ask questions."

CNYC also suggests monitoring bids closely and comparing costs of services against costs for similar services from previous years or against other sources. CNYC provides a Comparative Study of Building Operating Costs, which should provide boards with ball park figures of reasonable prices. Jones agrees that comparing costs for services is important and suggests reviewing contracts yearly. When searching for a contractor, he "generally sends out invitations to propose to five to eight companies to ensure a minimum of three proposals."

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