Condo Associations Fail to Protect Owners from Fraud

If you own a condo in South Florida and actively attend board meetings, then chances are you had questions or were suspicious of certain decisions as it relates to management of finances. Inquiring about such Board of Directors/management acts is cut and dry per Florida law. You are the owner and have a right to know. But if you have faced challenges in obtaining copies of association records, chances are your association is not following the law. It could be fraud.

Last year, an article featured in the Miami Herald, stated that “in 2015, Miami-Dade recorded the highest number of complaints of irregularities and fraud in the administration of condos of any county in Florida.”

That article sparked outrage, and an investigation by the El Nuevo Herald and Univision 23, which revealed systemic cases of “electoral fraud, conflicts of interest, mismanagement, and rigged bidding systems among many condo associations in South Florida.” Now almost a year since launching that investigation, the Herald reports that a Miami-Dade grand jury has issued a report that has found that “the Florida state agency that regulates condominium associations does not work to protect the tens of thousands who live in condos, resulting in extensive fraud, mismanagement and conflicts of interest, among the boards and management companies that govern them.”

According to the grand jury report, “Unfortunately, the [Department of Business and Professional Regulation, or DBPR] seems ill-suited to resolve, correct or prevent many of the recurring problems that have been brought to their attention…”

In a statement to the press, Miami-Dade State Attorney Katherine Fernandez Rundle said, that the report clearly indicates that the DBPR “is not effective and doesn’t protect condominium owners from fraud and mismanagement.”

So, if the state has found that many condominium boards fall short in protecting owners from “fraud and mismanagement,” what can you do to protect your interests, and hold your condo boards more accountable?

How to Avoid Fraud and Condo Board Misconduct
With so many complaints of fraud, and at the same time, so many new condos being built, it is incumbent on all condominium owners to take action to protect themselves, and ensure “best practices” by their boards.

Every association should have a written policy for when and how to have a periodic assessment and/or review of all internal controls. Other examples of “best practices” would be to:

• Establish proper purchase authorization procedures.
• Create and maintain an “approved vendor” list.
• Insist on competitive bidding for all projects and major purchases.
• Require two check signers, with guidelines for all purchases.
• Require bank lock boxes for maintenance payments.
• Provide detailed procedures for all payroll approvals.
• Implement a detailed “conflict of interest policy,” as well as an “anti-kickback policy,” to be signed by all Board members.
• Insist upon monthly or quarterly accounting reports, which should include balance sheets, statement of revenues and expenses, and a cash basis statement of receipts and expenditures, and all bank reconciliations.