Page 13 - NY Cooperator July 2019

Cesarano & Khan, PC Certified Public Accountants PROVIDING PROFESSIONAL SERVICES TO THE COOPERATIVE AND CONDOMINIUM COMMUNITY Reporting on Financial Statements • Tax Services Budgeting & Consulting • Election Tabulation Services For additional information, contact Carl M. Cesarano, CPA 199 JERICHO TURNPIKE, SUITE 400 • FLORAL PARK, NY 11001 (516) 437-8200 and 718-478-7400 • info@ck-cpas.com cesarano &khan1_8 use this_:cesarano &khan 4 7/22/15 4:59 PM Page 1 COOPERATOR.COM THE COOPERATOR —JULY 2019 13 crime such as theft or fraud, it should be for instances like this, and associations reported and that person held account- able,” notes Robert E. Ducharme, a con- dominium attorney with Ducharme Law does not maintain this policy, or if the in Stratham, New Hampshire. “But un- fortunately, I’ve seen multiple occasions tion whole, then the association can sub- where a board of directors has chosen not mit a claim to its own insurance company to report the matter to law enforcement under the commercial property/package or to file a civil suit, and sometimes to not policy – or more likely as a separate fidel- even report the theft to the association’s ity bond policy. For the most part, every insurance carrier – all for fear of word of association will maintain a fidelity bond mismanagement getting out and affecting as mandated by the company holding the resale prices. “I believe that we have a higher duty to lenders for owners in a condominium. society in general to report these deeds,” he continues. “For instance, there’s no issue,” Mackoul continues. “Typically, it’s way of knowing whether this is repeat the board who makes the decision how behavior by a guilty board member – but the association funds are handled – not that’s likely to be uncovered in a civil suit the management firm, which takes di- or criminal case, and could save unsus- pecting associations in the future from is an instance where a management firm the trouble that your association may find mishandled association money, the board itself in today. Put another way, an asso- ciation that does not report such actions management firm would then have to re- and/or sue may be an unwitting accom- plice to future bad actions by the perpe- trator – and if that comes out publicly, it ing alleged, would defend the manage- will likely be worse than the initial outing ment firm and provide a settlement or of association mismanagement.” Different states approach financial mismanagement in different ways, ac- cording to Mary-Joy A. Howes, a partner amount is at least one-fourth of the as- at law firm Goodman, Shapiro & Lom- bardi, which has offices in Massachusetts Howes, “plus the average balance of the and Rhode Island. “Unfortunately,” she reserve account – provided that the re- says, “we’ve had many cases dealing with serve account is under the custody and board members and/or property manag- ers stealing from clients. In Rhode Island, there’s a movement to change the statute association, three months of maintenance to require that management contracts in- clude a provision that fidelity insurance istically they should maintain a limit of will be carried. A similar such provision whatever the maximum funds in their is already in place in Massachusetts. It is custody is,” adds Mackoul. “Naturally, the so very important for associations to have management firm would need more than their own adequate insurance to cover this limit, since they likely manage mul- bad acts as well.” Insure Your Future Insurance settlements in these cases from multiple associations. The standard depend on who lost (or stole) the money, E&O limit is $1 million, but a larger as- and how. “Financial negligence and malfeasance are different,” explains Edward J. Mack- oul, President and CEO of insurance firm dealing at the board or management level Mackoul Risk Solutions in Island Park, is an association finding itself broke and New York. “If the board finds out that without the funds to keep up with even the property management firm has been routine maintenance. Property values can stealing association funds, the board can drop, and owners/shareholders who’ve seek to have insurance reimburse them done nothing wrong can find themselves for some or all of the amount stolen by at a significant monetary loss. This is why having the management firm submit a having insurance and competent, knowl- claim under their fidelity bond policy, edgeable coverage advisors are essential. a.k.a., crime or employee dishonesty. Most management firms have a policy one that almost ever gets the association are increasingly requiring it as part of the management contract. If management limit is inadequate to make the associa- underlying mortgage on a co-op, or the “Financial mismanagement is another rection directly from the board. If there could in fact sue the management. The port it to their errors & omissions (E&O) carrier, which, depending on what is be- pay judgment if such was determined.” The insurance limits recommended vary by association. “The ideal minimum sociation’s annual assessments,” suggests control of the managing agent.” “For a fidelity bond for a community fees is a minimum guideline, but real- tiple buildings and thus could see multi- ple claims if one individual were stealing sociation could certainly require more.” High and Dry The worst outcome of financial mis- “Of all possible remedies here, the only (718) 247-7000 www.bargold.com We will turn your unused building space into a secure, state-of-the-art storage facility FOR FREE . We will handle everything from start to finish, and we’ll PAY YOU monthly. We do all the work while you sit on your asset. EMAIL TODAY: Getstorage@bargold.com substantial returns on money lost is in- surance,” says Jeffrey Diamond, an attor- ney with Marcus Rosenberg & Diamond in New York City. “Collecting from the als advise boards to check in with their perp themselves is less likely, even if they insurance carrier annually to make sure do end up going to jail, which is why in- surance is so important.” “When there is no insurance involved, also be smart – even if not required by law an association is often left holding the – to request that insurance requirements bag – even if the ‘bad guy’ gets prose- cuted,” adds Howes. “You can’t get blood contracts. There’s very little downside in from a stone, and many times that money taking every precaution when it comes to is long gone. There should be checks and preventing or recovering from theft or fi- balances for all accounting. I always tell nancial malfeasance. clients to get two signatures on checks over $1,500, and to never give up full control of the bank account to managers, as well as to always receive – and review – monthly banking statements.” Insurance and accounting profession- that all of the coverage and remedies mentioned above are in place. It would are spelled out explicitly in management n Mike Odenthal is a staff writer/reporter for The Cooperator.