Q. I am our building’s board treasurer, a position I’ve held for five years. Since taking office, the board president has blocked my access to historical financial records. I feel she’s unlawfully executing my duties as treasurer and has acted aggressively when confronted, which I find odd.

I recently initiated an audit of our records and discovered a 10-year pattern of suspicious transactions—most notably, nearly $20,000 in checks made out to cash within a single year. Now I’m really worried about breaches in fiduciary duty. Should I report this to someone? What steps should I take to shield myself from personal liability?

                                                   —Concerned 

A. “New York’s common law grants corporate directors an absolute and unqualified right to inspect the corporation’s books and records, including all financial documents. This right is not limited to records created during the director’s tenure on the board; rather, it extends to records predating the director’s appointment,” says David Berkey, managing partner at law firm Gallet Dreyer and Berkey, based in NYC. 

“New York courts have consistently held that access to historical financial records is necessary for a director to discharge his or her fiduciary duties, to understand the corporation’s financial condition, to evaluate the performance of management, to identify past practices that may bear upon current operations and to ensure proper oversight of corporate affairs. The treasurer’s additional status as a corporate officer charged with responsibility over the corporation’s finances further supports a right of access to all corporate financial records.

“Section 624 of New York’s Business Corporation Law provides a statutory framework for the inspection of corporate books and records by shareholders. The section allows shareholders to inspect corporate books and records provided the request is made in good faith and for a proper purpose. This section supplements the common law inspection rights granted to directors. A director’s and treasurer’s right to inspect corporate books and records is broader than that of shareholders.

“An inspection undertaken to investigate suspected mismanagement, self-dealing, or breaches of fiduciary duty by other directors or officers is generally considered a proper purpose fully consistent with a director’s responsibilities,” Berkey explains. “A director or treasurer cannot be denied access to corporate records merely because the investigation may reveal unflattering or damaging information about incumbent officers, directors or management.

“The treasurer’s status as a corporate officer provides an additional, independent basis supporting the right to access financial records. As the corporation’s treasurer, the individual bears specific fiduciary responsibilities relating to the custody and management of corporate funds, the maintenance of accurate financial records, and the reporting of the corporation’s financial condition to the board and to shareholders. The effective discharge of these duties necessarily requires access to the full range of the corporation’s financial records, including those predating the treasurer’s assumption of office.

“The right to inspect a corporation’s records is subject to narrow limitations. A court may deny inspection where the corporation demonstrates that the director is acting in bad faith or for a purpose inimical to the corporation’s interests. Examples of bad faith or improper purposes are acting for personal financial gain, acting to harass other directors or officers or acting to harm the corporation. If a requested inspection is refused without proper justification, the treasurer or director may seek judicial relief ordering such inspection through a special proceeding pursuant to Article 78 of the New York Civil Practice Law and Rules.

“Courts presiding over inspection disputes retain broad equitable discretion. A court may grant or deny inspection, or tailor the scope of an inspection order, based on the specific facts and circumstances of the case,” says Berkey. “For example, where a director or treasurer seeks to investigate specific allegations of financial mismanagement, a court may limit the scope of inspection to financial records directly related to the alleged misconduct rather than ordering wholesale production of all corporate records. This discretionary authority allows courts to balance the director’s or treasurer’s legitimate need for information against the corporation’s interests in protecting sensitive or proprietary information.

“If a treasurer learns from a review of the corporation’s financial records that improper practices may have occurred in the past, the treasurer should report his findings to the board and consider recommending the retention of a forensic accountant to perform a more robust review of those records to determine if any wrongdoing occurred. A history of writing checks to ‘cash’ indicates that impropriety may have occurred and that further investigation is warranted. As fiduciaries, all board members should seek to recover any improper expenditures for the benefit of the corporation’s shareholders. They should also consult with the corporation’s accountants and counsel and revise practices that may have allowed such conduct to occur.

“A treasurer that reports his findings of potential wrongdoing, tries to recover improper expenditures and tries to reform a corporation’s financial practices should be insulated from personal liability, provided the treasurer did not participate in the activities that may have harmed the corporation.”