A recent article in the Toronto Star1 about
a property manager who bilked several condo corporations out of a
total of $20 million dollars made the paper's front page
headlines. It is alleged that the property manager defrauded one
condo corporation by registering a bogus borrowing by-law on title,
which enabled the manager to then borrow three million dollars
against the property. Another condo corporation was the victim of a
fraudulent bid for major repair work on the condominium. It is
alleged that a corporation controlled by the manager submitted the
lowest bid, but once the work started the contract price escalated,
and the work was done by a subcontractor for half of the bid price.
Apparently the manager was able to land the management contracts
with the condo corporations by submitting bids that were lower than
the others.
What can a condo corporation do to protect itself from
fraud?
Do thorough reference checks on all parties that the
corporation is engaging, including the manager. Relying on personal
impressions is risky. Fraudsters are frequently masters at
schmoozing their victims.
Beware of bids that are substantially lower than the others. As
the old adage goes "If it sounds too good to be true it
probably is." This applies not only to the management contract
itself, but to all contracts for services.
The management contract should obligate the manager to obtain a
fidelity bond that will protect the corporation from any fraudulent
act or omissions of the manager or the manager's employees.
Ensure that the bond is renewed annually and a certificate from the
bonding company is delivered to the board members annually. The
bond should not be cancellable by either the manager or the bond
insurer unless prior notice of cancellation is given to all board
members (not in care of the manager). As for who is responsible for
the premium costs to pay for the bond that is a matter to be
negotiated with the manager.
The management contract should prohibit the manager from
engaging related companies to provide goods or services to the
corporation.
The condo corporation should not give the manager sole
authority to sign cheques. At a minimum all cheques should be
signed by one board member along with the manager.
Board members need to be vigilant. Some frauds are conducted
over a lengthy course of time. In order to avoid detection the
fraudster needs to be constantly monitoring things and taking steps
to cover up the fraud. Employees engaged in fraudulent activities
are reluctant to take vacation time for fear that the fraud will be
exposed during their absence. Management employees who do not take
any vacation time or who seem to have an excessively lavish
lifestyle should raise red flags.
In view of how the manager in the reported story was able to
fraudulently borrow money in the corporation's name, perhaps
corporations should consider instructing their legal counsel to
conduct periodic and/or random title searches. Of course the
manager cannot be privy to any information as to when and how often
these searches are being conducted.
While the above measures may not completely stop a determined
and clever fraudster who is willing to engage in forgery, hopefully
they will make it more difficult for a fraud to be committed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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