QUESTION: We have a board member, the
treasurer, who is working for our management company and is a signer on the
checks. I think this is a major conflict of interest. What do you think?
ANSWER:
It depends on his/her role in the management company. If the treasurer’s work
does not involve anything related to the association, then the potential for
conflict is relatively low. Even so, the treasurer must be recused from all
matters related to the management company's contract. If your treasurer works in
the management company’s billing department depositing monies
for the association, preparing checks for signature, and preparing the
association’s financial statements, then you have significant exposure to
financial loss. The treasurer may be completely honest and nothing may ever
happen but the potential problems are too great to ignore. In that scenario, the
director should immediately step down as treasurer and cease being a signer of
checks.
CHECK SIGNER MARRIED
TO CHECK MAKER
QUESTION: Our treasurer is the primary check signer; he is also married to our office clerk who prepares the checks. Is this spousal relationship in conflict with the Davis-Stirling Act???
ANSWER: The arrangement is not illegal, but the board could be deemed negligent because the arrangement lacks internal controls. Because the check maker and the check signer are married, (i) the signer might not examine checks and invoices for accuracy or (ii) the two could conspire to embezzle funds. It does not mean they will, but the association is vulnerable. The more prudent course of action is to make someone else treasurer and remove the existing treasurer as a signer on the bank account. This protects everyone, including the office clerk and her spouse/director.
ASSISTANCE: Associations needing legal assistance can
contact us.
To stay current with issues affecting community associations, subscribe to the
Davis-Stirling Newsletter.