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
: 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?
: 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.
: Associations needing legal assistance can contact us
. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter