Who Cleaned Out Our Bank Account? D.A. Launches Management Probe
Nov. 20, 2013 — Updated Feb. 18, 2014 — Rumblings of malfeasance are circulating and sources confirm that a New York City District Attorney's office is investigating a major property-management company. For co-op and condo boards, this is wakeup call that financial controls and vigilance should be the order of the day.
It appears that a theft of funds is the source of concern. Sources close to the investigation say a large co-op (or perhaps several) is missing a significant portion of its reserve-fund account. The property-management company, the sole signatory on the account, had led the board to believe the money was still in the account by preparing false bank statements.
When the board members learned of the possible theft, they brought what they assumed was the reserve-fund statement to the bank for confirmation. Since they were not signatories of the account, the bank was hamstrung in what it could reveal. However, according to Habitat sources, the bank officials did say the statement appeared to have been surreptitiously altered, which is a federal offense.
Shareholders at the property were notified by the board that funds were missing. Regardless of the investigation's outcome, the co-op is protected through its "crime" insurance, which will make the co-op's coffers whole.
Ways to Protect Yourself
Jim Goldstick, vice president at Mark Greenberg Real Estate, says that it is crucial for a cooperative or a condominium association to have two signatories, both board members, on its reserve account. "One of the questions Fannie Mae and banks regularly ask managing agents [when making loans] is to confirm that the money can only be withdrawn from the reserve fund with the signatures of two board members," he says, adding: "It is ourpolicy [that management] not be a signatory on any of our reserve funds."
Darren Newman, a partner in the accounting firm of Newman Newman & Kaufman, suggests that the board should have the bank send reserve-fund statements to both the management company and the board treasurer. This way, the treasurer can review the reserve statements on a monthly basis. Additionally, he advises co-op and condo boards to ensure that their accountant receives electronic confirmation of bank balances during the annual audit. Although this is not a requirement, it is recommended.
Updated with new material in the final section.
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