Condo Scam

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CCI May 2021 Social MediaThe light went off at 2:41 in the afternoon. The elevator stopped. A dim light came on. I pressed the emergency button. A voice asked, “How may I help?”  then said, “In a minute your elevator will settle slowly to the basement level and the door will unlock. You should be able to slide it open and get off.”

It worked and I was back in the parking garage. But now the garage was dark, spooky, the emergency lights glowing dimly.

I got a flashlight from my car then climbed the stairs to my condo apartment. Surprise! I had electricity. Each unit is metered separately, I recalled. Obviously, the condo building’s electricity was out but individual units were not.

I called our condo manager, Gail, several times and got busy signals. Finally, I called our utility company and spoke to a service rep. Identifying myself as our condo board’s president, I got her to talk about our account. She said the electricity was shut off after we ignored three delinquent notices, and we would need to pay the twenty-three-thousand-dollar arrears plus a five-thousand-dollar deposit if we wanted to be reconnected.

I protested, saying, “There must be a mistake. We pay our bills on time.” I also pointed out, “We have several wheelchair-bound owners who depend on our elevators. It is illegal for you to cut our service.” I wasn’t sure about that but thought it likely.

She answered politely, “Our records show that you have not made a payment in three months. I think you should check with your bank.” And that was all I got from her.

Next, I called my local bank manager and explained the problem. He was able to pull up information from their main branch. It was incredible. Our operating account had only four-hundred-and-sixty-three dollars in it. We operate with a cushion equivalent to about a month’s expenses, nearly a hundred thousand dollars. He advised me to go to the main branch where our account was located and he agreed to set up a meeting for me with an Assistant Manager there. 

Before leaving I got out our latest monthly report from Gail. In it were photocopies of our bank statements. The operating account showed regular payments up to the end of last month and a balance of over ninety-four-thousand dollars. The reserve fund statement showed a balance of just over two-million dollars. 

I called Janice Greeb, our condo’s treasurer, to tell her about our problem. We agreed to meet at the main bank branch in half an hour.

Janice and I connected and met with Assistant Manager Paul Beamish. To our shame, this was our first contact with anyone from our condo’s bank. We were responsible for several million dollars of our neighbours’ money and we had not taken that most basic step of knowing our banker.

We compared the bank’s statements to the photocopied statements from Gail. They were much the same except for four large payments on the bank’s version that were not on our version.

Next, we looked at digital copies of our condo’s paid cheques. Most of the payees matched Gail’s record of disbursements but four did not, the utility company, the landscape company, the cleaning company and, surprisingly, Abel Condo Management, our condo management company and Gail’s employer. These four represented about ninety percent of our operating costs. On them the payee names were subtly different from the names of the firms we dealt with, an apostrophe in one, a comma in another, for example. 

With the rundown of the hundred-thousand-dollar cushion and these four diversions added together, our operating account was short about four-hundred-thousand-dollars.

Our reserve fund account situation was even worse, down by nearly two million dollars. In addition, a four-hundred-thousand-dollar cashable GIC had been redeemed and that money was missing.  The payees all looked plausible, but we had never heard of them. It looked like our thieves created less than ten false business identities to steal almost three million dollars from us. 

Paul, our banker, agreed to open new accounts for our condo with Janice and me as the only signatories. We could get the other board members to sign on later. Paul transferred the small remaining balances to our new accounts. Since the new operating account was in the same name as the closed account, our owner’s automatic monthly payments could flow into it. CCI May 2021 Social Media 1

Paul called an assistant and asked her to prepare generic cheques with the transit number for our new accounts on them. We could use these until we had official-looking cheques printed. He also asked her to pull all accounts associated with Abel Condo Management to look for any where the balances were drawn down as ours were. 

Before leaving the bank I called our other three Directors to set up an emergency meeting for seven o’clock that evening. 

Returning home, we stopped off at Janice’s main floor condo to talk it over and made a crude plan in point form.

1) We needed to call our condo lawyer.
2) We needed to get the electricity back on.
3) We needed to inform all our owners about what happened. 
4) We needed to take over the management of our condo, at least in the short run.
5) That meant we needed to get our records from Abel Condo Management.
6) We needed to get money in the bank to tide us over until the next condo fees came in.
7) We needed to contact the four service providers who had not received their money and explain how we were going to fix it. 

Fortunately it was only four firms, three if we discounted the management company. The smaller suppliers appeared to all be current.

We agreed to temporarily stop transferring money to the reserve fund. The rules say the transfer must be completed in this operating year, not month by month.

Our condo has a hundred and forty units in it. In order to make up the three-million-dollar shortfall we needed to raise an average of about twenty-one thousand-dollars from each owner. Condos are not allowed to borrow money without a borrowing by-law in these circumstances, so any borrowing needed to be done with the requisite approval of our owners. The obvious approach was a special assessment. For a few this would be a nasty inconvenience. For some it would be crushing.

Once we give notice of a special assessment our owners must pay it or risk losing their homes. Our condo corporation can issue liens against defaulting units that take precedence over all other encumbrances, pushing first mortgages for example, one step down the ladder. Banks, the most common first mortgage holders, would probably pay some of the special assessments and add the amounts to the mortgages they already hold. 

In time some or all the lost money might be recovered through insurance or other means, and some or all of the amounts of the special assessment might be returned to our owners, likely as reduced condo fees.

Janice and I realized that the problem was largely our own faults. We should have had our bankers mail copies of our monthly bank statements and all correspondence concerning our accounts directly to us at the condo, as well as to our management company. Before Covid 19 we held monthly cheque-signing meetings and reviewed the documentation supporting the payments as we signed the cheques, but we let Gail mail them. We should have put our return address stickers on the envelopes and mailed them ourselves.

Because of Covid 19 we gave our management company’s employees, keepers of our accounting records, the authority to sign our condo’s cheques. That was a total failure on a fundamental concept of management control, separation of duties. We could have worked around the Covid 19 health restrictions with a little extra effort, and we didn’t.

Of course we were unlucky in finding the one-in-ten-thousand crooked condo manager, but luck should never be in the mix where serious money is involved.  We should have known better as we thought about what our personal liability might be.

I remembered something I read recently, “Every fraud in history flowed from trust.”

This story is fictional, but it could have happened. Perhaps it is happening somewhere right now. I wrote it to emphasize a serious problem I see in the management and control of condominium companies’ financial assets. The Covid 19 pandemic has led to a diminished involvement by boards of directors in the financial affairs of their condo companies and sometimes eliminated it entirely. Each board has the primary responsibility for their company’s financial affairs. Management companies are their agents. That needs to be reflected in the financial control systems.

For any condo management company whose owners do not understand my concerns, I ask this question: Would you be willing to place the financial aspects of your business in the hands of a trusted agent and have that agent collect your revenues, do your banking, keep your financial records, prepare and sign your cheques, produce your financial reports, and let you know how you how you are doing at the end of each month? Yet the smallest condo you manage probably has more vulnerable cash than your condo management company does.

Strong control structures are in everyone’s best interests, condo owners, condo boards and condo management companies. In all my business experience I have never seen a situation more fraught with risk than this one is. This issue needs discussion, perhaps leading to an industry minimum standard on how condominiums’ financial controls should be structured.


Don B Smith, retired CPA 
Treasurer, WSCC117

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