CAI-NJ March 2017

M A R C H , 2 0 1 7

Keep your Association sharp –

in all seasons.

Value–Experience–Quality

Being prepared and responsive is what distinguishes our

firm. We strive to solve the problem–resolve the issue

and make life easier for our Associations and their

property managers.

Hueston McNulty, P.C.

Association General Counsel and Experienced Trial Attorneys

Samuel J. McNulty, Esq.

smcnulty@huestonmcnulty.com /www.huestonmcnulty.com

Tel: 973-377-0200 / Fax: 973-377-6328

Offices: Florham Park, NJ; Toms River, NJ; Blue Bell, PA; and New York, NY

HML-4337 CAI Dec 2013_1/2 pg vertical 11/22/13 10:48 AM Page 1

control of any aspect of the financial

process. In this case, someone else

should have been reconciling the

account monthly and reviewing any

anomalies. Additionally, the entire

board should have had access to the

reconciliations since the entire board

has the fiduciary duty to act in the best

interest of the association.

“Bidding Your Money Adieu“

Situation:

The association did not

have a set bidding policy, and as a

result, for a significant HVAC improve-

ment, the in-house property manager

had no responsibility to acquire mul-

tiple bids for such a large scope of

work. As a result, the manager gave

the work to a HVAC Company that

he knew quite well for a cost well in

excess of the anticipated replacement

cost from the association’s replacement

study. After the work was complete, the

association paid out the vendor in line

with their contract. Upon receiving

the payment from the association, the

HVAC vendor provided a substantial

gift to the property manager.

How the Fraud was Perpetrated:

Lack of a proper bidding policy

allowed the property manager to uni-

laterally assign a major contract to a

vendor without board approval.

Clue:

When we, as auditors, began

to conduct our fieldwork, we noted a

major expense which did not appear

to have any type of recognition at a

board meeting, or other board approv-

al before the project took place.

Detection Method:

As part of the

audit procedures we review all the

available board minutes and contract

related to major projects to ensure

that a proper bidding process was

followed. Once we noted that the

board did not obtain multiple bids

for the work, we brought that to the

attention of the board. It was not until

sometime later that the kickback to the

property manager came to light.

Recommendation:

A system of checks

and balances should be in place so

one person does not have unilateral