What condo associations should know about construction fraud and how to avoid it
The arrest of a North Miami Beach condominium property manager in early April serves as a reminder for Florida condominium associations of the potential for fraud involving construction and renovation projects.
According to news reports in South Florida, Maria Del Carmen Alvarez-Concepcion, 57, was arrested by the Miami-Dade Sheriff’s Office on charges of soliciting/accepting kickback payments, organized fraud and second-degree grand theft. The former property manager of the Greynolds Park Club Condominium stands accused of receiving approximately $21,000 in cash and Zelle transfers from a construction contractor working on the building.
The arrest report states that an association board member reported “longstanding concerns regarding the defendant’s exclusive control over multimillion dollar contracts, lack of financial transparency, questionable fees, missing records, and the exclusion of certain board members from major association decisions.” It also indicates Alvarez-Concepcion provided the detectives with a statement admitting to accepting kickback payments from the vendor contractor.
Mandatory milestone inspections and increasing insurance premiums are now forcing many condo associations to shore up and stormproof their buildings. The work is often extremely costly, and such large expenditures can create opportunities for potential malfeasance by unscrupulous directors and the professionals they retain.
The possibilities for fraud in such scenarios are significant, so associations should put in place safeguards and protocols to diminish the potential for abuse. This begins by identifying the circumstances that could open the door to such wrongdoings.
Kickbacks and bribes are perhaps the most obvious place to start. The contracts being awarded for major projects by boards of directors and their property managers can be lucrative, so they require careful vetting and circumspection.
Bid rigging and collusion among contractors can also become an issue. The vendors that are in the running for such work can collude to determine which will be awarded job, and this can lead to inflated costs and limited competition.
Construction and remodeling companies can also be guilty of overbilling for their work and using inflated invoices. These can include charges for unperformed work as well as duplicate bills for the same services and materials.
There may even be cases involving phantom contractors or vendors that don’t exist or are not providing any services. Funds can be paid by associations to such nonexistent vendors, all for work that was never actually performed.
Also, those contractors that are indeed providing services in the form of routine and ongoing maintenance and repairs could be guilty of performing work that is unnecessary. This often takes the form of upkeep that is performed when there is no evidence of any prior issues or requests.
Avoiding such schemes requires strong governance, transparency and oversight by dedicated directors and property managers of high integrity. Such volunteers and professionals should start by ensuring competitive bidding and requiring at least three bids for all projects or services. The bids should then be reviewed by multiple association representatives and qualified experts, and affiliations between vendors and directors should be avoided due to the conflicts of interest they present. Bear in mind that community association managers and board members are now legally required to disclose any such conflicts.
A bidding process should be instituted via the creation and adoption of a formal procurement policy. This official association policy should be a written procedure with clear protocols for the selection and approval of vendors and contracts, as well as the establishing of prior spending thresholds and requirements for board approvals of all contracts in excess of a set minimum. The policy should also require input from expert engineers and consultants to verify the scope and needs for all major projects, as well as careful reviews of all vendor contracts by qualified legal counsel prior to execution.
Also important are routine audits of association finances performed by independent experts. These reviews should include circumspect evaluations of the payments made to vendors and the services that were provided, as well as careful inspections of all transactions from association operating and reserve accounts. Withdrawals over set amounts from such accounts should require prior approvals by an association’s budget/finance committee or its independent auditor.
To reassure unit owners that all expenditures are above board, associations should provide them with periodic reports. These will help to demonstrate a commitment to ensuring complete transparency and accountability, and to keeping detailed records for all vendor evaluations and decisions.
Board member training and education also play important roles. Directors should take part in continuing education seminars and webinars on their fiduciary duties as well as how to detect and avoid potential fraud and abuse.
Confidential channels for the reporting of suspicious activities should also be established and made available to unit owners as well as association volunteers, staff and vendors. Such whistleblowers should be encouraged to provide their anonymous input regarding any questionable actions they may witness or hear about, and associations should develop and implement policies to prevent any potential retaliation.
Florida’s aging condominiums that are now undergoing mandatory structural inspections and receiving insurance discounts for storm-hardening improvements are going to continue implementing major repairs and renovations for the foreseeable future. By developing and utilizing these and other proven safeguards and preventative measures against fraud, they can help to avoid the potential for becoming a victim..
Meily Perez is an attorney with the South Florida law firm of Siegfried Rivera who focuses on community association and construction law. She is based at the firm’s Coral Gables office and is a regular contributor to its Newsroom blog at www.SiegfriedRivera.com/blog. The firm also maintains offices in Broward and Palm Beach counties, and its 49 attorneys focus on real estate, community association, construction, and insurance law. www.SiegfriedRivera.com, MPerez@SiegfriedRivera.com, 305-442-3334.