Board Condominium Financial Governance Legal

Unlicensed Contractor Hired by Condo President

K.B. from California writes:

Dear Mister Condo,

What if the President of our association knew all along that he hired an unlicensed contractor? I just found out that this guy was paid close to $11,000 in 4 months and I have yet to figure out what he actually did. The person heading the yearly audit requested from our Association President requested the detailed account of the work performed and was denied. The reason? The president called the request a distraction.  What should we do?

Mister Condo replies:

K.B., greetings from across the continent! Charges of fraud or embezzlement are words you never want to hear from within your own condominium or homeowners association. If there is any good news here it is that, so far, you have only mentioned $11,000. I have seen some associations get taken for hundreds of thousands of dollars. The reality is that unless certain safety steps are in place before the fraud or embezzlement occurs, the community is usually left picking up the pieces and trying to restore an air of fiscal responsibility. Most associations subscribe to some very basic safeguarding principals that make fraud or embezzlement very difficult. However, that requires an active Board and good accounting practices to be in place. If your association is lacking either of those, you may have just scratched at the underlying problem.

Who signs the checks at your association? Most associations have a Treasurer and a second Board member sign larger checks. It is not uncommon to have a property manager with the ability to issue checks under a set amount ($5,000, for instance) so the day to day business of the association can be conducted. If your association doesn’t have simple anti-fraud measures in place it is time to do so. CAI has published a great (and FREE!) guide for you to download at I highly recommend your community use it.

Hiring unlicensed and/or uninsured contractors is a bad business practice. It opens the association up to all sorts of potential problems and lawsuits. If this was an oversight in the hiring process, it should be corrected at once. If the President is acting independently and without the support or oversight of the Board, the President may be part of the problem. The usual method of hiring a contractor involves the Board preparing a Request for Purchase (RFP) for the work that needs to be done. It is usually sent to three or more contractors for bid submission which should include a requirement for their license and insurance information. Finally, the bids are reviewed and a contractor is selected. There are exceptions to this standard but this method should be used whenever practical and possible as this is a best business practice which the Board is bound to follow as part of their duties.

The final issue here is the president denying the auditor a detailed description of the work that was done. This is a tremendous red flag and one that merits further investigation. If the president is unwilling to give this information, I would suggest that it is time to vote him out of office. Fellow Board members can remove the president or this person can simply be voted out of office at the next election. Since there have been no formal allegations of wrongdoing, and you have not detailed any money missing, I would advise that this is likely a case of someone doing the job the way they see fit versus the way it should be done. Simply vote this person off the Board and let the Board return to doing their job of governing the community. Hopefully, they will select a more fitting choice for the president and implement anti-fraud and best practices in their next session of community governance. Good luck!

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