A To-Do List to Keep the Condo's Books

For the operating funds, set up the account with your bank so that there is a dollar amount above which the property manager will need the co-signature of at least one board member on any check, such as $1,000 or $2,000. The property manager will be able to cover routine expenses this way, but someone else will have to be aware of large amounts. Yes, this is a burden for the property manager and the board member who has to sign. But if you want to serve on the board, you should be willing to protect the funds of the unit owners who elected you.

For the reserve accounts, only officers of your association should be authorized to sign checks or transfer funds. Your association does not use reserve funds on a daily or monthly basis, and thus it should not be a hardship on anyone to require that only officers have access. At a minimum, two signatures should be required; you do not want to give absolute power to any one officer to sign these checks.

Make sure that the property management company has adequate insurance or bonding covering your association in the event of embezzlement, fraud or other activities that may cause a loss. Insurers will write "third-party coverage" bond insurance that will protect the association. The amount of the policy will depend on your financial situation. Some associations have hundreds of thousands of dollars in reserves; clearly, third-party coverage for $50,000 is woefully inadequate for them. The policy should cover wrongful acts by either officers or managers.

Make sure that you -- the board, not the property manager -- hire an accounting firm to give you a full audit every year. Your association should give a letter of engagement to the accountant, and the accountant should report back to you, not the manager.

Insist that the property manager give the board a monthly financial status report, which will include copies of the bank statements received by the management company. You should also require that the bank send a duplicate bank statement directly to the board treasurer. Review this material carefully every month within five days of receipt. Keep in mind that every board member has a fiduciary responsibility to all the unit owners. I assume that you review your own bank statements on a monthly basis; you should do no less for the unit owners you serve.

Most property managers are honest and hardworking. However, one dishonest manager can make board members distrust the entire industry. I do not believe that property managers will object to these suggestions, and indeed most community managers already operate this way.

But where there is money, there will be greed and corruption. Community association board members should control -- as best they can -- the security of association funds.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, www.kmklawyers.com.