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Category: Legal
Satisfied Customers: 57375
Experience:  Licensed attorney helping individuals and businesses
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Can the Board of a Florida Condominium Associaition legally

Customer Question

Can the Board of a Florida Condominium Associaition legally refuse to comply with a unit owner's request that it pay its outside accountant to verify the existence and proper exercise of accounting and administrative internal controls essential to minimizing fraud and waste?
A situation has arisen whereby a Condo Board prefers not to pay an extra one half of one per cent per annnum in additional fees to its outside auditor/accountants because they say it's 'unnecessary'. The complant is that in a budget of some $2 to $3 million/year the opportunity for fraud and abuse is too great to allow a fee of a few thousand a year to discourage proper auditing.
Submitted: 5 years ago.
Category: Legal
Expert:  INFOLAWYER replied 5 years ago.


Good morning and happy new years


That outside accounting is routinely done, and failure to permit it can be basis for voting board members out


it is not actionable on its own unless there is a showing that the board has been mismanaging or usurping funds, unless the bylaws and internal rules call for such an outside review


If they do, and the board refuses, and funds have been segregated for this purpose, the conduct is illegal and actionable


Before a lawsuit is even considered, a lawyer letter to the board with a cc to residents often accomplishes the outcome you are seeking.

Expert:  INFOLAWYER replied 5 years ago.
I think the chat feature is not working this morning, so if I can clarify anything, please ask me using REPLY.
Customer: replied 5 years ago.

That is not the issue. Members of an Association can always vote out Board members with or without good reason.

The issue is the following:

1. Given that the law requires outside accountants to do some verifying of an Association's affairs, and

2. Given that at least sometimes, they verify nothing except to affirm that based on what information they were given the financial statements are in order., and

3. Given that absent a statement that internal contriols are in place and have been verified by the outside accountant the unit owners can have no assurance that there has not been fraud or waste, and

4. Given that the Board members have a fiduciary duty to the unit owners,

5. The question becomes: Can Board members refuse to authorize relativley minimal payments to the accountants to do their dure diligence on internal controls without being in violation of their fiduciary obligations?

Expert:  INFOLAWYER replied 5 years ago.
Do you have reason to believe that funds are being mismanaged or are you asking as a general matter if a member must universally permit such outside additional review?
Customer: replied 5 years ago.

There are many cynics who are convinced that every manager is a thief and every condo is being mismanaged. Some of these cynics are in this building.

I have a less cynical view, but I believe one can trust but never stop verifying, if only to correct good faith errors.

To anser your question specifically: Yes there has almost certainly been some fraud and mismanagement. However the question remains generic:

Regardless of any suspicion or reason to believe any wrongdoing has occurred , I believe the principle of paying outside auditors to verify internal controls to prevent wrongdoing is an essential fiduciary duty of every Board Member of every Florda Association. Consequently I also believe that refusing to do in the name of saving money, when the money saved is such an insignificant part ot the total cost of the Association budget is a clear breach of the fiduciary duty of the Board Member. Do you agree?

Expert:  INFOLAWYER replied 5 years ago.
The conduct you are suggesting is not automatically required. Review of the internal controls and behavior does require additional funding, so it is not a breach of fiduciary duty, unless there is reason to do so such allegations of misconduct, mismanagement of funds or the bylaws/rules require such further auditing. It otherwise falls within their discretion to vote on, and not an abuse of fiduciary duty
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