Ontario Condo Law Blog : Toronto Condominium Lawyer & Attorney : Gardiner Miller Arnold Law Firm : Ontario, Ottawa, Hamilton, Kitchener

Organizations such as condo corporations need to be even more vigilant for deception and fraud in the wake of the recent economic downturn. A Google search for “condo fraud” returns an almost endless list of fraud instances in condo communities, many of which could have been prevented by simple due diligence and good corporate governance. The fraud instances listed range from fabricating invoices for maintenance and repair work to illegally selling parking spaces and misappropriating trust funds. Frauds were committed by employees, members of the board of directors as well as vendors taking advantage of an opportunity to defraud the condo corporation.

It is important to remember that the cost of protecting against fraud often outweighs the damage resulting from it. For example, it typically costs less than $100 to obtain a background check (with consent) on a potential employee, member of the board of directors or vendor, whereas the damage done by a fraudulent employee, director or vendor may far exceed that amount.

The following simple, cost-effective internal controls can go a long way in protecting your condo community from fraud.

Accounting and Finance

1.  Use a secure, password-protected accounting system to track transactions. This type of software can be purchased off the shelf at any retail office supply store. The corporate auditor should be the only one with the “accountant” password.

2.  Set up all corporate financial accounts to require two signatures for all transactions including cheques. Often it is wise to have one of the signing authorities be a board member and the other the property manager.

3.  Cheques used by the corporation should be of the pre-numbered variety. Cheques should be locked away when not in use.

4.  Wherever possible expenses should be paid for by cheque.

5.  Avoid issuing corporate credit cards. If corporate credit cards are in use, carefully scrutinize each transaction on credit card statements.

6.  Depending on how active your condo corporation is, set up a policy that all cash transactions (no matter how small) must be recorded daily and deposited either daily or weekly.

7.  Keep a petty cash amount on hand for emergencies. Often less than $50 is sufficient. Track all usage of these funds through “petty cash slips”.

8.  Any investments of corporate funds should be made through a reputable and licensed broker. All investments should be purchased in the name and address of the condo corporation only and no other names should appear on the instrument.

9.  Financial statements should be presented to the board of directors on a monthly basis. It is the responsibility of the board to satisfy themselves that the statements accurately reflect the condo corporation’s financial status.

Hiring and Contracting Process

Ensure that you have a competitive hiring process in place. Interview or invite bids from at least three separate people or corporations. Once you have narrowed down the selection process to the three top candidates, get their consent (in writing) to perform a due diligence check, which may include any or all of the following:

• Criminal background check
• Credit check
• Previous work experience
• Reference(s)
• Driver’s License Verification
• Any other type of due diligence that may be required.

Insurance

The condo corporation and its manager should have adequate fidelity insurance policies in place that cover all employees, management and the board of directors. What counts as adequate insurance may be debatable, but a good rule of thumb is to insure at least up to the value of all funds and assets that could be at risk. Obtain legal and financial advice to make sure the condo corporation has proper coverage.

Be Proactive

Adequate measures to prevent and protect against fraud are essential for every organization, including condo corporations. Failure to have such measures in place can lead to disastrous consequences and potentially huge losses for your condo community. The benefits of adequate protection against fraud far outweigh the costs.

This does not mean that managers cannot follow up with clients or conduct business while on the road, but rather that they must be sure to use a hands-free accessory for their mobile device at all times while in transit. To prevent being fined, property managers should refrain from sending email messages, even while at a full stop at a light or stop sign. If you are safely parked then the new legislation does not apply.

Let your board members and owners know about the new “rules of the road” with respect to using a mobile phone or other such device so that they are aware of this change and how it may affect your availability. Management companies may be implementing new policies regarding the use of mobile devices while driving, so make sure to find out if your company will roll out a new policy. If not, condominium managers should approach the executive or owners to suggest putting one in place. Implementing a safety policy related to this new law equally applies to employees and might extend to contractors hired by the condominium corporation, so board members should ensure that they advise all parties.

Remember to obtain a Bluetooth® or other similar hands-free accessory for your mobile device and make a habit of activating it every time you are on the road; otherwise, don’t answer a call, or just turn the device off altogether - that is what voice mail is for. Finally, as people adapt to this new rule, it is also a good idea to remember to ask those you are calling if they are driving and, if so, whether they are on hands-free. If not, ask them to call back when it is safe for them to do so.

Remember, safety first!

Each condominium unit is still assessed as a single-family residential unit for the purposes of the municipal tax bill.

This is the case because the Assessment Act of Ontario (the legislation which specifically covers the way properties are assessed in Ontario for municipal and school taxation purposes) does not identify condominiums as a specific category of assessment. Thus a condominium-specific tax rate cannot be created by the local municipality, since the municipality can only do those things granted to it by provincial legislation. Since the Assessment Act of Ontario does not permit a distinct category of assessment for condominiums, the municipality does not have the authority to create a specific tax rate for condominiums, even if they wished to do so.

Thus the Assessment Act of Ontario must be amended to permit a category of assessment for condominiums and therefore permitting the municipality, if they chose to do so, to create a condominium-specific tax rate. 

However, we must be aware that although the municipality would have the ability to establish a condominium-specific tax rate with this amendment, they would probably not be mandated to do so by this change.

Our condominium Board of Directors recognized this deficiency in legislation some time ago. They felt, that if this change is ever to occur, it will not happen on its own. The Ontario-wide condominium community must ask for it, in fact must lobby for it.

Our Condo Board of Directors felt so strongly about this issue, that they felt something had to be done and were ready to take action. They also felt that their action had to be shared with other condominium Boards of Directors in Ontario.  

We undertook the following five-part plan:

1)    We submitted a letter to our local municipality (the Town of Markham) asking Council to pass a motion requesting the Province of Ontario to amend the Assessment Act of Ontario to create a specific category of assessment for condominiums. Once this motion was passed, we asked them to send their motion to the Association of Municipalities of Ontario (the municipal lobby group) requesting them in turn to support this motion and so notify the Government of Ontario of this legislative requirement.

2)    We sent a letter to our local MPP requesting him to support our action to amend the Assessment Act of Ontario and to so petition the Minister of Finance (whose Ministry is responsible for the Act.) to make this amendment.

3)    We met with the principals of our property management company, Del Property Management Company and asked them to place this issue before the Boards of Directors for each condominium they manage.

4)    We sent copies of all the correspondence we had taken to the Toronto Chapter of the Canadian Condominium Institute and asked them to use their offices to lobby the Government of Ontario accordingly.

Although our condo corporation initiated this action, we feel that success can only be achieved if the many other condo corporations in Ontario undertake to do something similar, if not the same thing that we did. Only with our collective many voices, representing this sizeable voter bloc in Ontario, can we hope to be successful in our endeavors.

What has happened since we began this initiative in February, 2008:

1)    We met with our MPP, Michael Chan, and presented him with a letter requesting his support for our action. He wrote a letter to Dwight Duncan, Minister of Finance, on our behalf and asked the Minister to respond to our petition. Recently, we received a letter from the Minister, the Hon. Dwight Duncan, acknowledging receipt of our letter. Although he did not unilaterally accept our petition, he did not outright reject it either.

2)    The Town of Markham, after receiving our letter, referred it to their ad-hoc Condominium Working Group, made up of Councilors and municipal staff to discuss this issue and others around the explosive growth of condominiums in Markham. We requested recognition and appointment to this committee. On June 24, 2008, the Council of the Town of Markham appointed a representative from our condo corporation to this committee. We are now at the table.

3)    The Canadian Condominium Institute – Toronto Chapter has adopted this issue as one of its priorities and, in conjunction with the Association of Condominium Managers of Ontario (ACMO), hired a lobbyist to champion these issues before the Government of Ontario.

4)    Del Property Management reacted positively to our initiative. They agreed to take our initiative and put the information in 2 in-house Del newsletters. The first would go in their “Del-o-gram” which primarily goes to Boards of Directors and Property Managers suggesting that this topic be on a future agenda of the Boards of Directors of each condominium they manage. The second would be to reprint this article in “Condominium Life” magazine which generally reaches all condominium owners in the various properties they manage.

Success in this endeavour cannot be accomplished overnight. Nor did we expect that it would. However, we are in this effort for the long haul.

At this moment, we believe that we are only one of a very few condominium corporations to undertake this initiative. But to be successful, we believe that all condo corporations in Ontario need to undertake an effort similar to ours. 

Finally, remember that condo living is now a way of life for an ever-increasing number of people in Ontario. We have now become a very sizable voting bloc among the electorate of Ontario and because of this; we should start using this influence.

Therefore -- The board of directors of our condominium urges all the other condominium board of directors in Ontario to lobby their municipal council and MPP for this change. 

Together we can be successful.

Ernest (Ernie) Nyitrai
Member, Board of Directors
YRCC 636
25 Austin Drive
Markham, ON  L3R 8H4
(905) 477-1511
enyitr618@rogers.com