What condo operational controls should a corporation have in place?

Management should implement a basic set of controls in condominium corporations to protect against various risks for waste and theft that can cost tens of thousands of dollars in annual losses.

Some possible examples of operational waste and theft include: misuse of consumable supplies; theft of tools and equipment; sloppy or dishonest compilation of work time-sheets and payroll; and over-ordering of supplies (e.g. paint, cleaning fluids, light bulbs) diverted for personal use or resale.

These schemes could be carried out by property managers, corporation employees, contractors, or even by directors in collusion with managers and employees.

To guard against these risks, condominium boards should require management to issue a written internal controls policy to all insiders in the corporation (board members, managers, and management supervisors or executives at the management company) that defines what constitutes improper conduct and the consequences that may follow.

This policy should also require segregation of key duties (i.e. no single person controls multiple critical tasks) and should provide a channel for whistleblower complaints raised by any persons who believe operational waste or improprieties may be occurring.

And boards also must hold management continuously accountable to enforce this policy without compromise. A diligent condominium board will always set high operational standards and require management to respect and follow their policies for proper operational controls.

Some strong internal operational controls in condominiums include:

• Requiring a manager’s signature plus the superintendent’s signature, plus double-verified count, on all shipping manifests for delivered supplies.
• Having video cameras overlook all activities at the concierge desk and loading docks.
• Monitoring the master key drawer or key cabinet via camera.
• Having management inspect employee staff rooms, rest and storage areas for contraband (such as alcohol, porn or drugs) at irregular intervals.
• Having a proper tracking system for deployment and recovery of temporary parking-garage pass-cards.
• Conducting frequent inspections of concealed and hidden spaces throughout common areas for contraband or pilfered items.
• Implementing a robust sign-in/out system for resident parcel deliveries and pick-ups.
• Having the property manager review the concierge log book and superintendent log book in detail at least three times weekly, along with relevant building video recordings.
• Having directors inspect contractor work on the premises and verify that the manager is providing supervision of all required performance details.

Judy Sue is a certified fraud examiner with experience in condominium fraud investigations, financial record-keeping forensics and recovery of fraud losses for victimized clients. William Stratas specializes in performance audits of condominium corporations, fraud technical forensics and fraud deterrence/controls programs for condominium corporations. They are co-founders of Eagle Audit Advantage Inc., and can be reached at help@eagleaudit.ca or 416-599-1212.