Corruption
“Life is a corrupting process from the time a child learns to play his
mother off against his father in the politics of when to go to bed;
he who fears corruption fears life.”
—Saul Alinsky
It is very hard to determine how much of a problem corruption is in
condominium corporations. Not all boards are shady by any means but a
few are really bad and many directors and managers will take advantage of their
position to some degree.
Why so few criminal convictions?
One possibility is that no fraud was committed.
This possibility should not be discounted. If there was wrong doing,
proving fraud rather than negligence, willful blindness or stupidity is
difficult—especially against board directors.
Jed Rakoff, New York federal judge
Article—New York Review of Books 2014
Fraud is difficult to prove and investigating fraud takes up a lot of
scare police resources. Unless a condo board, an owner or a whistle
blower gives the police sufficient evidence to prove that criminal
fraud took place, they likely will not be interested in pursuing it.
Abuse of office
Many board members feel that their position gives them certain rights
or privileges. Therefore, they may make use the party room for free,
park a second vehicle in the visitor’s parking lot, use the building’s
office supplies and equipment for personal business or have the
superintendent or contractors do repairs in their private units as a "favour".
Some of this behaviour is so common that it is practically normal. A
director at one Weston condo parked in a condo-owned parking spot and
rented out his private parking spot. Later on, he went too far when he asked the
corporation's lawyer to change the deed to put the corporation's parking spot in
his name. The lawyer refused to assist in such a blatantly dishonest
act.
Fraud
By necessity, fraud is elusive and must be concealed. Most of what we know
of it is by anecdotes enriched by rumours, speculation and confirmed by a few civil and criminal convictions.
The acceptance of kickbacks is hard to detect as they are ongoing and
by necessity kept in check. A dishonest board president or manager
needs to exercise self-control so that the size of the fraud does not
give them away.
In September 2011, the Toronto Star reported:
The
list of condos involved in an alleged $20 million-plus property fraud
is growing as shocked owners are being informed, while others are still
unaware.
It was a tense morning at 39
Kimbercroft Ct. in Scarborough on Thursday when the condo board’s
president learned that Woodbridge entrepreneur Manzoor Khan, president
of Channel Property Management, had allegedly defrauded the corporation
of $2.8 million.
“I am glad we found out today,” said a shaken Muhanthan Anantharajah, who took over as board president in June.
He said the board had no clue Channel had taken out a loan against the
corporation until the Star told him Thursday afternoon.
A few hours later, he instructed a lawyer to search the condo bylaw
registry, which revealed that Khan had allegedly created a fake by-law.
This is a case where the owner of a property management company
stole millions from at least seven condominium corporations.
However, like everything else, condo corruption seems to be bigger than
life in Las Vegas. Four retired old ladies uncovered a quarter of a
billion dollar condo scam that involved condo boards, property
management companies, contractors, lawyers and a top political operator
in the Republican Party.
Once again, it took
individual owners to conduct the initial investigation and bring it to
the authorities’ attention.
Putting the bite on the contractors
An owner of a Toronto-based plumbing company told me that 80% of all
condo presidents he has dealt with expect a kickback from their contractors. (I was shocked at that
figure.) He thinks
that they are more dishonest than the managers.
“If a president has been in for six years, you’ll never get him out.”
The contractors will do free work on the president and treasurer’s
apartments while the manager gets work done on his house. (He said the
contractors never see the other three board members.) Sometimes the directors
are given tickets to the Maple Leaf or Blue Jay games and the costs are
added to the next project’s estimate.
I asked if he knew of any property managers that lived in a condo. He
laughed and said they are like him; they know what goes on in condos.
Alfonso Carcamo was the president of his condo for a year and a half.
He wrote in his self-published book, “Condo Saga: Exposing the
Frailties in the Canadian Condominium Industry” about his experiences.
In his book Alfonso tells us that an owner of a small property
management company offered him $3,000 to $5,000 a month in “commissions” if he got
the property management job and was free to get the estimates for
every job. He stressed that if Alfonso wanted, in time he could attempt to get
one or two other directors to work in collusion with the manager but he stressed
that Alfonso would never be able to get all five of the directors “on board.”
This matches what the the owner of the plumbing company told me.
Alfonso also tells of a contractor who offered him “some money” after
being awarded a small contract as a sign of his appreciation.
In is very interesting that after Alfonso’s “reform” board was elected
into office, expenditures on maintenance dropped 15-20% and the condo
had money to do repairs that had been neglected for years.
There are various frauds some big, some small. At one Downsview condo, for a
two-year period, none of the money collected from the guest suites or
the party room rentals showed up as income on the financial statements.
A president of a condo tower in North York told me that a contractor gave
her a Rolex watch as a thank you for giving him a contract. She gave it
back.
In his book “Cheats at Work” Gerald Mars describes why dishonest
contractors have an advantage over honest ones. The dishonest
contractors install used parts instead of new, charge for a full maintenance when only half
of the work was done and they replace parts that are not defective. How can the board
members or owners ever know they are being cheated?
Alfonso and the Toronto Star articles on Mr. Khan raise another point.
Some property management companies bid low to get a contract. Alfonso wondered
how some companies could work so cheap. Is the contracted price just
the visible portion of the money that management is planning to make from
the condo corporation?
Mr. Khan owned a number of shell contracting companies that “won”
contracts put out for bid by his Channel Property Management Company.
After winning the contract he subcontracted the work, at half of the
winning bid, to
other companies who—in some cases—did shabby work.
Other Toronto examples
The president of a condo tower in the Silverthorn part of Toronto hired a new
property management company. In short order, the half million-dollar
reserve fund was depleted and a special assessment was announced that
would hit each owner for $5,000.
The owners revolted. After the new board was elected, they fired the
property management company and after looking through the financial
records, the new president told his predecessor that he had three
months to sell his unit and move out or he would give the evidence of
fraud that he found to the police. The ex-president sold and moved.
An owner of a small property management company told me that he gave up
a contract rather than have a contractor come in and paint the
president’s apartment for free.
So corruption exists. How much, how bad and how long it has gone on,
depends on the condo corporation and the honesty and ethics of the
different boards that the owners have elected over the years and the
financial controls that were put in place.
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