—Seeing is Believing
“Associations hire management companies to assist in the day-to-day operations which include the above as well as several other functions. Usually included is the management of the association’s bank accounts, preparation of financial reports and assistance in preparing the annual budget. It would seem counter-intuitive for the board not to review the records prepared by the management company, as the board is paying for them to assist in performing their duties. Put another way, it would be difficult to meet the board’s fiduciary duties without knowledge of the financial state of the association. Therefore, all board members should stay apprised of this information by reviewing the monthly financial reports of their management company.
“Illinois Courts have found that the failure of board members to act in a manner reasonably related to the exercise of their fiduciary duty would result in liability for the board members themselves. Should a financial problem arise in a condominium association, the board members may be individually liable for the financial harm to the association if the unit owners can prove the board members did not exercise reasonable business judgment in performing their fiduciary duties.
“Taking it one step further, a couple years ago, it came out that a particular management company, more specifically, the owner of that company, stole more than two million dollars worth of reserve funds from various associations he managed. He produced falsified financial reports to the boards to conceal what he had done. Had the boards reviewed copies of their actual bank statements, in addition to the management reports, they may not have lost as much.”