How to Avoid Common Pitfalls as an Association Board Member

It is well-established that Association Board members (directors and officers) have fiduciary duties to their owners and associations. Failure to adhere to them can result in lawsuits against the associations, their directors, and officers. Unfortunately, directors and officers sometimes increase their risk by engaging in behaviors that make lawsuits more likely. So, the question becomes, what are some of these risky behaviors and what can board members do to avoid them?

Common Risky Behaviors

1. Misusing Association Funds: Taking funds or obtaining benefits not available to non-board members, such as free or better parking spots, quicker contractor service, or using association funds for personal reasons (even if repaid).
2. Blind Trust in the Treasurer: Trusting the treasurer without checking or comparing financial reports against bank statements.
3. Secretive Decision-Making: Making decisions secretly without informing members when and where board meetings will be. Whether required by law or the association’s governing documents, allowing owners to attend board meetings.
4. Ignoring Association Documents: Not following association documents, even if for so-called “good reasons” like tradition, convenience, or difficulty in understanding them.
5. Conflicts of Interest: Approving contracts with businesses owned by board members, their family, or friends.
6. Avoiding Professional Help to “Save” Money: Deciding not to hire professionals (engineers, accountants, or attorneys) to handle construction, financial, tax, or legal issues.
7. Inadequate Insurance: Failing to purchase sufficient or appropriate insurance, such as General Liability, Property, Worker’s Compensation, Directors & Officers, or Fidelity/Crime insurance.
8. Neglecting Reserve Funds: Not having a reserve study or reserve fund, expecting owners to pay for common element replacements when they occur.
9. Exploiting Insider Information: Taking advantage of information learned through their position without offering it to the association or owners.
10. Superficial Repairs: Fixing water damage without locating the actual cause to save money.
11. Insufficient Record–Keeping:  Regardless of size, the association needs to keep official records – just like any other business.
12. Irregular Elections: Not holding annual elections or running objectively fair elections.
13. Overly Detailed Meeting Minutes: Demanding that meeting minutes capture the essence of every comment rather than just recording actions taken. Minutes are called ‘minutes’ not hours…

Solutions

• Change Your Approach: Adopt best practices and avoid the risky behaviors listed above.
  • Instill checks and balances. Watching the association’s money is a critical responsibility of every board member, regardless of who serves as Treasurer or having a professional manager or bookkeeper. There is a reason most companies separate accounts receivable from accounts payable. Follow suit.
  • Be transparent. Whether or not required by law or the governing documents, allowing owners to attend board meetings is the best way to demonstrate the board has nothing to hide.
  • Read the Governing Documents and Comply with the Covenants, Rules, and Regulations. When in doubt, ask the association’s attorney for guidance.
• Seek Professional Help: Consult with professionals to ensure compliance and proper management.
• Attend Educational Seminars: Stay informed about best practices in the association industry by attending seminars and training sessions.

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