Fidelity Bonds

Started by JohnK3 • 9 replies • 1496 views

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JohnK3 (Pennsylvania)
Posts: 967

Posted:

We recently ran across a provision in our ByLaws that was never acted upon for 7 years by our previous PM or Boards, that being obtaining a fidelity bond to protect against illegal acts by the Board - essentially theft of funds - to be in the amount of 150% of our annual dues = $30K.

As our current Board is set on keeping expenses down, among other things we've gone self-managed and asked Membership to change another ByLaw to make annual audits optional, which was approved, saving us about, respectively, 33% and 5% of our annual dues.

The cost of the bond would be about $180, or 1% of annual dues.

We're inclined to get the bond, though would prefer to use the money elsewhere.

I'd appreciate input as to your experiences with and requirements as to fidelity bonds in your HOAs.

Thanks, as always.

GlenL (Ohio)
Posts: 5,491

Posted:

Our CC&R's also require Fidelity Bonds for anyone who has access to the money and requires the MC (we have one) to provide a bond at their own expense. We fortunately have never had to use it but it is better to have it and not need it than to need it and not have it.

You can get the member's to change the requirement but I would be inclined to keep it as is. I once was a trustee on our local Fire Department Life Squad and the treasurer managed to pilfer funds to pay her bills even with all the checks and balances we had in place. They just caused the theft to be discovered sooner. Mind you this was a woman all of us literally trusted with our lives professionally but she got in a bind and took money we all raised to support our benevolent fund.

The sad thing was if she had just told someone what was going on we would have all helped her but she thought she could use the money and replace it before she was found out. Not only did it cost her job but she is forever marked as a thief. How much do you trust your neighbors? And if you trust them now what about when they move and the neighbor you don't know from Adam joins the BOD?

Studies show that 5 out of 4 people have problems with fractions

JosephW (Michigan)
Posts: 882

Posted:

Given the sheer number of embezzlements from associations over the past two years, and given the economic problems more and more people are finding themselves in, $180 is peanuts to pay for some security.

Joe

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KirkW1 (Texas)
Posts: 1,665

Posted:

While $180 may seem like a significant savings, it is peanuts compared to the $30,000 you might lose without it. I would never vote to drop the requirement. You also might find that your D&O insurance would sky rocket should they find out you don't have the bond.

JohnK3 (Pennsylvania)
Posts: 967

Posted:

Kirk,

Once I saw the fidelity bond lurkin gin our docs, I took a look at our D&O coverage. Much to my dismay, I discovered that what I thought it contained was a fig newton of my imagination, in that D&O only covers negligent acts, not criminal ones. Soooo...we ordered a bond app and will most likely apply after our upcoming Board meeting.

For those of you Boardies who might be similarly mistaken, check your policies. A has been noted by two of our correspondents, $180 is peanuts indeed.

MaryA1 (Arizona)
Posts: 7,043

Posted:

John,

The fidelity bond is really for the protection of the assn treas or any other board member handling the finances of the assn. It not only protects the assn if there is a theft, it protects an honest treas. from accusations of theft and that is why I insisted on getting one when I was Treas of my former assn. Oftentimes, an honest treasurer will balk at this because they view it as an indication of mistrust -- and it definitely is not. IMO, it is well worth the expense even if the assn never has to use it. Sort of like life ins -- "you" pay for it but "you" never get the benefit of it.

JohnK3 (Pennsylvania)
Posts: 967

Posted:

Mary,

Not having seen the wording of the proposed fidelity bond, are you saying yours covered legal expenses in defense of a Board member "accused" of defalcation, or a Board member "sued" or "prosecuted" for defalcation?

KirkW1 (Texas)
Posts: 1,665

Posted:

Normally a fidelity bond does not pay for anyone's legal expenses. What it pays for is to replace the money should the bonded person get greedy and skip town with the money.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By KirkW1 on 09/05/2008 9:48 AM
Normally a fidelity bond does not pay for anyone's legal expenses. What it pays for is to replace the money should the bonded person get greedy and skip town with the money.

I was of the opinion it covered the treasurer should someone accuse him/her of embezzling funds. At least that's the way our ins. agent explained the coverage to me at the time. Are you saying it only covers replacing funds that have been embezzled and not the accusations made about the treasurer?

KirkW1 (Texas)
Posts: 1,665

Posted:

Here is the definition from dictionary.com:

Quote:

insurance purchased by an employer to protect against financial loss from dishonest acts by persons entrusted with valuable property or funds

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