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CarolM4
(Hawaii)

Posts:9


05/17/2010 12:26 AM  
Owner applies for On Site Manager position. Not hired. New Board formed. Same Owner now President. 3 members of the Board are business associates of President. Owner's daughter is hired as a "vendor" with a 3-6 month contract to get the complex in order. I supported the short contract, and limited goals. This is followed by the Association learning through auditor that Federal govt. will consider daughter an "employee, and her status is changed. This has been extremely difficult for me. State law appears to me to be clear that conflicts of interest are not always feduciary, but oft times are personal. It has been clear that the owner wanted the daugter to have this $76,000.00 (+ non cash benefits of medical, etc) job. I acknowledge the high work ethic of the young lady. However, there are apparent control issues. Right now, she is doing the job of 2 people, and likes it that way. She doesn't want the Board of Directors being involved. Our Association also has a Property Agent which is law in Hawaii.
My Question: Would you be concerned about the conflict of interest? It's "eating" me up. I'm a senior citizen, owned small businesses, and have been very active in community projects. When something eats at me like this, and I can't let it go, I have learned to follow my instincts which usually prove my assessment accurate. I think I'm needing some reassurance. It appears that no one is prepared to question the President's tenacious stance that there is no conflict. Please let me know if you would be putting up a "red flag", and advise me what you would do.
GlenL
(Ohio)

Posts:5164


05/17/2010 12:47 AM  
Carol, unless it is prohibited in the CC&R's IMO it is not a conflict of interest since the relationship is known by all. This does not mean I think it is a good idea and I would work to remove the father from the Board at the next election. Do your CC&R's call for regular audits of Association funds.


Trust, but verify. (Ronald Reagan)

"Common sense is like deodorant--the people who need it most never use it."
TimB4
(Virginia)

Posts:9292


05/17/2010 3:18 AM  
Carol,

As you probably know, a conflict of interest doesn't mean it's illegal or improper. However, it can be perceived as improper or illegal. Therefore, steps should be taken to show that everything is on the up and up.

Since the contract is only for six months, I would recommend to the Board that at the end of the contract bids should be solicited prior to extending the contract. Explain to them that soliciting bids is not only prudent for the Association but it can help alleviate perceptions of any conflict of interest. You may also want to recommend that the Board farms the bid process out to a committee for recommendations to further correct any perceptions. Then volunteer to be on the committee.

Tim
SteveM9
(Massachusetts)

Posts:2909


05/17/2010 4:07 AM  
However, there are apparent control issues. Right now, she is doing the job of 2 people, and likes it that way. She doesn't want the Board of Directors being involved.


Ding, ding, red flags! Doing the job of two people and doesn't want the board involved with what she is doing? This could be a disaster in the making.
SusanW1
(Michigan)

Posts:5202


05/17/2010 5:24 AM  
On the other hand, hire the best people and get out of their way!!!

If she is reporting to the board and doing a good job, then why would the board want to "get involved" in any other way than to monitor it from the sidelines.

The relative to this employee should not vote on anything that has to do with the employee's contract. Other then that, it may even be an advantage to have a father/daughter working for the betterment of the HOA.

CarolM4
(Hawaii)

Posts:9


05/17/2010 9:39 AM  
State law states that conflict of interest is not restricted to feduciary issues, conflict includes "personal" interest. Your point is well-taken about the President being removed. I'm subtly encouraging him to resign, make himself an ethical hero, and then let the owners clamor to have him back! :o) I appreciate you taking time to respond.
CarolM4
(Hawaii)

Posts:9


05/17/2010 9:44 AM  
I agree with your first statement.
The contract was canceled because it was a "vendor" contract. The Board had to either let her go, or hire her as a full employee with industry standard salary(very rare in Hawaii)+ substantial benefits. Your suggestion to look into forming a committee for recommendations is interesting. I so appreciate your input. Can you believe I was introduced to this site at a local Dog Park where a few of us are on Association Boards? Thank you for your time.
CarolM4
(Hawaii)

Posts:9


05/17/2010 9:50 AM  
For you as well, huh? :o) Well, the fact that you too would be alerted is indicative that some positive action has to be considered. This is why anyone who runs for an "unpaid" Board position should not do so unless they have the time to be involved. The majority of our Board have day jobs, and family. They tend to be too willing to turn over important decisions to Management. I respect their position, but Hawaii Condo Law and our Association bylaws are clear about the Board maintaining their leadership, and control over management.
Thanks so much for taking time to respond.
SteveM9
(Massachusetts)

Posts:2909


05/17/2010 11:01 AM  
The contract was canceled because it was a "vendor" contract. The Board had to either let her go, or hire her as a full employee


Sounds like she had no "company" of her own, therefore she either had to start one, or become an employee. A professional management company would not require their employees to become employees of the condo.

They could have planned this strategy from the very start.
RogerB
(Colorado)

Posts:4891


05/17/2010 11:51 AM  
Carol, have your HOA hire independent contractors; they are not employees.
DanielH1
(California)

Posts:481


05/17/2010 2:02 PM  
Roger has a good point except that the government gets the final say in who is a contractor and who is an employee. Even though an auditor really cannot say definitively whether a worker is a contractor or an employee (since the auditor doesn't work for the government), it is an indication that the government might judge the worker as an employee and the HOA can't do anything (that will work) to make the worker into an independent contractor.
MaryA1


Posts:0


05/17/2010 3:17 PM  
Daniel,

What do you mean in saying ". . .the government gets the final say in who is a contractor and who is an employee"? Do you mean the Fed Govt and why would they even be involved?

A contractor is paid a fee with no employee taxes (Fica, fed and state taxes) being deducted; an employee is paid a salary and employee taxes are withheld. That is the distinction between the two.
TimB4
(Virginia)

Posts:9292


05/17/2010 4:03 PM  
Mary,

If you are audited by the IRS they are the determining factor. Here is a link to an IRS document
Independent Contractor (Self-Employed) or Employee?

Tim
RogerB
(Colorado)

Posts:4891


05/17/2010 4:32 PM  
There are specific guidelines which must be use to qualify as an independent contractor. The HOA can hire independent contractors and can control results and timeframe; but they may not supervise the work and methods used can not be defined beyond the scope of the Agreement. Attached is an example general Independent Contractor Agreement.

Attachment: 1517323467371.doc

CarolM4
(Hawaii)

Posts:9


05/17/2010 11:56 PM  
I believe Boards would ideally like to rely on the Property Agent, and the On site Manager. The laws in Hawaii are very strict in regard to Boards. Management companies and employees cannot be held liable for mistakes in judgement,etc. The Associations can be fined and then the individual Board members can also be liable. Although in principal, I agree it would be great to "get out of the way", I think our Board members should receive a written monthly report. We get nothing.
Each state appears to have different standards. I'm find this site very enlightening, and I appreciate you taking time to respond to my query.
CarolM4
(Hawaii)

Posts:9


05/18/2010 12:01 AM  
From what I have determined, Daniel, you are right. The federal govt. IRS determines who is a "vendor/contractor" or employee. They want the taxes so the IRS is more prone to negate vendors, and go for the employee status. The auditor for our HOA was the one that determined what we had to do.
MaryA1


Posts:0


05/18/2010 9:54 AM  
Carol,

I don't agree with your statement: "They want the taxes so the IRS is more prone to negate vendors, and go for the employee status."

The IRS doesn't get the employment taxes that are withheld by the employer. And, an independent contractor also must pay federal and S/S taxes. Instead of being deducted from his check they're paid with his federal tax return. Certain guidelines apply to meet the criteria of an independent contractor or an employee. That is what the IRS must look at if they are going to make this determination.
MaryA1


Posts:0


05/18/2010 9:59 AM  
Tim,

I understand that, but Daniel made it sound as though the "govt" was going to come into your business for no good readon and decide who is a contractor and who is an employee. Also, when the IRS audits a business do they really look at that? I would think it would depend upon the reason for the audit.

And I also do not agree with his assertion that the HOA couldn't do anything to make the worker into an independent contractor. All that needs to be done is meet the criteria for being an independent contractor.
DanielH1
(California)

Posts:481


05/18/2010 10:06 AM  
Well, the IRS guidelines are guidelines, not rules. You can satisfy all the IRS independent contractor guidelines but, even though it is unlikely, the IRS can still decide that your contractor is an employee, even after the fact.

I did mistakenly think that Roger was suggesting that the original poster try to convert the employee into an independent contractor. My bad -- Roger is smart enough never to suggest this. Making your employee get a business license, create a written contract or buy insurance to try to turn them into an independent contractor doesn't work because the IRS will see through the sham and determine that the person is still an employee.
CarolM4
(Hawaii)

Posts:9


05/18/2010 1:11 PM  
You're correct, Mary. However,the IRS prefers to have "employees" as their taxes are deducted for the IRS. Vendors are more risky in the sense of collecting taxes. Moreover, Vendors are eligible for more deductions. Ergo, the IRS has more "eyes" watching the vendor designation.
SteveM9
(Massachusetts)

Posts:2909


05/18/2010 1:31 PM  
CarolM4
Now that she is an employee, she isn't going anywhere. Dont kid yourself, you have been hoodwinked to the tune of $76,000 + medical, etc. No one sets up a medical plan and other benefits for a 3 month employee.

Too bad your HOA didn't get so interview other candidates and just appointed her the job. Seeing she didn't get the job the first time, she may not be the best candidate for the price.

Now you just need to see if she does a good job and if you think her cost is worth the benefit. But with her dad as the president, letting her go will be impossible.
CarolM4
(Hawaii)

Posts:9


05/18/2010 7:45 PM  
Bingo! Schmooze us, snow us! All we can do now, is assess. I want to think positive, and hope she's going to be the best. In fact, I am not concerned about that aspect. I am, and will continue to be concerned about no monthly reports.
I want to add that you, and others on this site are such a valuable resource. Your time to answer is most appreciated.
Aloha.
KenS7
(Florida)

Posts:1


01/22/2013 5:57 AM  
I am a new member of our HOA Board of Directors. I recently found out another Board member who is also the Treasurer is also our insurance agent.

It's my understanding Directors or Officers of an HOA is not permitted to receive compensation of any kind in the state of Florida.

Would anyone be able to direct me to any backup material to support my opinion or am I just being overly concerned?
MelissaP1
(Alabama)

Posts:4854


01/22/2013 6:08 AM  
This is an old post from 2010. You are better off starting a new topic. Welcome to HOAtalk. I know someone here can assist you in your questions. Just want to make sure it's in the right spot to do so.

Former HOA President
GlenL
(Ohio)

Posts:5164


01/22/2013 9:08 AM  
Ken as Melissa said it would be better to start a new post but in answer to your question - he is not receiving compensation for being a Board member but from his day job. Granted the money might come from the HOA but it's not for being a Board member.

"Common sense is like deodorant--the people who need it most never use it."
LarryB13
(Arizona)

Posts:2464


01/22/2013 2:56 PM  
Posted By GlenL on 01/22/2013 9:08 AM
Ken as Melissa said it would be better to start a new post but in answer to your question - he is not receiving compensation for being a Board member but from his day job. Granted the money might come from the HOA but it's not for being a Board member.




Strongly disagree.

As a board member he has a duty to his association. As an insurance agent, he has a duty to his insurance company. You cannot expect this person to make rational decision regarding insurance for the association when he has a financial interest in the outcome.

As a board member he may become privy to information, such as a pending or threatened lawsuit, that the insurance company may use to either drop coverage or raise rates. Most agents have a clause in their contracts with their insurance companies to reveal this otherwise confidential information to the insurer.

At the very least, he should recuse himself from voting on any issues relating to insurance. Considering his obligation to report negative information to his insurance company, it would be best if he resigned from the board entirely.

GlenL
(Ohio)

Posts:5164


01/22/2013 3:27 PM  
Larry if you'll reread Ken's post his concern was that the treasurer/insurance agent was receiving compensation for being on the Board. My reply was solely about that issue not whether it was a good idea or a conflict of interest.
Posted By KenS7 on 01/22/2013 5:57 AM
I am a new member of our HOA Board of Directors. I recently found out another Board member who is also the Treasurer is also our insurance agent.

It's my understanding Directors or Officers of an HOA is not permitted to receive compensation of any kind in the state of Florida.

Would anyone be able to direct me to any backup material to support my opinion or am I just being overly concerned?




"Common sense is like deodorant--the people who need it most never use it."
JohnC46
(South Carolina)

Posts:4124


01/22/2013 4:30 PM  
Glen

Larry raises interesting points not so much about compensation but most certainly about "obligations" be they legal or moral.

No blanket rule can nor should be made about BOD member relationship with a vendor, but in this case it does not pass "my smell" test based on the issues Larry raised.

Who on the BOD is related to the guy that plows the streets is a heck of a lot simpler issues if he defaults and does not show up after a snow storm to plow the streets then an insurance company backing out of a claim based on information they have from "an agent/employee/member of the BOD".

I say the Secy/Treasure has to go if his company is carrying the insurance policy via him or even another agent in the same company.

It does not pass my smell test.






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