In 20 years of managing community schemes, I can recall only 3 instances of fraud being uncovered, and all 3 involved caretakers/estate managers. Before I expand on this, let me make it absolutely clear that caretakers/estate managers play a very important role in the smooth running of any complex, especially where trustees do not have time to devote to such activities. It takes a special kind of person to look after the interests of all owners and tenants, and we are fortunate to work with a number of caretakers/estate managers who do a wonderful job.
In the first instance, a caretaker was asked by the trustees to receive a weekly payment from Whitfields direct into their bank account, and then to count the number of garage doors painted by the appointed contractor and to pay the contractor cash every Friday, based on a fixed price per completed door. Invoices were duly signed off by the trustees on a weekly basis and payments were made to the caretaker as arranged. It was only after about 6 weeks when the contractor happened to bump into one of the trustees and ask when they might receive payment, that it was discovered that no payments to the contractor had been made on any of the Fridays as arranged. When confronted, the caretaker admitted to having used the money to pay off some of her debts. Since she had no assets to speak of, the money was never recovered and the trustees had to approach the owners cap in hand and approve a new special levy.
In the second instance, an estate manager was entrusted with getting quotes for painting a very big complex. Various quotes were obtained which were presented to the trustees. A contractor was duly appointed and the complex was painted. Soon afterwards the estate manager was replaced and it was discovered that other reputable painting contractors had quoted on the job. Their quotes, which were much lower than the quote accepted by the trustees, had never been presented to the trustees because they had refused to offer the estate manager a kick back.
In the third instance, a caretaker ensured that invoices from a particular contractor were sent direct to him. He created on his computer new and inflated invoices in the name of the contractor, reflecting his friend's banking details, and gave these to the trustees for approval. He would pay the contractor the initial requested amount, and he would receive the inflated amount into his friend's account. Until a particular month when he paid the contractor too little in error! The contractor phoned us to query this and we sent the contractor proof of our payment, which was obviously much higher than the payment they had received, and the banking details were not their banking details.
So what can we learn from the above? One could argue that there has to be an element of trust between trustees and their service providers, and that you can't be looking over their shoulders all the time. Whilst that may be true, section 40(1) of the Sectional Titles Act states that each trustee shall stand "in a fiduciary relationship to the body corporate". A good definition that I saw for the term fiduciary reads as follows "An individual in whom another has placed the utmost trust and confidence to manage and protect property or money." That's quite a responsibility!
I'm sure that you all have some ideas you could put forward at your next meeting to reduce the risk of fraud at your specific complex. I would like to leave you with this suggestion, not only to reduce the risk of fraud, but to ensure that all service providers perform the task that is required of them. Problems occur when no one has been assigned the specific responsibility of looking after something. Trustees must know what their specific roles are on the board and every service provider should report to a specific trustee. Let me use Whitfields as an example. There should be a trustee whose responsibility is finance. Their specific role should be to check our monthly reports (I will expand on this next month) and make sure that we are performing in line with our SLA. Similarly if your complex has a caretaker/estate manager, that person should report to a specific trustee whose role it is to oversee this particular function. By having clearly defined responsibilities within your board of trustees, you eliminate the "but I thought person X was watching out for that!"