How to Deal With an HOA Conflict of Interest
HOA board members are bound by a code of ethics to put the interests of their associations ahead of their own. They have a fiduciary duty to the community and its covenants, as do property managers. Conflicts of interest between board members, property managers, and vendors – or even the appearance of conflicts of interest – can create major issues for the community. But, by being proactive, HOA members and property managers can address and resolve any potential issues.
Conflicts of interest
A conflict of interest occurs when an outside factor interferes with a person’s ability to make impartial and unbiased decisions. For HOA board members or property managers, this may cause a person to prioritize self-interest over community interests. Whether this is an actual conflict or a perceived conflict, it is important to treat these issues with the same level of care.
Examples of HOA conflicts of interest
During my years as a CPA (trust me there have been many), I have noticed a number of different conflicts that can arise involving HOA board members, property managers, outside vendors, and even HOA community residents. Some common examples, either real or perceived, include:
- Recommending a vendor when there has been, or will be some compensation involved – whether money, goods, or services.
- Sending business to a family member or relative, as opposed to a board-approved and potentially better-qualified candidate.
- Taking on work through your own business at above-market prices.
- Utilizing community resources, like debit cards, for personal expenses.
Resolving the conflicts of interest
Many people who serve on HOA boards and work within HOA communities are also business people. When they are actively searching for business contacts during their day job and then looking for resources related to an HOA project – those worlds can overlap and potentially create conflict. However, as long as these potential issues are disclosed and appropriately communicated, you can avoid a full-blown conflict of interest.
If you think something may be considered a conflict, assume that someone else on the HOA board will challenge it later on. Here’s how to address (or ideally, avoid!) those potential conflicts with your fellow board members and property managers:
- Seek at least three different vendor bids so that you can compare options and pricing.
- Let the board members know immediately if you, or anyone you know, could benefit from a potential vendor relationship. Explain the situation thoroughly. The board can then discuss and determine the extent of the conflict.
- If a potential conflict does exist, excuse those conflicted parties from the decision-making process and voting.
- Make sure that the decision-making process is well documented, in case of future scrutiny. Fully explain the potential conflict, the on-record discussion, and the board’s subsequent actions. Keep a copy of this record along with the vendor bids and contract.
- Keep community resources completely separate from personal resources.
The best way to avoid a potential landmine is to step back and let the rest of the board make the final decision on a vendor. If you don’t have a Code of Conduct, in place, create one and have all board members, along with the property manager, sign it. I’m sure your property management company has one, or ask me for a copy. That way, everyone will understand the seriousness of potential conflicts – and will be more likely to avoid them in the future.
Neal Bach, CPA