OCEAN CITY — An ongoing local and possible federal investigation into the alleged mishandling of money for various resort area condominium associations, at best, and fraud and embezzlement at worst, has left some area associations scrambling to recoup their depleted funds.
Bill Scott, president of Scott and Company, Inc., a full-service public accounting firm based in Berlin that also handles property management for various condominium associations in the resort area, is currently under investigation for several “account improprieties” that have allegedly bilked some of the associations out of hundreds of thousands of dollars in collected condo fees and reserve accounts.
It has been confirmed the Worcester County Bureau of Investigation (WCBI) is investigating Scott’s alleged improprieties regarding the handling of the various condo association accounts his company handles and several sources have confirmed the investigation has gone to the federal level in recent weeks.
“We don’t confirm or deny investigations, so I can’t help you there,” said U.S. District Attorney spokeswoman Marcia Murphy this week. “I can tell you there are no federal charges filed against Mr. Scott.”
For his part, Scott has neither denied or confirmed any alleged wrongdoing, but did acknowledge yesterday the investigation is ongoing.
“All I can say is, law enforcement and legal counsel has advised me not to say too much or anything about the investigation right now,” he said yesterday. “I can tell you there have been no arrests and no warrants. I wish I could say more, because I know this will put me in a negative light, but I have to leave it at that for now.”
Scott did confirm in an email sent to one of the condo associations whose accounts he handled that WCBI is probing his alleged actions.
“The Worcester County Bureau of Investigation is currently investigating account improprieties as they relate to the accounts of Sunset Village Condo Association,” he said in email uncovered by The Dispatch. “I have been advised by that department, as well as by legal counsel, to not comment on any parts of the investigation and have been further advised to remit all association-related records to a representative of the association.”
There are hundreds of condo associations in the resort area and most have property managers and accountants to handle their books. Some are licensed and bonded, while others are not. In the case of the associations handled by Scott, it remains uncertain if the condo associations involved will be able to recoup the losses.
Many in the industry are well aware of the allegations against Scott and some are concerned with the ramifications of being unfairly associated with his alleged improprieties, according to Ocean Point Ltd. Principal Steve Kenny.
“Professionally, this gives us all a real black eye,” Kenny said. “We have been approached by two associations that are looking for someone to professionally manage them and that’s because of these allegations.”
According to Kenny, his company is one of two accredited association management companies in Ocean City, meaning Ocean Point has to carry a professional bond and liability insurance, among other requirements. What makes this relevant in the current situation involving Scott is whether the condo associations’ losses will be covered by their insurance policies.
“For some of these condos, they are not sure at this point whether they even have recourse against him,” Kenny said. “Whereas, with someone who has a policy or a bond, there’s something to go after. In this case, the associations are not sure if he has liability insurance or not.”
Kenny said this situation should raise red flags for the numerous associations throughout the Ocean City area.
“There’s a very line all of us walk and that’s why I think it’s critical for these Boards of Directors to make sure that whoever is handling their funds has the proper policies,” Kenny said.
Insurance Management Group, Inc. President Reese F. Cropper III echoed Kenny’s comments, saying the ongoing situation and the fact as many as four area associations have seen their funds entirely depleted should serve as a grave reminder to many in the resort.
“We recommend to everyone that hires anyone to do a job for them to ask the contractor/vendor for proof of insurance, make sure their coverages are adequate and have them name you as an additional insured if appropriate,” Cropper said.
Cropper said he understands financial limitations often cloud the situation, leading many associations to choose based on funding availability.
“There are numerous insurance coverages condominium associations should purchase, however, there are times the Boards of Directors are fighting a budget and will forgo coverages we feel are important, or they will purchase a policy that is not as broad in coverage due to cost,” he said. “In these economic times, we see people wanting to cut back on insurance coverages, despite our recommendations. In my opinion, poor economic times are the worst times to cut coverages because a claim/loss today can have a worst impact on your recovery if you are not insured properly.”
Cropper fears in many cases those impacted by the alleged embezzling of funds could have little to no option in recovering their lost dollars because they didn’t have the necessary coverage.
Baker and Associates is another property management firm that handles condo associations in the resort and recently took over the management of the Sunset Village Association in the wake of the allegations against Scott.
Company President Bob Baker said this week there are a handful of common sense safeguards condo associations should implement to protect themselves from embezzlement and fraud.
“One of the real basic things we stress all the time, and it should be common sense, is to make sure the property manager is not the only one to have access to the accounts,” he said this week. “The one thing we insist on is for a condo association to have one or two board members have access to the accounts.”
Baker said another critical issue for condo associations is to ensure there is accountability with the handling of their finances.
“The second biggest thing we insist on is having at least one board member, usually the treasurer, get financial reports and copies of bank statements with images of checks scanned on them so they can reconcile the statements and checks against their own records,” he said.
Baker said most condo associations have operating accounts, from which they pay for services such as grass cutting and trash pick-up, for example, along with reserve accounts, which are typically much larger and held for major expenditures like renovations and improvements. He suggested condo associations do not allow property managers in most cases to have access to the latter.
“It’s an extra step, but don’t let property managers be the signers on reserve accounts,” he said.
Baker also suggested a final safeguard, which isn’t always practical but provides an almost certain failsafe from theft and fraud from condo association accounts.
“It’s rarely done, but some condo associations require two signers on every check,” he said. “It’s not always practical and it can become burdensome, because there aren’t always two representatives around with absentee owners and part-time residents, but that’s the ultimate safeguard. Because it requires two signatures, that would require at least some collusion to pull off a theft or fraud.”
Even if a condo association has safeguards in place and its property manager is licensed and insured appropriately, there is not always a guarantee embezzled or stolen funds will be recouped, at least in the short term.
Buck Mann of Mann Properties, a resort property management company, said he knows the Assateague House Condominium Owners Association, one of the affected parties caught up in Scott’s alleged schemes, does have theft and fraud insurance because he owns a unit in that building. However, what’s unclear is how long it will take for that money to be recovered and what the association will do in the meantime.
Mann, a lobbyist for condominium law in Maryland, also stressed the critical need for condominium associations to be vigilant with their decisions.
“One of the things we have been pushing for is manager licensing and right now you don’t need it,” Mann said. “There needs to be some standards and educational training and try to be as transparent as possible. We never put our names on anyone’s reserves or savings, only the operating accounts and that rarely gets over $25,000.