Don't Get Stung by Unpaid Union Benefits
July 1, 2016 — Boards need to make sure their professionals are doing their jobs.
When Key Real Estate Associates took over the management of an East Side condominium in 2015, the company got an unexpected surprise. The previous management company had failed to make routine benefit payments for the building’s six unionized employees – and the unpaid benefits plus interest and penalties had ballooned to $300,000.
“This was a stunner,” says Phil Whalen, a principal at Key, who first learned about the condo’s unpaid benefits from a union attorney. “We had no idea what we were getting into. At best this was negligence, at worst someone took money. I don’t think that happened.”
Even so, Whalen put in claims with the condo’s crime insurer and with the previous managing agent’s insurer. The former denied the claim; the latter is now conducting a forensic audit of the condo’s books.
As Whalen sees it, there’s plenty of blame to spread around for this fiasco. “What it comes down to,” he says, “is that there was a long-standing relationship between the (previous) property manager and the board. The union didn’t do a very good job of collecting their money – they should have been on this after a month or two of nonpayment. And the accountant says he couldn’t warn the board because he hadn’t created the 2014 financials. I think the accountant should have looked at what the managing agent was paying and not paying – and brought it to the board’s attention. Accountants need to be more vigilant on a monthly basis.”
(The accountant at the time declined to comment for this article, other than to say that the board has not renewed his contract. The board president also declined to comment.)
Another lesson, in Whalen’s view, is that board treasurers need to be diligent, though not necessarily on a monthly basis. “Some treasurers are extra-active and they’re all over the managing agent’s monthly report,” Whalen says. “You want to let the treasurer know how to look for variances between what’s budgeted and what’s actually spent – probably on a quarterly or semi-annual basis.”
This is not to say that the managing agent should be removed from the mix. “Employee benefits are very complex,” says attorney Bonnie Berkow, a partner in the firm Wagner Berkow and the board’s attorney for the past five years. “There are different types of benefits, employees get hired and fired, there’s maternity leave. There needs to be a significant reliance on the managing agent.”
The East Side condo turns out to be one of several buildings that have run afoul of unpaid union benefits in recent years. Howard Lazarus, managing director at Tudor Realty Services, took over management of one of them last year – a 100-unit co-op in Brooklyn, which, he soon discovered, owed more than $100,000 in unpaid union benefits, interest, and penalties.
To avoid such situations, Lazarus tries to train treasurers to spot signs of trouble. “I try to give the treasurer an idea of his job in reviewing the managing agent’s monthly report,” he says. “There are a number of red flags. Such as, you should see a report of payments and budget and understand what it’s telling you. If you budgeted more than you paid on your union expenses, you need to ask why? Were people fired? Were benefits unpaid? The other red flag is accounts payable. If you’ve got high payables, either from the managing agent or accountant, you need to ask why.”
Adds Whalen: “The message is that boards need to be vigilant. There should be checks and balances – notices of bills that haven’t been paid, rather than just relying on the managing agent or auditor. Notices should get sent to the board’s treasurer, as an extra set of eyes. Things happen, and you want to be sure there’s a system in place to alert you if there’s a problem.”
Otherwise, your board might wind up having to levy a six-figure assessment. Never a popular move.