Can HOA board hire treasurer’s wife as paid bookkeeper?
Q. I live in a 29 unit townhouse community. We are self-managed by our board. There are currently four members with one vacancy. Our treasurer is a retired CPA and the board decided to hire his wife to be the association bookkeeper for approximately $8,000.00 per year. I am concerned about a potential conflict of interest and with such a small complex, why would we need both a treasurer and a bookkeeper? Can you provide your thoughts and does this violate any Illinois regulations?
A. Your inquiry raises several legal issues which I will address individually. Initially, there is a question of whether your association is covered by the Common Interest Community Association Act (CICAA). A common interest community association having either 10 or fewer units or an annual budget of $100,000 or less is exempt from this act unless a majority of the board or owners elect to be covered by this act. For purposes of this response, I will assume your association is subject to CICAA.
With respect to the board vacancy, CICAA provides a simple method for the remaining board members to fill the vacancies. Section 1-25 (e) of CICAA states that if there is a vacancy on the board, two-thirds of the remaining board members may fill the vacancy with another owner until the next annual meeting or until members holding 20% of the votes of the association request a members’ meeting to fill the vacancy for the balance of the term. A meeting of the members shall be called for purposes of filling a vacancy on the board no later than 30 days following the filing of a petition signed by membership holding 20% of the votes of the association requesting such a meeting.
Next, your board’s decision to hire a board member’s spouse for financial services presents a potential conflict of interest. Fortunately, Section 1-30 (b) of CICAA states that a board may not enter into a contract with a current board member or with a corporation, limited liability company, or partnership in which a board member or an immediate family member has 25% or more interest, unless notice of intent to enter into the contract is given to members within 20 days after the board’s decision and the members are afforded an opportunity to file a petition, signed by at least 20% of the membership, for a owners’ meeting to vote to approve or disapprove the contract. Such notice and such election shall be held within 30 days after filing the petition. A board member's immediate family means the board member's spouse, parents, siblings, and children. So, the board will have to send out notices to the owners and follow through on this process.
Finally, many medium size associations such as yours utilize outside professionals for handling the financial responsibilities for the association. That decision is well within the board’s discretion. Keep in mind that the association bookkeeping and financial reporting is very important and is not an easy task. For example, Section 1-45 (b) of CICAA requires the board to provide all members with a reasonably detailed summary of the receipts, common expenses, and reserves for the preceding budget year. In addition, the board shall make available for review to all members an itemized accounting of the common expenses for the preceding year actually incurred or paid, together with an indication of which portions were for reserves, capital expenditures or repairs or payment of real estate taxes and with a tabulation of the amounts collected pursuant to the budget or assessment, and showing the net excess or deficit of income over expenditures plus reserves. It’s a significant responsibility and our experience is that it is not unusual for boards to hire outside financial professionals.
• Matthew Moodhe is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at condotalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.