Q What obligation do individual board members have to review monthly financial  reports as prepared by the management company? Only our board treasurer  receives the statements and my requests to include copies of monthly balance  sheets, income statements and general ledger line items in the board member  information packages are rejected by a super majority of the board. Do  individual board members have a responsibility to see these statements? What is  the consequence to individual board members if a financial problem should  arise?  

 —Seeing is Believing

A “Individual board members of condominium associations become fiduciaries when  they take office, and thus, must act in good faith with regard to the unit  owners’ interests,” says attorney Matthew Goldberg, Esq of the law firm of Bancroft, Richman & Goldberg, LLC in Chicago. “A fiduciary is one who is placed in a position of special confidence to others. Since board members are elected by the unit owners, they are placed in a  position of confidence to the unit owners. All board members share in this fiduciary obligation. Moreover, board members are given powers and duties by the Illinois Condominium  Property Act (“ICPA”) to do things such as adopt budgets, collect assessments and maintenance of the  common elements. These powers and duties clearly relate to the financial well being of the  association.  

 “Associations hire management companies to assist in the day-to-day operations  which include the above as well as several other functions. Usually included is the management of the association’s bank accounts, preparation of financial reports and assistance in preparing  the annual budget. It would seem counter-intuitive for the board not to review the records prepared  by the management company, as the board is paying for them to assist in  performing their duties. Put another way, it would be difficult to meet the board’s fiduciary duties without knowledge of the financial state of the association. Therefore, all board members should stay apprised of this information by  reviewing the monthly financial reports of their management company.  

 “Illinois Courts have found that the failure of board members to act in a manner  reasonably related to the exercise of their fiduciary duty would result in  liability for the board members themselves. Should a financial problem arise in  a condominium association, the board members may be individually liable for the  financial harm to the association if the unit owners can prove the board  members did not exercise reasonable business judgment in performing their  fiduciary duties.  

 “Taking it one step further, a couple years ago, it came out that a particular  management company, more specifically, the owner of that company, stole more  than two million dollars worth of reserve funds from various associations he  managed. He produced falsified financial reports to the boards to conceal what he had  done. Had the boards reviewed copies of their actual bank statements, in  addition to the management reports, they may not have lost as much.”