The number that should worry every board

It is not the $805,000. It is the gap between the management report and the bank balance — roughly $800,000 reported against roughly $25,000 actual.

That gap is not sophisticated. It is visible to anyone who opens a bank statement and compares it to the report they were handed. It persisted, on the allegations, across 32 months and 64 transfers.

The reason it can persist is structural, and it is the same in most self-managed and professionally managed Massachusetts associations: the manager produces the financial report, the manager holds the banking relationship, and the board reads the report. Nobody independently reads the bank.

What an assignment for the benefit of creditors means for an association

An ABC is a Massachusetts insolvency route that does not go through the federal bankruptcy court. The insolvent company assigns its assets to an assignee, who liquidates them and distributes proceeds to creditors.

For an affected association, three practical consequences follow, and they are unwelcome:

• The assignee controls the accounts. Getting association funds and records released is a process with the assignee, not a phone call to a manager.
• Association funds held in the manager's name may be treated as estate assets rather than trust property. Whether they are is a legal question that turns on how the accounts were titled and how the money was handled — which is exactly why account titling is the control that matters most.
• Records are an asset too. Ledgers, contracts, minutes, insurance files and the association's own books may sit on systems the assignee now controls.

The options now for a board with this manager

1. Establish the actual cash position from the bank, not from any report. Contact the institution directly with the association's own documentation of authority.
2. Secure the records. Written demand to the assignee for the association's books, ledgers, contracts and insurance files.
3. Check the fidelity coverage. A fidelity or crime policy naming the association is the mechanism designed for exactly this loss. What it covers, what the limit is, and what the notice deadline is are all urgent questions — late notice defeats claims.
4. Notify the carrier and preserve the claim, even before the loss is quantified.
5. Get counsel. An association in an ABC proceeding with a potential fidelity claim and a possible tracing argument is not in do-it-yourself territory.

The controls that prevent the next one

None of these require legislation, and all of them are things a Massachusetts board can adopt at its next meeting:

• Accounts in the association's name, with the association as customer of record. Not the manager's name, not a pooled account, not “manager as agent for.”
• Independent read-only bank access for at least one trustee, checked monthly against the management report. This single control would have surfaced the discrepancy above within one cycle.
• Dual authorisation for transfers above a stated threshold, with a trustee as the second authoriser.
• Special treatment for insurance proceeds. A large casualty recovery is the moment of maximum exposure — a one-off, unusually large balance, in an association preoccupied with reconstruction. Consider a separate restricted account with trustee-only signing authority.
• Fidelity coverage sized to the maximum balance the manager can reach, reviewed after any large insurance recovery.
• An annual review or audit by someone the manager does not engage.

The regulatory vacuum

Massachusetts does not license community association managers, does not require them to be bonded, does not regulate their handling of association funds, and has no agency an association can complain to. The bill that would have licensed them, H.5516, is receiving a written-testimony-only hearing today — six weeks after formal sessions ended.

Until that changes, the controls above are not best practice. They are the entire system.

What to watch next

Whether other associations among the roughly 200 file claims, how the ABC proceeding treats association funds, and whether the Attorney General or the Suffolk District Attorney opens a criminal file — none of which has been reported. A preliminary injunction hearing was reported in the civil case; the dates in circulation are inconsistent and should not be relied on.