Redbook Blues – Quid Pro No

Apartment Condominium Complex, Wood Frame Construction, Victoria, Canada

It’s budget season. For multifamily owners/operators, budget season means your asset manager becomes an ever-present reality in your daily routine. Budget season also entails revenue and expense projects.  To assist with the expense-side of the equation, we often ask our onsite colleagues to gather cost data from a variety of suppliers.

We are blessed in DFW that the overwhelming number of owner/operator and supplier interactions are done in an ethical and professional manner.  However, the client-customer relationship has its minefields.

Below is a fictional case study to illustrate ethical dilemmas that occur in property management when employees have inappropriate interactions with suppliers.

After three years as an assistant manager, Gina was looking forward to submitting her resume for the vacant manager position at her property.

For the first six-months, she absolutely loved her job.  Two years ago, she won “Assistant Manager of the Year” and this year, she won “Employee of the Year” from her management company.  But lately she feels as though she has “done her time” and had more than enough experience to be promoted.

Regional supervisor Mary decided to broadly recruit for the manager position and to consider both internal and external candidates.  To her great disappointment Gina was passed over, and the job went to Wendy, a manager from a rival management company.   Understandably upset, Gina asked Mary why she was not chosen, Mary replied, “Wendy has more experience.  Your time will come.”

Over the next few weeks, Gina was increasingly angry over the hiring decision. Not only would she be working for an “outsider,” she had missed an opportunity for a more prestigious title and a substantial pay raise.  Rather than stay mad, Gina decided to find a way to make the most of her dismal situation.

Gina’s management company compiles a list of “preferred” vendors.  This list is not exclusive — it is meant to help onsite staff make sound purchasing choices.  Gina began contacting companies on the list, suggesting that because she “admired their work” she would be willing to make a specific recommendation to her “new boss” when a product/service was needed.

Although she did not ask outright for anything in return, three companies promised a financial “bonus” for each contract that came their way via her recommendation and another company offered use of their suite at a Cowboys game for Gina and her family. Based on her referrals, one company sent her gift cards as thank-you gifts and another treated her and her cousin to a spa-day.

At first Gina was selective in making these “recommendations,” but after six weeks her scheme seemed to be going undetected, and she became bolder.  She began playing one vendor against another.  Soon, she bought a new car and began bragging about her weekend “shopping sprees.”

In her quarterly financial review, Mary noticed an unusual number of contracts at Wendy’s property going to only six of three dozen vendors on the preferred list. When she questioned Wendy, she said since she was new to the property, she took Gina’s “advice” about which companies to use.

When Mary and Wendy confronted Gina, she denied any wrongdoing, and insisted that the six companies were “on the list” and in her opinion, each was “superior.” Further, Gina claimed there were no written rules prohibiting onsite employees from making personal “recommendations” to the onsite manager.

Is it unethical for Gina to make vendor recommendations?  Would Gina’s actions have been acceptable if she had not engaged in a quid pro quo? What action should Mary take with Wendy?  What actions should Wendy take with Gina? Is there anything the management company or owner might do to prohibit this type of behavior?

Fortunately, the REDBOOK has guidance on this issue.  In the legal article “Working with Locators:  Avoiding Fraud,” TAA’s legal counsel provides generic advice (beyond dealing with locators) to help prevent employee fraud of any type.

First, pre-screen all employees.  The article states that employees with a history of dishonest behavior are more likely to accept cash or offers of compensation or kickbacks from vendors and to “steer business” in their direction.

Second, prepare and update your employee policy manual.  Be sure to define acceptable interaction with vendors:  lunch; donuts; items of minimal value (ink pens, mouse pads, etc.).  Be sure to clearly stipulate that other than acceptable marketing practices and bona fide association events, employees may not accept any money, gifts or other things of value from a product or service provider.  Make sure your vendors and employees know this rule. Without clear policies, it is more difficult to establish “good cause” for firing.  Without clear policies, it is also more difficult to avoid the disaster of employment discrimination lawsuits.

Third, clearly communicate to supplier partners that if they engage in quid pro quo arrangements you will no longer do business with their company.

Fourth, employees should report any known or suspected attempts by vendors to pay monies, provide gifts, or other considerations to you or other employees.

Fifth, conduct periodic training sessions that remind your employees of their responsibilities and remind them that they risk losing their jobs if they attempt to do anything dishonest or violate your policies.

Finally, if an employee violates any of these policies, it is grounds for immediate termination of their employment “for cause.” Such violation will be noted in the employee’s permanent personnel file and will be reported to future employers who inquire about the employee’s performance with the company. Termination “for cause” makes an employee ineligible for unemployment benefits from the state, as well.

Jim Canon, Milestone, is the AATC Government Affairs Committee Chair. For more information on any of legislative or government affairs topics, contact Perry Pillow at 817-616-0354 or email him at ppillow@aatcnet.org.