HOA Loan and Insurance Quotes

Subscribe to Blog

Your email:

Follow Us

Looking for answers?

condo association blogCan't find the answer you're looking for?  Ask your question here and we'll post it in our blog.

Browse by Topic

Condo Association Management Blog

Current Articles | RSS Feed RSS Feed

Condo association budget time - what about a financial audit first?

Posted on Tue, Dec 21, 2010 @ 09:11 AM
We are a Florida condo association and it's budget meeting time. As a concerned homeowner and a former board member, over the last several months I have taken the time to review financials, (mostly due to the fact that I have little faith in the present board who have very little experience or knowledge regarding all things 718). During my review process I have found numerous errors in the financials, for amounts that are large (thousands of dollars) as well as continuous coding errors by management. This same problem happened when I was on the board and I brought it to the attention of the management & board so that it could be corrected. Unfortunately I don't have that ability at this time. However, I have also discovered my association has not had a audit and or financial review since 2005! Every year since then it has been waived by the members, (I am aware of the financial reporting statutes and partial or fully funding reserve waiver). Homeowners were sent their financial packets recently and again waiving financial reporting as well as fully funding reserves were on the proxy. With a statement that we would be due in 2012 for a Financial review. This information is incorrect!! When the question was posed to Management when the last year was that we had a financial audit and/or review he stated "I don't know", Now that the mistakes that I have uncovered as well as the fact that we have not had the financial review have come to light, Can membership petition for an audit? Especially since the financials are not correct? I read the comment about "appealing" I would like to know under what circumstances you can do that also? Seeking advice... thank you

Tags: ,


Check with your state Condominium Statutes. In the state of MN it requires a formal review annually.

posted @ Tuesday, December 21, 2010 9:39 AM by Mary

Our condo association also routinely waived a CPA review however we established a three member internal audit committee which meets annually at the close of the fiscal year to review the accounts and make adjustments where necessary. The committe is composed of interested and knowledgable members who give and receive insight into the condo operations. It has been very constructive to management. It issues the report to members. Periodically the board will get an outside audit by a CPA at its own volition if it is budgeted without publishing a waiver option to the members. The audit is treated as awholesome learnig experience as we are a totally volunteer managed association.

posted @ Tuesday, December 21, 2010 9:44 AM by Ed Mitchell

Contact the Florida Ombudsman at this web site: http://www.bpr.state.fl.us/condos/index.shtml 
click on CONTACT US and put your phone number on there 
They will call you back immediately so make sure you have all your questions ready and all your ducks in a row. They have the current information regarding the 718 laws and will tell you exactly how to go about getting your audit. 
You're right, any idiot can put numbers into a computer but until there is an independent audit done you will never have it sorted.

posted @ Tuesday, December 21, 2010 9:46 AM by RichardK

Your state condominium Act requires that an independent financial audit be done yearly. Your Board is in violation of your state law and can be held personally liable for this situation. The hold harless clause in your bylaws does not pertain to violations of law.

posted @ Tuesday, December 21, 2010 9:49 AM by Charles Adler

As a CPA and having served as treasurer of several HOAs, let me clarify what an audit is and is not designed to accomplish. The purpose of an audit (or it's "poor second cousin," the review) is to determine whether or not the financial statements are free of material errors in accordance with generally accepted accounting principles (known as "GAAP"). Audit procedures are NOT designed to detect fraud or operating deficiencies, and you have little chance of successfully suing an auditor for failure to detect either. Let me offer a specific example. Your property manager enters into a contract with a landscaper to manage your grounds for $3,000 per month. What you don't know is that the landscaper has offered the property manager a $500 per month kickback for sending the business his way and that other landscapers would perform this service for $2,500 per month. When the auditor examines the general ledger and supporting documents, he finds a duly executed contract and twelve checks written during the year for $3,000 each. The auditor then concludes that your "landscaping expense" per your general ledger is properly stated. The auditor has no obligation to investigate whether kickbacks exist, whether a better price can be obtained for the service, or whether the service was actually performed. Now your HOA has an audited financial statement, but you are overpaying by $6,000 annually for landscaping. In short, an audit report issued by a CPA is the wrong form of "insurance" that your HOA's finances are being managed properly. If you are concerned about fraud and/or waste, you should have either a fraud audit or operational audit conducted. Such an audit is expensive and may not meet the requirements of your local laws, but these audit procedures are designed to identify the risks that have you most concerned.

posted @ Tuesday, December 21, 2010 12:20 PM by Larry Davis

I just went through a similar situation in NH.Speaking with Mgmt rep person and board at meeting, I requested to see an independent audit. (mgmt co is questionable to say the least) I was adamount as per state law, as a unit owner, I have every right to see it. Lo and behold an independent audit was provided to me.(on letterhead from CPA) As I just rcv'd it today, I haven't looked at the numbers yet. They'll be nasty about it, but persevere, (sp?). The law is on your side.

posted @ Tuesday, December 21, 2010 3:08 PM by M. Willette

To those who posted responses thank you! Here is an update. 
I drove 3 hours across the State, Went to Management Co. Spent 4 hours going through all yearly invoices, disbursements and Vendor accts. And yes! the mistakes I found proved to be right! I called in the PM & the President of the MC they came in I showed them the mistakes and they were surprised to say the least! They said they would correct them immediately, (we will wait and see if that really happens) I also informed them of when our last audit was done, That was danced around but it was obvious we are definitely due (and in my eyes in violation) I will do more research on that to confirm. However, after all that I then went to our Community Bulletin Board where meeting notices are suppose to be posted, an low and behold there was no meeting notice!(Budget meeting was to be held Dec.21 at 6:30pm) I called PM and told him, within l0 minutes I received a phone call the meeting (45 minutes before it was to take place) was cancelled! I also found out that our Treasurer was at the "Mouse House" and his proxy had been mailed in! Does this tell you anything about what this association is dealing with! How do you go to Disney, when you knew 30 days in advance that your Budget meeting was going to be that evening. Unbelieveable, but better yet, the President lied to the homeowners as to why the meeting was cancelled. She also stated they had only recieved 15 proxies and they need 35. So apparently she wants to extend by a week to try to get more proxies in. So my question is this, The President posted the new date and time of the meeting on the Community Board, But what I want to know, Although proxy's are good for 90 days, Does the process of notifying homeowners thru mail 14 days in advance of the meeting have to be done over again due to the cancellation of the Budget Meeting? FLA CONDO ASSOC.

posted @ Wednesday, December 22, 2010 6:47 AM by TP

YES! YES! YES! They have to re-notify owners again. How many unit owners are 'on site', how many live off premises? 
In addition, at MC's expense, have to have an independent audit done 
per law.  

posted @ Wednesday, December 22, 2010 2:29 PM by M. Willette

Thank you M. Willette, It's a very frustrating to say the least! IMO what transpired yesterday on behalf of the board's cancellation of a required meeting with the numerous excuses some homeowners were given including myself, I find it highly "DISRESPECFUL" towards the owners in our community! We don't appreciate being lied to and that is exactly what the President did! With that being said, we have a total of 67 units out of 67 units we have 56 owners who are currently on property(some are here for the winter) at this time or in the State of FLA the rest are out of state. 
Why do you ask? 
So the board has to do another mailing giving homeowners 14 days notice? They just can't post it on the board. I have several homeowners who asked me this question and I want to be sure to relay the correct answer to them. 
Thank you for your assistance, 

posted @ Wednesday, December 22, 2010 3:32 PM by TP

TP, The reason I was asking about on site and off premises unit owners, re: were offsite owners informed about the cancellation of meeting? I also question, if by the delay in meeting, re: 'trying to get more proxy votes', only 15, 
if that is truly legal. By our condo bylaws, 'they' are not allowed to do this and would require a new proxy notification. 
In addition, and MOST IMPORTANTLY, with what you have found re: dollars 'mismanaged' and questionable, the owners must be told the truth! I would press this issue to all the unit owners you have spoken to, AS WELL as demand this independent audit first! At our condo, the MC, provides the the forecasted budget and audit to the board for approval, as our board, as many, are 'non-profit' At our Dec board meeting, I questioned this as board said they did NOT have copies of the independent audit. 
MC rep tried to squabble with me on this issue during meeting. I sent the MC rep and owner of MC a letter stating that they need to send independent audit expeditiously to board. They did, as well as sending me a copy! Since the 'numbers' are questionable, as you found, how can unit owners vote on a budget that is NOT correct. Press the board and MC on this demanding a delay in voting until independent audit completed.

posted @ Friday, December 24, 2010 4:45 AM by M. Willette

M. Willette; You pose some interesting statements. In response I can first say I found just by looking over invoices a overpayment of $2,500 to a vendor, which MC took care of immediately while I was there and vendor was bringing overpayment to office next day! Second, atleast 6 other invoices that were coded to the wrong accounts, 2 which should of been taken from the reserve accts and not the operating budget! Which ultimately throws off the actual expediture amounts when your trying to forecast for 20ll. What I saw were accounts that were overinflated and some under for 2011 and all based on 2010 figures!I was told they would be corrected. But this leaves an interesting question, The homeowners are looking at a proposed budget with figures that are not correct. My unprofessional opinion would be to re-do your proposed budget and start the process over, am I far off on that? 
Secondly, I have an email that was sent by the President who does not hold every homeowners email, I know this for a fact because I did the roster, so there are people who don't live there who have no idea what is going on and no notice at all, the second part of that email clearly states we have only obtained l5 proxies and need 35, that would indicate to me that they are trying to get more proxy's in. However, I've been told that this is legal with a so-called 90 day extension if a quorum by homeowners is not met. But to cancel meeting 30 minutes ahead of the original budget meeting is puzzling to me and suspect. President also stated if you did not recieve a proxy please notify MC and if you haven't gotten yours in please do so before Dec. 28th. My other concern is The meeting was not posted orginally, now just a simple paper on the board saying Budget meeting resheduled for Dec 28 on the same paper the original budget meeting was cancelled, which is not an official type notice that our association has ever used, it is usually on MC's letterhead with all the requirements and Agenda. This Maverick board is "We know everything" but they know nothing! As far as the audit goes, As I stated we have not been officially audited since 2005! This I know for a fact. And I have a copy of the audit. I do not in anyway suspect fraud, but I do clearly see negligence! Human error happens, but when your dealing with other peoples money this is unexceptable! 
I have posted on a legal blog and I am hoping for a FLA attny to respond as to what steps should be taken. Meanwhile, I am in the process of trying to send something out to homeowners, of course with the holidays this might prove difficult to get their attention.

posted @ Friday, December 24, 2010 6:40 AM by TP

TP..I would absoltely make the MC accountable acknowledging their financial errors in writing. They can verbally say, 'we'll 'fix it' as just blowing smoke. This needs to be addressed to MC and Board in writing with fiscal mismanagement (?) of funds. Again, how can one vote on a budget when the budget is incorrect..Try this..it ought to shake their bones, realizing  
a unit owner found disparities!

posted @ Friday, December 24, 2010 9:15 AM by M. Willette

Can anyone share how much it usually cost to get a CPA review for a condominium with 320k/year condo fee assessment? 
We used to pay $1500/year but last year our property management company changed to an new more expensive cpa for 2500/yr 
Is that still a fair price or should we ask for to go back to the old CPA?

posted @ Friday, October 12, 2012 2:53 PM by Tuba

First, the PM company does not have the authority to choose your CPA firm. Your auditor should be selected by the board of directors. 
Second, as I stated in the original post, a review provides very little, if any, assurance that your financial statements are in "good order" (the definition of "good order" will vary with each owner's expectations). If you are required by the laws of your state to have your financial statements reviewed, you should use the CPA firm that gives you the best price. $1,500 seems reasonable for an HOA of your size.

posted @ Friday, October 12, 2012 7:23 PM by Larry Davis

Post Comment
Website (optional)

Allowed tags: <a> link, <b> bold, <i> italics