Tag Archives: Audit

Florida Condo President Facing Multiple Challenges

R.H. from Florida writes:

Dear Mister Condo,

My 24-unit condo by laws say that an audit must be conducted once a year. Florida statutes say every 3 years. In addition, the property manager pushed through a specific contractor and that was 3 times the price but the other directors back her up. I am the president but I can’t get any info from her because she is aggressive and doesn’t let me say a word without attacking me verbally. I am now taping the meetings. A woman is unofficially taking notes but doesn’t sign them. They are not a good synopsis. What do I do?

Mister Condo replies:

R.H., thank you for your service to your community. I am sorry it isn’t a better experience for you. Let’s try and break down a few of the symptoms and see if we can’t get you on the right path. The audit requirement in your governing documents likely override the state requirement as they call for more frequent auditing. If your bylaws called for audits every 5 years, then the state law would supersede your documents and you would need to audit every three years. The contractor performing the audit is hired by the Board. As long as the rest of the Board is OK with this auditor then there may not be too much you can do about it. Ideally, hiring an auditor is no different than any other vendor. Bids should be collected and a contractor selected. If your Board doesn’t function that way, there may not be too much you can do about this particular vendor. Unofficial notes are not the proper method of taking Minutes of meetings. Are there formal Minutes of your meetings? If not, the association is opening itself up to all kinds of troubles. Minutes are the official and legal records of your meetings. The Board Secretary has the responsibility of keeping these vital records. As President, you are functioning as the executive of the association and it is important that you know what needs to be done. If any vital functions are not being handled correctly, you may need to offer assistance or seek new volunteer leaders from within your community to get the job done. Typically, property managers work closely with their Boards to manage the association. The adversarial relationship you have described to me makes me wonder why the association would renew their agreement with the manager. I would encourage you to take a good look at the management company agreement and get competitive bids for when the renewal comes up. There is no reason for the association to continue using a manager that doesn’t work well with the Board. However, if the rest of the Board is satisfied you may find them reluctant to change management companies. I wish you all the best.

Condo Audit Requirement Law

A.B. from New Haven County writes:

Dear Mister Condo,

Are there any CT states law that require audits be performed on Condominiums?

Mister Condo replies:

A.B., in Connecticut, I am aware of no such law. Some states, like New Jersey, do require audits at certain intervals as a matter of law. It should be noted that all audits are not created equal so even if there were an audit requirement, it would have to be detailed as to what was being audited and how often. Depending on the amount of money in play, an audit is a prudent decision as it provides relative confidence that no association funds are being pilfered. However, since Connecticut is home to so many smaller associations, an audit might be an unnecessary expense and truly unnecessary. If the Board is doing a good job of keeping an eye on the money as to income and expense, an audit might be one more useful tool. If the Board suspects there is money that has gone missing, an audit would be a great way to get some clues as to where the money has gone. I hope that helps.

Condo Documents Call for an Audit

E.S. from outside of Connecticut writes:

Dear Mister Condo,

If only an audit is required by a condo declaration does it need to be “certified”?

Mister Condo replies:

E.S., the answer lies in your documents and state law. If neither the documents nor the law require a “certified” audit, then an audit may suffice. The question is, what is the difference between an audit and a certified audit as it pertains to your condo association? For that answer, I am going to refer you to a previous answer from one of my certified public accountant friend, Sam Tomasetti. Here is the link his full response: http://askmistercondo.com/what-is-a-certified-audit/ All the best!

More Condo Financial Transparency Sought

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A.H. from Pennsylvania writes:

Dear Mister Condo,

I belong to a Condominium complex in Pennsylvania (approx. 426 units) and according to the By-Laws we are to receive copies of the audited financial statements – which are useless because the auditor cites in the report that the Board basically has decided to release selective information in the report. They refuse to offer a line-by-line copy of the operating budget because unit owners would then know exactly what the salaries of the staff are…I am paying their salaries. Why can’t I know the amount? There are two dozen items with fairly substantial amounts, but no breakdown. We were advised they don’t even give the Council a breakdown, they just sign checks based on invoices! I’m concerned something is going on, but searching online hasn’t yielded any clear results in terms of what is/is not acceptable financial reporting (we are not FHA approved) and what the condo does or does not have to disclose to owners. We are just becoming concerned that our exorbitant HOA fees are going to fund a very lavish retirement for office staff….

Mister Condo replies:

A.H., generally speaking, the standards for financial reporting are left up to the Board and the preparer of the condominium association’s auditor or statement preparer. After all, the auditor/preparer is hired by the Board and reports only to them. Additionally, some property management firms include basic financial statement preparation in their management fees and provide the service as part of their management contract with the association. Unless your governance documents specifically state the level of detail to be provided in these statements, you are largely at the mercy of the preparer to provide accurate and easily to understand financial statements and audits. That does not mean you are powerless to see how and where the association’s money is being spent but you may have to do some extra footwork to get the information you seek.

As a member of the association, you are able to inspect any and all records of the association. You may need an appointment to do so and you may be charged a fee for inspection of such records but you do have a right to see just about whatever you want. Further, you are free to petition the Board to update their reporting methods or answer any specific questions you have although the Board is not required to answer your request. If you and other unit owners are still concerned that there is a mismanagement of association funds, the ultimate solution is to seek a seat on the Board where you can see what’s happening first-hand. Board members are democratically elected volunteers from within the community that are charged with protecting the association’s assets, which includes keeping an eye on how association funds are spent. If they aren’t doing that job, it is time for some new Board members. Good luck!

How Much Auditing of the Condo’s Finances is Required?

G.S. from Fairfield County writes:

Dear Mister Condo,

Our Condo Declaration states that the Association’s annual financial statement shall be audited by an independent certified public accountant. Our board claims it has the discretion to choose the “level” of audit, and that an accountant’s review of the financial statement is adequate to meet our Declaration’s audit requirement. Does this make sense? Many thanks.

Mister Condo replies:

G.S., interpretation of your association’s Declaration is usually the work of the association’s attorney. Ideally, you will get a legal opinion on whether or not the level of audit conducted by the association’s accountant is adequate. That being said, as long as an audit is being conducted annually and no red flags are arising from that audit, it is very likely that the level of audit satisfies the requirement as outlined in the Declaration. Of course, many associations conduct far more thorough audits on intervals longer than one year. I know of some that perform more detailed audits every other year; some every third or fifth year. The Board is empowered to make business decisions such as this. My advice to you is to petition them, in writing, to suggest that a more thorough audit be conducted on every other, every third, or every fifth year and see if they do not agree with that approach. All the best!

High Overhead Costs for this Condo Roof Project!

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S.C. from New Haven County writes:

Dear Mister Condo,

The association never put money aside for roofs. They couldn’t get a loan so they had a meeting and decided at that meeting to raise our common fees $100 per month. They said they sent a letter so you could vote but I didn’t get one. I don’t think many people knew. We have almost 100 units and I was told that only about 20 people voted. We had been paying $35 a month towards the roofs for the past 2 years. Now they want $100.00 a month for 2 years. Is it time for a CPA audit?

Mister Condo replies:

S.C., an audit by a CPA may be a good idea but it is hardly what is at the root of your association’s fiscal challenges. It would appear that not nearly enough money was set aside for the roof replacement project that your buildings needed. A proper Reserve Study is more likely what is needed to stop this from happening again. What if the same math is applied to the roadways, or the pool and clubhouse, or the building exteriors? You and your fellow unit owners could find yourselves reaching for your checkbooks every time such a repair is needed. If I have done the math correctly, your association set aside $35 X 24 months X 100 units = $84,000 for the roof repair. In reality, the repair is costing $100 X 24 months X 100 units = $240,000. That means the project was underfunded by more than $150,000! I can see being off a few thousand dollars here and there. Even coming up short by 10,000 or 15,000 or 20,000 dollars in a project that size is understandable. It would appear the Board had no real barometer by which to measure the project’s real cost. That is where a Reserve Study can be invaluable in helping the association prepare for known upcoming expenses. An audit can come in handy to catch items that might be missed during standard review of the Profit and Loss statements by the Board but unless you think someone has stolen or misappropriated funds an audit will only confirm what you already know. Enough money has not been set aside for years to cover the cost of this roof replacement. The good news is you and your neighbors will have new roofs over your heads to protect you and your investments. The bad news is that you will pay for it in a relatively short period of time versus over the lifetime of the roof.

As for the procedures followed by the Board in calling the meeting and modifying the common fees I cannot say if they violated any of your rules or state law for Common Interest communities. If they did, you may challenge their change to the common fees. However, the long term outcome is likely to be the same. I assume you need new roofs and as an owner, it is your common fees that will pay for them. All the best!