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Old 07-17-2013, 10:05 AM
 
38 posts, read 45,551 times
Reputation: 41

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Hi all:

What is wrong with this picture?

Our HOA (Townhome Association), has an annual audit by a local CPA firm, which year after year issues a clear report.

However, the financials (Profit & Loss (P&L), Balance Sheet (BS), & Cash Analysis Report (CA)) given to the town-home owners at the annual meeting in January, are materially different from the financials the CPA firm confirms in their yearly audit.

The HOA's P&L overstates income and understates expenses as compared with the CPA's financials. (A rosier picture.)

The HOA does not present a CA report at all.

Generally speaking, when a CPA finds "messy" financials, a "qualified audit report", stating the reasons for the qualifications, is issues. However, it appears, that this CPA firm found "messy" financials, and then cleaned them up and added the CA report.

This has left the town-home owners receiving, year after year, inaccurate financials at the Annual Town-home Owners Meetings, as well as the monthly Association meetings.

This left the town-home owners receiving non-GAAP compliant financial reports. (eg., books were not reconciled each month, expenses were not entered or entered incorrectly, non-separation of duties).

The most onerous example is the non-separation of duties.

This non-separation of duties allows makes it easy for certain income to never be entered into the HOA financials or seen by the auditors. (eg., I read in the monthly meeting minutes that insurance claims were made, but a rough estimation of income shown in the CPA financials, only showed town-home owners monthly fees and cable company income.)

Is this a normal occurrence? Are there any state laws which prevent this?

Again, "What is wrong with this picture"?
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Old 07-17-2013, 11:03 AM
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Location: Ohio
17,080 posts, read 34,804,832 times
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I'm sure someone who sees the evils of homeowner organizations will be delighted to provide a detailed answer very soon.

Is it possible that the numbers you're seeing at the annual meeting are a different slice of 12 months than the slice in the audit report? Maybe the audit covers July to June and the annual meeting report cover January to December?
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Old 07-17-2013, 12:45 PM
 
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It is your responsibility to bring this up at your HOA meeting and make other HO aware of this. There may be a legitimate explanation or there may be shenangans. You won't know until you ask your questions and start digging into the numbers. You can obtain a copy of the audit report and the financial information the board is distributing to the HO and compare to see if their explanation makes sense. It's quite normal for accounting firms to clean up the financial information before issuing their report. No one ever likes to see a qualified opinion.
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Old 07-17-2013, 05:11 PM
 
38 posts, read 45,551 times
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Default Answer to FY and accounting detail requests.

The time frame for the annual audits are exactly the same. Each year both the HOA's annual financial reports and the CPA's annual reports are for Fiscal Years running from Jan 1 through Dec 31.

You are right. There could be legitimate explanations and there usually are.

We did request financial documents for one FY. The board did not want us to go to the office. So they mailed us us the operating account and reserve account bank statements, but not the savings account and money market statements, nor did we receive deposit slips so we could not identify all deposits.

Still, we were able to piece together a review and almost everything appeared to be just bookkeeping issues, which is no biggie! However, we had 1 questions which was repeatedly ignored and another question came up later:

1. When a money market was reported as closed and transferred to the reserve account, we could see from the bank statements that the deposit to the reserve account, in fact, came from the checking account. We requested the money market account statements, but we never received same.

2. The Board reported that insurance claims were made for sewer line breaks. We could not find any evidence of funds deposited to either the operating or reserve account for insurance settlements.


So, the accounting firm which though they were doing the HOA a favor, were not doing a favor for the town-home owners. The town-home owners need to know how well their elected Board is functioning and the CPA report is a great indicator of this.

Great intentions.
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Old 07-17-2013, 11:06 PM
 
5,048 posts, read 8,006,414 times
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Does your area have a Property Owners Act version or what about your covenants and bylaws. Or your non-stock corporation act. It may say somewhere that you have a right to view these things at the office, yes, with an appointment. And a right to copy them. Yes, maybe pay.

At any rate, we had great experiences with many hoas for years. So it's not sour grapes. This one we're in is not great. For one thing I found they were hiding, in a sense, the health insurance newly being paid the staff, under insurance listed under office so that the assumption was this was insurance for the office equipment...which grew to thinking this must be for the whole club house. Eventually we found out what it was. Things like that.

And now there is only one accounting firm that can work on our books...no other estimates...because oh, they're just so complicated. Long story short, we know the current manager was hired because he was willing to keep secrets. Several of us have known there have been such secrets.

I know what you mean about things like you #1. We had a treasurer until just recently who lost a good part of our principal investing in stocks...and through his own brokerage company. And for some reason he hung on those things like a dog on a bone and the majority of the board let him. And I too saw money come out of a good CD account put into something else. (Turns out the majority of the board were using that to fix a problem they caused and didn't want residents to know so they wanted the money liquid.) That's over now though.

So...all this to say, you could be on to something. You won't know till you bring it up. I would do it publicly so a group knows...hopefully there are several that go to your regular board meetings.

But, the best thing is to be part of a group. See if you can get many people seeing a question needs to be asked, that something looks amiss, and have a bit of strength in numbers.
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Old 04-03-2014, 11:03 AM
 
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Can a homeonwer of a Homeowner Association (HOA) request an audit of the HOA's procedures and compliance with the Bi-Laws?
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Old 04-03-2014, 11:42 AM
 
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You could at least request a copy of what your board/mgr/whoever got. See what happens.

Also, ask why that CPA was chosen. Our last one the mgr said that CPA was the only one who understood our community. Hmmm. And was willing to overlook it too apparently.

There should be a reserve study periodically as well. Lists what is needed. But those, too, can be fudged when the manager points out what they want looked at and does not state he wants the professional to go over everything. Much like a home inspection if, say, a prospective purchaser wants only to have the foundation looked at, or only the wiring in the poolhouse. That kind of thing.
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Old 04-03-2014, 11:47 AM
 
5,048 posts, read 8,006,414 times
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Teddiegough, how did it go? Did you notify the townhome owners? I know just what you're talking about on the financial end and wondering how it went when you notified people.
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