Finance issues

Started by AustinP • 9 replies • 1399 views

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AustinP (Florida)
Posts: 8

Posted:

I live in a townhome community which is located in Florida. The HOA is still under the builder but we are coming up to transition here in the next 6 months or so. The residents are not happy at all with the management company that is currently here, but until we finish transition our hands are tied. I requested the monthly financial documents for this year along with the current contracts for each service provided to the community to compare with bids I was putting out for potential new companies. The first thing I thought was odd was that the management company refused to hand over the documents initially. Being a resident of the community, I thought I was entitled to see these documents. I made the initial request back in June. I have received a few months worth of financial documents and most contracts, but I still don’t have all the information I requested. I then requested a copy of each audit for the years past. In Florida, if the HOA's revenues are over $400,000, then a 3rd party audit is required. This community has been well over that requirement each year. The management company informed me that an audit has never been performed. They gave me an excuse saying since it was still under the builder, they were exempt. I checked with an HOA attorney and a CPA whom informed me there are no exemptions from the audit. Next, I noticed that when I compared the monthly income/expense sheet with the general ledger, the general ledger amount was significantly more than the in/ex sheet. For example, in a particular month, the in/exp report has $6500 in lawn care, but in the ledger, almost $10,000 was written to the landscape company with no explaination. Another example was with the management company themselves. On the in/exp sheet it showed the normal contracted amount, which was good. But in the ledger, there was an additional $6000 check written to the management company. This was not record of the extra money on the in/exp report.

With an audit never being performed and the accounts not balancing, is this something I need to investigate deeper? Has anyone had a similar problem? Any help, ideas, suggestions would be awesome.

Austin

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You have gotten farther than most in your position. Considering you are still under builder control and the Management company works for them. The closer to the deadline you may get more information especially if you put it out that you want to accept bids from them to keep the contract after transition. They now have to bid on the job just like other contractors if you put that message out there and start collecting bidders now. Which is ALOT of work as you need atleast 3 bids for comparisions on each contract. This was our rule of thumb whenever a contract came up.

You have to consider this on the lawncare contract. The amount is for their services each month of the typical mowing and trimming. The extra money most likely was for things like buying and planting flowers, extra trimming, or a bonus they may get for a condition in the contract. You need to read the contract to see if indeed the HOA provides them the extra money to purchase supplies such as flowers, dirt, or equipment. A service contract may not include these items. A consideration to look into when shopping for lawncare. Does the HOA supply the flowers or is it part of the contract for the lawn care to pay?

The extra money to the MC could also fall into those lines. A check ledger and office supplies can add up. Those may not be part of their contract to supply themselves. The HOA may have to pay for their own supplies used for the operations. This could be copy paper, stamps, or special equipment. Again must be defined in the contract. I don't really see anything wrong with the extra money other than it wasn't broken down to reflect these small office supply items.

It's great your looking into all of this and need to create a transition committee. You will also need to modify your documents to reflect the developer is out of the HOA. This could mean a redrafting of the documents to remove all references and their old voting system out. This is all explained in your docs on how to do. It does take alot of vote taking so be prepared. Good time to ask a lawyer about this.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Austin,

I would do the following:

1- make a complaint to the licensing authority of the management company about the lack of an audit.
2- if you are considered a condominium Association (town home communities might be either a COA or HOA) check with THE FLORIDA CONDO OMBUDSMAN for additional guidance.
3- Insist that an audit (not financial review) be done by a CPA agreeable to both parties prior to turning over the Association to the membership.

AustinP (Florida)
Posts: 8

Posted:

Thanks for the advice. That’s what I was thinking in the beginning as well. In our in/exp report it breaks everything down. For example, the lawn care is broken down into "lawn service, tree service, irrigation, landscaping, and mulch. Here are the totals: lawn service- $6810, tree service- $0, irrigation- $0, landscaping- $387.50, and mulch- $0. Add this up and you get $7197. All of these services are contracted by the lawn company. Now, in the ledger report, the total amount written to the lawn company is $9804. According to the in/exp report nothing was spent on tree service. In the ledger report $900 was spent on tree service. Per our lawn contract, the tree service is performed by the lawn company, but the check was written to an individual. The ledger also reports $2606 for mulch while the in/exp report states nothing was spent on mulch.

The same is for the management company. The inc/exp report has the following line items which pertain to the MC: management fees/account fees- $1440, corporate annual fees- $0, coupon books- $385, copies/printing- $41, postage- $41, website/tech fees- $149, newsletter- $0, legal- $0, pool permits- $0, other/misc. admin- $0. Add these up and you get $2056. According to the ledger report, MC was paid $4016.

With the MC refusing initially and still not handing over the documents I requested, it only makes me wonder what they are doing. When asked why the excess money is not on the inc/exp report they refuse to answer at all. I asked where the excess money was going; they refused to answer that as well.

I'm trying to determine if they are in fact taking money from us by inflating numbers on our budget or is their accounting department simply the most unorganized department on this planet. I found out today that another community is suing the MC for big no bid contracts, and issues with how the money is being spent. The state attorney’s office is also involved with that case as well.

I'm just not sure what to do from here on out with the information I have so far. I have a friend who is a CPA who would be happy to look over everything for me, but the MC won’t hand anything else over. He said that raises a red flag. He says they are required by law to hand over a copy of the finances when a resident of the community asks, but the MC isn’t doing it. He said the audits are another red flag. Ever since this community was established, the MC has had free reign over the finances without a 3rd party review/audit being performed. The community is almost 6 years old. Do I get an attorney involved, or do I just keep asking till something happens?? LOL

AustinP (Florida)
Posts: 8

Posted:

How do I find out who the licensing authority is?

CarolR11 (Colorado)
Posts: 2,563

Posted:

Before I owned in our HOA, the developer and his employees comprised the Board of Directors. I assume that the Owners back then have the same rights that you do. Is there a Board of Directors in your HOA? Perhaps you could try making your written request to the Board, if you have an address, stating that the MC hasn't been forthcoming.

You do want an accurate accounting of expenses before Owners gain control of your HOA.

You also want to see how much is being set aside each year for reserves.

You refer to yourself as a "resident," Austin, but you're an Owner, right?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By AustinP on 08/12/2012 10:16 AM
How do I find out who the licensing authority is?

Click the link for the ombudsman provided in my post, they would likely be able to assist.

The other option is to do a web search for Florida management companies licensing.

DavidW5 (North Carolina)
Posts: 565

Posted:

Quote:

Posted By AustinP on 08/12/2012 10:15 AM
Thanks for the advice. That’s what I was thinking in the beginning as well. In our in/exp report it breaks everything down. For example, the lawn care is broken down into "lawn service, tree service, irrigation, landscaping, and mulch. Here are the totals: lawn service- $6810, tree service- $0, irrigation- $0, landscaping- $387.50, and mulch- $0. Add this up and you get $7197. All of these services are contracted by the lawn company. Now, in the ledger report, the total amount written to the lawn company is $9804. According to the in/exp report nothing was spent on tree service. In the ledger report $900 was spent on tree service. Per our lawn contract, the tree service is performed by the lawn company, but the check was written to an individual. The ledger also reports $2606 for mulch while the in/exp report states nothing was spent on mulch.

The same is for the management company. The inc/exp report has the following line items which pertain to the MC: management fees/account fees- $1440, corporate annual fees- $0, coupon books- $385, copies/printing- $41, postage- $41, website/tech fees- $149, newsletter- $0, legal- $0, pool permits- $0, other/misc. admin- $0. Add these up and you get $2056. According to the ledger report, MC was paid $4016.

With the MC refusing initially and still not handing over the documents I requested, it only makes me wonder what they are doing. When asked why the excess money is not on the inc/exp report they refuse to answer at all. I asked where the excess money was going; they refused to answer that as well.

I'm trying to determine if they are in fact taking money from us by inflating numbers on our budget or is their accounting department simply the most unorganized department on this planet. I found out today that another community is suing the MC for big no bid contracts, and issues with how the money is being spent. The state attorney’s office is also involved with that case as well.

I'm just not sure what to do from here on out with the information I have so far. I have a friend who is a CPA who would be happy to look over everything for me, but the MC won’t hand anything else over. He said that raises a red flag. He says they are required by law to hand over a copy of the finances when a resident of the community asks, but the MC isn’t doing it. He said the audits are another red flag. Ever since this community was established, the MC has had free reign over the finances without a 3rd party review/audit being performed. The community is almost 6 years old. Do I get an attorney involved, or do I just keep asking till something happens?? LOL

Austin,

Regarding the apparent discrepancies between the reports - first you need to determine if the books are being kept on an accrual or a cash basis. If you have accrual accounting then the income/expense report will show expenses in the month that the goods or services are received, regardless of when the bill for those services is received or paid. The general ledger will show all disbursements that occur in the month, whether the services for which those disbursements are made occurred that month or in a prior month.

I agree that the lack of annual audits is cause for concern but I do not think you can draw any conclusions based on the kinds of discrepancies you identified.

AustinP (Florida)
Posts: 8

Posted:

There is a board of directors but since we haven't reached "transition", it is the builder. We have gotten zero help from the builder. Yes, I am the owner of the home. We the owners in the community do not want this MC, but until the builder hands over control to use, we are just along for the ride so to speak.

AustinP (Florida)
Posts: 8

Posted:

Ok, thanks for the help. I look for those answers.

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