Questions about audits

Hi, I am brand new to the whole HOA experience. My question is. How often should an audit be done. We have a MC that spends money left and right without getting any permission from board members. We have come to find out that many of the companies doing work in our condo community are owned by the MC. Can a CPA do an audit or do you have to have someone else do it?

80 townhouses. $225k budget. Annual audit by CPA firm. $1,300 for audit and tax return.

Not sure what you are looking for. If your primary concern is that your MC is a supplier, an audit will not uncover whether you are getting fair value for what you are paying. The audit will provide a trail of where your money is coming from and where it is going.

Also an audit and tax preparation should not cost $7,000. $1,500-$2,000 at the most and its well worth it to have the audit done at least once every few years if not more often. In Florida you must if your income is above a certain amount. I want to say I think Condos must do them every year, but I could be wrong about that.

We have an annual audit. 130+ condo units 365k annual budget.

Cost $1,700.

An audit will not control what you view as out of control spending by the MC. A board doing their job will. The board should be directing what is spent and why. My suggestion collect more details and actual numbers from your budget or financials to see what is spent and who is being paid.

How do you know the MC is using providers they own?

Rhonda

And audit will not find what you are objecting to or questioning about. An audit verifies what was taken in and what was spent. It make no decisions on who nor what it was spent on.

It is up to the BOD to questions expenditures as in what for, to whom, and any relationships between the MC and the vendors.

Rhonda, lets answer one sentence at a time.
1) An audit is only required if stated in your governing documents or by state law. Otherwise, you may want to do a financial review every year if desired.
2) Change the management agreement: a) Do not let your MC sign any checks; and b) any expenditure over $XXX must first be approved by the Board of Directors; and c) no contractor associated with the MC shall be hired or allowed to bid.
3) An audit must be done by a CPA.

Many associations mistakenly call a financial review an audit. Audits often cost over $5,000 whereas a financial review may cost as little as $500 depending on what an accountant may charge and the budget.

Rhonda

While your concerns seem to be appropriate, your thinking the MC is spending without authorization may not be:

1. The $500 limit the MC seems to be exceeding may be per transaction. As an example, in our association the MC can authorize transactions up to $500 each without Board approval--irrigation system repairs, etc. There may be more than one such occurrence each month. If your MC is not exceeding the $500 transaction ceiling, they are following the directions of the BOD.

2. While "we" cannot keep letting the MC pay $X to reseed, it is up to BOD to tell them not to do so. If their guidance is to ensure the turf is kept green and lush, that is what they will do. The MC is directed by the BOD. If it is OK with the BOD, the MC is doing what it has been told to do. You may not agree with what the BOD has told them to do, but it is the BOD and not the MC which is responsible.

3. Again, with respect to the $600 for the foyer cleaning, the BOD has oversight. If the BOD thinks this is acceptable, then it is. Do not hold the MC accountable for this, hold the BOD accountable. If the foyers are not clean for the $600, or $600 is too much, then the BOD must hold the MC responsible for ensuring the contractor is performing as they should or the MC should find another contractor who charges less.

In summary, my analysis is you do not understand the difference between the responsibilities of the BOD and the MC. The MC executes its responsibilities at the pleasure, and oversight, of the BOD. If you do not agree with what is taking place, you hold the BOD responsible. They are responsible for jerking the MC up on a short leash.