My HOA has consistently failed to perform annual audit as required by our covenants.

Started by DavidD25 • 28 replies • 3868 views

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DavidD25 (North Carolina)
Posts: 7

Posted:

I would very much appreciate any comments regarding the fact that our board members consistently fails to perform an annual audit which is required by our by laws. Five years ago, the board created an assessment to pay for a 5 year catch up audit. since that time, there has only been one audit performed in the last 5 years. I moved into my unit a year ago and joined the board to attempt to help the board with duties and drastically falling values. I quickly discovered that our board is only interested in creating self serving rules and not putting the association as a whole first in regards to decision making or fiduciary responsibilities. Also, I've discovered that conflicts of interest have occurred such as our President paying her husband's company $150 to make a simple dump run.

Six months ago, I put my unit on the market for sale. Several interested parties have asked for current annual audits of which there are none. I'm constantly ignored and put off when I inquire about audits, the books, transparency, and fiduciary duties.

Fed up in Winston Salem, NC. Do I have any type of legal claim for not having a fair chance to sell my unit? By the way, I'm asking $49,000 for a unit that I paid $68,000 over 15 years ago. That's how bad this situation is.

Thanks in advance for any thoughts.

PitA
Posts: 1,416

Posted:

+ be CERTAIN your protest is recorded in the minutes of the BOD meetings, if not VOCALISE them to the membership

+ recall and replace the BODs

+ seek legal redress via injunction

+ petition for receivership

+ 'suck it up' and run, run fast, run far

IMO: the cheapest and easiest is to RUN

JohnC46 (South Carolina)
Posts: 14,265

Posted:

David

Is the issue the BOD or that you overpaid or that your association is not holding its value? Seems to be several issues in one post.

I would like to see the part of your Bylaws calling for a yearly audit.

GenoS (Florida)
Posts: 4,276

Posted:

I'm not understanding how lack of a financial audit affects unit valuation. The resale value of real estate rises and falls based on a whole host of factors, many of which have nothing to do with how an HOA is managed.

There are homes in my subdivision that resell today for 17% less than what they sold for 10 years ago. Audits or lack thereof have nothing to do with it.

As for conflicts of interest, as long as they're disclosed they're not necessarily all bad. Depending on how much was hauled and how far $150 doesn't sound unreasonable for a dump run.

JimR24 (Texas)
Posts: 399

Posted:

Quote:

Posted By JohnC46 on 09/06/2015 11:28 AM
David

Is the issue the BOD or that you overpaid or that your association is not holding its value? Seems to be several issues in one post.

I would like to see the part of your Bylaws calling for a yearly audit.

Yes, i'd be interested in seeing the language which requires an annual audit of the books. If an annual audit is required - as far as i know - it would be unusual.

In our case, our Declaration requires either an audit, a review, or an annual compilation. Full annual audits, if necessary, would be very expensive. What do u think?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

DavidD25 (North Carolina)
Posts: 7

Posted:

I completely understand how homes are valued as I have purchased and sold many properties. A home is worth what a buyer is willing to pay and yes, many factors such as comps, days on the market, tax values, the economy, and purely supply and demand equate into this price.

My issue is not that the value has dropped. I desperately needed to sell my condo and could have done so at a price high enough to pay the bank and property taxes without encountering a foreclosure.

Several buyers simply wanted to understand the HOA, it's budget, fees, and an audit of the financials to ensure that it was being run properly and by responsible parties. My point is that I had nothing to fulfill this reasonable request.

With a lack of transparency and a blatant neglect for fiduciary duties "annual audits" you can also see how other issues from repairs and maintenance right down to petty issues have driven a community that should be thriving or holding its own down into a horrible state where owners cannot sell units, nor attract quality tenants.

With no audits to provide, I have lost two potential buyers.

I'm not blaming the HOA for my personal hard financial times, (2008 / failed business / divorce / unemployment) however, selling my unit would have drastically been better on my future and credit than a foreclosure, which I'm facing and may have to live with.

It is my understanding that failure to perform fiduciary responsibilities (especially on a consistent basis) is not generally considered acceptable by law.

this is not a parking issue, or a pet issue, or a flag issue, or the colors of my door. This is a firm and documented requirement that has been ignored by the same members on a basis of audits being performed in only 2 of the last 10 years with one of those audits a five year catch up that was much more costly than hiring an auditor to perform annual audits routinely.

I also understand the conflict of interest was relatively minor, but.....how many more irregularities have occurred that are unknown due to a lack of transparency? "Audits"

I hope this helps, and do appreciate your responses.

DavidD25 (North Carolina)
Posts: 7

Posted:

to explain how this transpired. both buyers initially asked to review the by-laws. once they saw this article, they asked to see the audits. other than a proposed budget, how else would they have a full understanding of the chart of accounts and association activities? I will scan shortly for review.

JimR24 (Texas)
Posts: 399

Posted:

Hi David - as an Association member, you certainly have a right to see the financials (I.e. income and expense statement reports...along with balance sheet reports) - even if there has been no audits performed by an accountant.

Is your Association refusing to supply you with those reports? How often does the membership receive a copy of the financials?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

DavidD25 (North Carolina)
Posts: 7

Posted:

they switched management companies in May, I have been asking to review the financials since February. As of a week ago, I'm still being told that the majority of the information has yet to be retrieved from the old management company. About 7 miles away.

email from 5/28/2015

David,

The following are the only audit reports I have been given:

1. December 31, 2006 and 2005 - Completed January 12, 2012
2. December 31, 2007 and 2006 - Completed January 12, 2012
3. December 31, 2008 and 2007 - Completed February 7, 2012
4. December 31, 2009 and 2008 - Completed May 31, 2012
5. December 31, 2010 and 2009 - Completed June 11, 2012

The audit reports are from Brown Jenkins & Oneyear, P.A.

Steve

from an email dated 5/20/2015

2. I checked with Carolyn as to the date of our last “official” (as you call it) audit, and the most recent “printed” one she had was dated December 31, 2010. This issue has me a little confused right now because in the January 2013 Minutes, “Lancaster reported that our Annual Audit should be complete within a month.” At our last meeting (May 2015), the Board requested that Gray Harper pursue getting a quote for annual audits for the last three years. So, whether it’s two years-, three years-, or four years- worth of audits we need, we’ll have to get that information from an accountant. In any event, we’re committed to catching up on the audits during this year. You can check with Carolyn if you want to see her most recent “printed” copy.

JimR24 (Texas)
Posts: 399

Posted:

Well - from reading your message - it would appear to me that your board has likely lost control of their financial reporting (especially if they are saying that they are having problems getting reports to you). They may blame it on the management company or another person; however, bottom line - it is their responsibility.

In my world, this is a BIG problem....and yes, your board has a fiduciary duty to keep up with the financials.

My guess is that - unless you are willing to serve on the board so things can get straightened out - you will continue to be frustrated because of lack of information and lack of understanding.

It is possible that your board just doesn't have a capacity (i.e. financial know-how) to do what is expected of them. What do u think?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

DavidD25 (North Carolina)
Posts: 7

Posted:

I have scanned the by-law page requiring the audit but cannot seem to post as an attachment. I only scanned the one page. it is very clear that an audit is required at least once a year by an outside and qualified party. and, and and, these are the same board members for the entire time.

I joined the board to assist in this and other matters, and in good faith and kindness. I have been lied to, secretly kept off emails, and chastised as a "know it all" for offering any input that would encourage transparency and responsibility. I gave up.

They know exactly how to accomplish this, it's either full irresponsibility, or something bigger to hide. That's my frustration. I lost two potential sales, can't even see what's going on, plus the biggie.....a blatant act of avoiding a by-law.

They can email 10-15 times to form pool rules that make it nearly impossible for anyone to enter the pool, our only good asset, and yet refuse to handle matters such as water leaks or audits with any type of effort, much less urgency.

I believe that there would be legal issues with a consistent failure to perform a known, original, stated, and requested fiduciary duty!!! I don't want to sue for fun or for extra money, I just wanted to sell my unit and avoid a foreclosure and had plenty of equity and the opportunity to do so 6 months ago.

A foreclosure will affect my future for some time.

btw, I do appreciate all of you who have taken the time to participate in this post.

JimR24 (Texas)
Posts: 399

Posted:

I feel your pain David - it's sooo very unfortunate when Board's act this way.

Unfortunately, it's likely that about the only route u can go is to hire an attorney on your own nickel - or managed to move as soon as possible. Tough situation.

The other possibility is to get grass roots support from your neighbors; however, lots of homeowners don't want to get involved in Association affairs, even if things are being managed poorly. Can u get other homeowners to understand your plight?

Best of luck to you...and keep us updated on how things are going for you.

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

DavidD25 (North Carolina)
Posts: 7

Posted:

Thank you Jim, very kind of you.

GenoS (Florida)
Posts: 4,276

Posted:

Six months is way too long for a switch in management companies to get financial reporting back up to speed. No need to post your bylaw that requires auditing, that makes sense. If you were in Florida, David, things would be different

Keep pestering them and try to get your neighbors involved to help pester them about it. It sounds like the ball has really been dropped.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JimR24 on 09/06/2015 12:36 PM

Jim

That is my point. I have never seen docs that call for a "audit". A yearly financial report, financial review, financial compilation, etc. yes but never an audit.

GenoS (Florida)
Posts: 4,276

Posted:

In Florida the required year-end report depends on the association's revenues for the year. Either compiled financial statements, reviewed financial statements or audited financial statements depending. 20% of the members can petition the board and demand a higher level of review if they so desire.

PitA
Posts: 1,416

Posted:

blah blah blah

to repeat:

and next time: CAVEAT EMPTOR

DavidD25 (North Carolina)
Posts: 7

Posted:

what file type is accepted? I've tried pdf word doc png jpeg. crazy.

I'll type the specific language of this section.

Article 2

Section (q)

Keeping the books with detailed accounts in chronological order of receipts and expenditures affecting the Property, and the administration of the Condominium, specifying the maintenance and repair expenses of the Common Area and Facilities and any other expenses incurred. The said books and vouchers accrediting the entries thereupon shall be available for the examination by Owners, their duly authorized agents or attorneys, during general business hours on working days at the times and in the manner that shall be set and announced by the Board of Directors for the general knowledge of the Owners. All books and records shall be kept in accordance with good and accepted accounting practices, and the same shall be audited at least once a year by an outside auditor employed by the Board of Directors who shall not be a resident of the Condominium , or an owner of a Unit therein. The cost of such audit shall be a Common Expense.

That's word for word.

I hasn't been six months....it's been one audit in the last 5 years, and they can't even confirm if that was 3 years ago or 4 years ago.

I asked to come in and review the books myself due to the constant avoidance of my request. that's when the excuse of not even having the books in their possession currently was stated.

JimR24 (Texas)
Posts: 399

Posted:

Well in my opinion, the terminology "or the Owner of a Unit therein" added to the audit requirement allows for all sorts of things to be possible. In other words, it appears to me that an audit by a competent third-party accountant is not necessarily required...if i am interpreting things correctly.

Risky situation, i think - but that appears to be policy which has been adopted by your Association. What do u think?

In other words, it sounds like your board is not upholding its fiduciary responsibility and has lost control of its financials. Course now, with that said - what can be done about it without you hiring expensive legal help on your nickel. If i were in your shoes, i'd bide my time until the next Board election and hopefully influence things in accordance with your standards....IF you can hang on that long.

Just my $.02 worth.

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By DavidD25 on 09/06/2015 4:19 PM
what file type is accepted? I've tried pdf word doc png jpeg. crazy.

Attaching files here is wonky. I don't think I've seen an embedded picture of any format in this forum since I started coming here about 18 months ago. Best bet is to upload to imgur or another free pic hosting site and put the link here. The 'a href=' style links work using proper html (as opposed to my 'a href' example which is not).

JimR24 (Texas)
Posts: 399

Posted:

Quote:

Posted By GenoS on 09/06/2015 6:34 PM

Posted By DavidD25 on 09/06/2015 4:19 PM
what file type is accepted? I've tried pdf word doc png jpeg. crazy.

Thanks GenoS...see testing below. This is only a test to see if html code will work here.

CAI ONLINE

Lovin' life with my honey!
and, President of HOA in Texas

JimR24 (Texas)
Posts: 399

Posted:

Yea...just a test - it worked!

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

JimR24 (Texas)
Posts: 399

Posted:

Testing image capability...

Lovin' life with my honey!
and, President of HOA in Texas

JimR24 (Texas)
Posts: 399

Posted:

The above attempt did not work to post an image. Perhaps this site does not have image posting capability. What do u think?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

TimB4 (Tennessee)
Posts: 21,061

Posted:

David,

Let me see if I understand this. You are more upset that you can not provide specific financial information (an audit) to potential buyers then that the Board failed to do the audit.

If you were not selling, I would recommend all sorts of avenues to make such audits or financial reviews occur. However, since you are selling (so I expect not willing to put in the work necessary to make the Association better) I suggest the following:

Rather then try to obtain audits, ask for a copy of the financials and budget. This may be enough to satisfy your buyers.

Virginia is one State that specifies, VA § 55-509.5, the Association will provide a great deal of information to the Seller so it can be turned over to the potential buyer. That statute doesn't require a copy of any audit or financial review. Instead it requires:

6. A copy of the association's current budget or a summary thereof prepared by the association, and a copy of its statement of income and expenses or statement of its financial position (balance sheet) for the last fiscal year for which such statement is available, including a statement of the balance due of any outstanding loans of the association;

TimB4 (Tennessee)
Posts: 21,061

Posted:

Jim,

It may be best to create or utilize a separate thread for testing.

Similar to (or reactivate this one):

Subject: Posting Tips (and testing thread)

LindaS27 (Colorado)
Posts: 236

Posted:

Quote:

Posted By JohnC46 on 09/06/2015 3:33 PM

Posted By JimR24 on 09/06/2015 12:36 PM

Jim

That is my point. I have never seen docs that call for a "audit". A yearly financial report, financial review, financial compilation, etc. yes but never an audit.

An audit is required in our by-laws under the "Duties of the Officers"

Treasurer
The Treasurer shall receive and deposit in appropriate bank accounts all monies of the association and shall disburse such funds as directed by resolution of the board of directors; keep proper books of account; cause an annual audit of the association books to me made by a public accountant at the completion of each fiscal year; and shall prepare an annual budget and statement of income and expenditures to be presented to the membership at its regular annual meeting, and deliver a copy of each to the members. The treasurer shall sigh all checks and promissory notes of the association.

TimB4 (Tennessee)
Posts: 21,061

Posted:

Our governing documents used to require annual audits. We amended them to only require a financial review.

I think that the older the development, it would be more common to have them require an audit.

LindaS27 (Colorado)
Posts: 236

Posted:

Quote:

Posted By TimB4 on 09/07/2015 10:00 PM
David,

Virginia is one State that specifies, VA § 55-509.5, the Association will provide a great deal of information to the Seller so it can be turned over to the potential buyer.

Tim,

I just glanced at Virginia's requirements - looks very thorough.

When I tried to check out something similar for Colorado, the only thing I found for the seller/buyer disclosures had been repealed. This doesn't seems reasonable, so maybe I need to look further. They do have fairly new disclosure requirements in (don't know how to do the link for the statutes)38-33.3-317 Association Records.

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