Audit vs Cash review

Started by KrystalA • 7 replies • 1831 views

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KrystalA (Iowa)
Posts: 60

Posted:

Our board is divided on whether we should do a full audit or a cash review. Of course the Property Management is pushing the cash review butsaying we have to wait til the end of the year because we are mostly concerned about activity from early in the year - long story short, she quit her company and started a whole new one.

The other side of the board wants a full audit which I am not oppsed to, but concerned that it could ultimately screw us over if the management company can't provide documents. Again, this goes back to early in the year when she left and now there is a question if we even got half of our files...work orders, copies of contracts etc.

How much liablity could come down on the board and association if this is in fact the case - loss of records...

Anyone have a general idea on costs??? i know - hard to answer

Jadedone4 (Virginia)
Posts: 495

Posted:

Annual Audit for my HOA, east coast, 500 unit community, was about $2k, not sure if this helps because your community may have more/less A/R or A/P's than us, and any other community.

If I read the post correct, it seems like you either have changed MC's or that employee of MC' is somehow further involved in your HOA...?

Regardless, even if you change Treasurers some schools of thought suggest an audit at that time (balance sheet, not full audit).

What does your governing documents say about annual audits, etc. What does your local/state statute/law require, etc.

Start with those, and work inward - ask if you need the audit (since there is the possibility that "invoices, contracts, etc" are missing, I would say yes). Does your community finances/budget run fiscal or calendar year matrix...? If fiscal, you might be able to hold off until end of September (about ninety days). If calender, that is another six months of "uncertainity."

RogerB (Colorado)
Posts: 5,067

Posted:

Krystal, I would have at least a financial review and if problems are found it could be expanded into an audit. The liability would be for the management company. It would extend to the Board if you don't review the books and later find out there are financial problems.

TomK2 (Ohio)
Posts: 39

Posted:

Hello KrystalA: If you have changed management companies I sure would do an audit and do it now! Did you ever think why does the management company want a cash audit? It is better to find out now than later. That way you are sure the books are balanced and all is well. So you spend a couple grand at least you have peace of mind and balanced books and nobody can point fingers ! Be smart get an audit done!

KrystalA (Iowa)
Posts: 60

Posted:

Thanks for the replies and having talked with a couple people in the "real" world, I am fine with a full audit. You hear one too many times how people want to sue the board, one gets nervous..and I haven't done a bloody thing.

Oh, believe me her quesioning why a full audit sent up tons of red flags instantly!!

My next part of this would be... sadly and this is one reason we want an audit, is she has been known to go against board wishes on a couple things, and I want to make sure this isn't one of them. What would be a good way to put it up for vote (wording wise) so she can't end up getting us a cash review when we want a full - and yes, if she were to do that...here butt is gone.

I guess just a good air tight motion to get RFP's from at least 4-5 companies, must be reputable companies, that it can't be modified to a cash review and must be a full audit.

Jadedone4 (Virginia)
Posts: 495

Posted:

OK, going to assume that the "she" is the PM, and is with the MC that you are using now.

If that is the case, requests for RFP/bids will included not only pricing for services to be rendered, but also should contain a SOW - scope of work.

The relationship is between the HOA and the auditor, by way of the MC - if they have "housed" your finances (a/r, a/p, invoices, etc). The auditor should be using "GAAP" procedures, or similar systems for the audit's execution. And there should be a letter from the auditor stating the veracity of the information that you (and the MC) have provided to them. Further there will more than likely be a letter from the auditor, stating the methods used, systems reviewed, and a summary of the practices used to reach their conclusions.

JosephW (Michigan)
Posts: 882

Posted:

First the auditor is going to require a "Representation Letter". The representation letter is a significant part of the audit process and is required by auditing standards. It summarizes the most important representations made during the audit. The representations do not constitute a guarantee that the information given is correct, but rather to the best of your knowledge. The letter needs to be signed by the Association's management agent and Board President or Treasurer. The audit process is not complete until the representation letter has been signed.

Second, in the RFP for auditing services, state that the "Engagement Letter", in which the CPA should outline the services to be done, is to signed by the association President. Then the board will see the contracted scope of services.

Joe

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JM2 (Oregon)
Posts: 439

Posted:

Hi Krystal:

I've heard the term, "Forensic Auditor." It seems like it's a person who goes in looking for specific things, like fraud. If you suspect that things are not what they are supposed to be, it may be worthwhile to spend extra money for such an audit. Not cheap, but if there's a problem and insurance that will cover it, go for it!

JPM

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