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A Question on Hierarchy in FL

Started by ZacheryK • 13 replies • 663 views

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ZacheryK (Florida)
Posts: 34
Posted:
I’m familiar with the hierarchy of Docs in FL. But wonder about when an HOA’s Gov Docs are more restrictive than FS720 which provision applies. Here’s one example:

Our Docs require that “An audit of the accounts of the Association shall be made annually by a certified public accountant”. However, FS 720.303.7(a)(1) Financial Reporting just requires the Association to “prepare compiled financial statements".

The Board follows FS720 and as a result we have not had a CPA audit in many years.

So, when an HOA’s Gov Docs are more restrictive than FS720 which provision applies?

Thanks for helping me understand this!
AugustinD
Posts: 5,144
Posted:
Please confirm that your HOA has the income levels specified in 720.303(7)(a)(1), or $150k to $300k of total annual revenues.

From my general reading of FS 720 in the last few years, when a section of FS 720 is supposed to override the governing docs, the statute explicitly states this. I see no such override provision in 720.303(7). In this case, my opinion is that your HOA is obliged to hire a CPA to do the audit the governing docs specify.

Also, as you may be aware, compiled financial statements in no way provide assurance of the validity of the amounts. The accountant or bookkeeper does not audit compiled financial statements. This, along with the law of covenants, also argue for doing what your governing documents specify regarding an audit by a CPA.

There are a number of types of audits. They can be extraordinarily expensive, especially if done annually. Talk to an accountant about your options.
GenoS (Florida)
Posts: 4,276
Posted:
This is a big topic but in general, an association's governing documents can be more restrictive than law, but not less restrictive (unless there's specific language in the statutes allowing it).

The statute allows, by various thresholds of owner approval, to increase or reduce the annual financial reporting requirements. I think your documents' requirement for an annual audit serves as the expressed will of the members and you have to do it. You would have to repeal that language in your own documents to let the statute work its default provisions.

The statutory requirements for recalling a director only require a simple majority of the total voting interests. An association's documents cannot be more restrictive than that because of the words, "Regardless of any provision to the contrary contained in the governing documents..." that precede the statutory requirements in FS 720.303(10). That's an exception to the general rule that an association's documents can be more restrictive.
GeorgeS21 (Florida)
Posts: 3,808
Posted:
Based on what you have said, an audit is required.
ZacheryK (Florida)
Posts: 34
Posted:
Thank you so much for helping me understand this!

To confirm, we are less than $300K.

It's interesting. We have literate Board Members who certified their working knowledge of our Gov Docs and FS720 (which is a FL requirement). The Association has a well respected, i.e., expensive, Law Firm. Apparently, they willing disregard compliance knowing they are doing so. My goodness.
AugustinD
Posts: 5,144
Posted:
Quote:
Posted By ZacheryK on 05/04/2020 10:39 AM
To confirm, we are less than $300K.
And more than $150k?
Quote:
Posted By ZacheryK on 05/04/2020 10:39 AM
It's interesting. We have literate Board Members who certified their working knowledge of our Gov Docs and FS720 (which is a FL requirement). The Association has a well respected, i.e., expensive, Law Firm. Apparently, they willing disregard compliance knowing they are doing so. My goodness.
Has the board or law firm given an explanation for not doing an audit? It's almost guaranteed that one excuse is an audit is way expensive. I would not fault them for feeling the pain of a large expense and trying to budget for same. But I might fault them for not obeying the covenant. Everyone agreed to the covenant when they bought in. Tough cookies if either members or the Board now does not like this covenant. The courts say the covenant is a contractual term of residing in the HOA. Unless I read some legal reasoning throwing out the covenant, the HOA must do it.
AugustinD
Posts: 5,144
Posted:
The attorney that wrote the following backs up the opinions in this thread:
https://www.floridacondohoalawblog.com/2019/06/30/audit-requirements-depend-on-revenue/ . In particular, the linked article notes: "Sometimes the bylaws may also impose year-end financial reporting requirements higher than the minimum requirements of the statute."

Reasons for doing an audit, regardless of what statute or the gov docs say, appear at:
https://www.hoaleader.com/public/Owners-Demand-Audit-Your-HOA-Books-Tips-for-Responding.cfm
GenoS (Florida)
Posts: 4,276
Posted:
Thanks for that, AugustinD. I take issue with the HOALeader article's estimate of costs for an audit. We pay $1,600 every year for Reviewed Financials (total budget right around $300,000). The HOALeader article says the cost for an audit wouldn't be all that much more, but we got estimates last year for an audit that came in between $8,000 and $10,000 which is substantially more.
AugustinD
Posts: 5,144
Posted:
Quote:
Posted By GenoS on 05/04/2020 3:54 PM
Thanks for that, AugustinD. I take issue with the HOALeader article's estimate of costs for an audit. We pay $1,600 every year for Reviewed Financials (total budget right around $300,000). The HOALeader article says the cost for an audit wouldn't be all that much more, but we got estimates last year for an audit that came in between $8,000 and $10,000 which is substantially more.
The HOALeader article is dated 2014. In 2018 my HOA had a "compilation" done. A "compilation" is a lot less than an audit. It was not required but no review of any kind had ever been done. I believe the final bill for the compilation was over $11,000.
GenoS (Florida)
Posts: 4,276
Posted:
Quote:
Posted By AugustinD on 05/04/2020 5:03 PM
The HOALeader article is dated 2014. In 2018 my HOA had a "compilation" done. A "compilation" is a lot less than an audit. It was not required but no review of any kind had ever been done. I believe the final bill for the compilation was over $11,000.

And I believe it. Myself and a few other owners here would like to have an audit. The reason isn't that we suspect anything untoward has taken place, but because the last financial audit was done in 2008. Just to put an audit stamp on the finances would result in at least a little peace of mind. Since 2008 we've had 14 Treasurers, 3 Bookkepers, one Management Company, and dozens of Directors. I know an audit wouldn't go back that far and look at everything, but a signpost for even just the past year (one of these years) would go a long way towards establishing a bit more trust.

There's no evidence that any money has gone missing over the years and I'm not sure an audit is absolutely something we need, but starting next year we're embarking on a 5-year plan that will involve about $300,000 a year in expenditures for the replacement of roofs and the painting of all 85 buildings.

To get to a known state of initial conditions before all that work starts would be beneficial, in my mind. I'm pretty sure the board will be against an audit due to the cost. C'est la vie.
ZacheryK (Florida)
Posts: 34
Posted:
Thanks for those sites AugustinD.

Ten years ago or so there was proven embezzlement in our HOA. Controls were instituted to prevent that happening again. I can't remember the last time we had a Certified Audit but like GenoS it would be nice to "get a known state of initial conditions".

Privately, Members mumble conspiracy theories so perhaps bite-the-bullet ($'s) have an Audit, put the rumors to rest and go forward.

As always, I appreciate your time and advise.

AugustinD
Posts: 5,144
Posted:
Quote:
Posted By ZacheryK on 05/05/2020 9:03 AM
Ten years ago or so there was proven embezzlement in our HOA. Controls were instituted to prevent that happening again. I can't remember the last time we had a Certified Audit but like GenoS it would be nice to "get a known state of initial conditions".
FWIW, of course I think this is excellent, further justification for asking the Board to comply with the covenant's requirement to have an audit. Reports of embezzlement of HOAs are just common enough to give teeth to any such request, AFAIC.
GenoS (Florida)
Posts: 4,276
Posted:
Quote:
Posted By AugustinD on 05/05/2020 9:10 AM
FWIW, of course I think this is excellent, further justification for asking the Board to comply with the covenant's requirement to have an audit. Reports of embezzlement of HOAs are just common enough to give teeth to any such request, AFAIC.

There are a few high-profile cases every year in Florida alone and who knows how many low-profile cases that don't even make the news.

Like ZacheryK, we've got a steady stream of pseudo-conspiracy theories where people are convinced that "something's not right". They never bother to dig down into the actual numbers, but they've got no problem sharing their concerns with their neighbors.

When new people buy into the neighborhood I think it would be nice for every member to at least have a few simple facts on hand to answer their questions; i.e. the ones they never think to ask about before buying.

Q. What's the annual budget here? A. About $300,000.
Q. How much is in the reserves? A. About $1 million.
Q. When was the last financial audit? A. About 12 years ago.
Q. How much debt does the association carry? A. None.

A few people who can answer those quesitons off the tops of their heads would go a long way towards letting new members know that, despite appearances, not everything is chaos.
ZacheryK (Florida)
Posts: 34
Posted:
Well said Geno. It's bewildering how something so simple can quickly turn into a mess.

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