New managment old headache

Dear Stephanie: You have been handed a poisoned chalice as the Board chair, I'm so sorry. Do you have other Board members who are helping you with this thorny problem? It seems to me that you need more support. Have you had a face to face meeting with the newish management company yet. Sue

I will only comment on one aspect of your posting and that is the turning over of association records. The ethical thing when dealing with a transition between two management companies is that each management company should be working as a fiduciary in the best interests of the associations they represent, but no law requires them to turn over association records. You could have your attorney write them a threatening letter, but good luck with that.

There was a bill, SB 434. Managing Agent Production Records upon Termination. (Two-Year Bill) This bill would require a managing agent whose management agreement has been terminated to produce client property and client records within a specified period of time pursuant to a written request by a common interest development association, except as specified. The bill would define “client property” and “client records” for purposes of those provisions.

The California legislature allowed that law to expire after two years.

Aidly is an experienced CA Mgt. Co (MC) owner and imo, I, too, as a long time CA Board member, urge you not to waste your time trying to get records from the old MC. They left too long ago.

Your immediate concern is your current financial condition. Your MC should have sent a Budget & Reserves and Board Policy package for your fiscal year a month before it began to all owners showing the budget in every detail for your new fiscal year. It also must show the condition of your reserves account.

1. .Your Board approved this budget an an open board meeting, right?
2. All owners rec'd this package from the MC, right?

You need to make sure your MC supplies a review of your financials on a monthly basis per CA Civil Code 5500, which says in part: Board Review of Finances Required. See https://www.davis-stirling.com/HOME/D/Duty-re-Records

"Unless the governing documents impose more stringent standards, the board shall do all of the following:
(a) Review, on a monthly basis, a current reconciliation of the association’s operating accounts.
(b) Review, on a monthly basis, a current reconciliation of the association’s reserve accounts.
(c) Review, on a monthly basis, the current year’s actual operating revenues and expenses compared to the current year’s budget.
(d) Review, on a monthly basis, the latest account statements prepared by the financial institutions where the association has its operating and reserve accounts.
(e) Review, on a monthly basis, an income and expense statement for the association’s operating and reserve accounts.
(f) Review, on a monthly basis, the check register, monthly general ledger, and delinquent assessment receivable reports."

See the entire citation for caveats if you meet, say, only quarterly.

3. Do you have monthly reports, which is where you'll find your expenses listed under "Disbursements" for roofs and painting? You D sk for specific financials, right, not just everything.
Here, you'll see if these were paid from reserves, surely the roofing. Aren't you monthly financial on a protected website?

4. If your personal community manager is not providing monthly records of your income & expenses, you may need to contact the owner of the MC and demand better service. heck your contract with the first to see wha services they SHOULD provide.

(PS. A new MC starts at my HOA tomorrow)

I know that when the new MC went to pick up all the paperwork he said they handed him a flash drive and a small box of paper records. We were with our old MC for over 10 years. I find that hard to believe 1 small box. I asked for a copy of the flash drive which the new MC supplied us with but it is a huge file and it is taking some time to even pull up the files. I will look up if they are certified thank you. I have looked them up on BBB and they have 3 formal complaints. When you google our prior MC its bad review after bad review. Nothing good to say about the company. Everything we were going throught as well.

Independent audit by a forensic accountant. The fact the old company quit quickly is suspicious. That financials are in disarray is suspicious. As a family member of victim of massive embezzlement, an audit is in order.

Other lessons learned, 1. Use 2 signers for every check, not just large payments/transfers, 2. Never let single signer get first look at the bank statements.

As CA law requires, board should review finances monthly.

That's exactly the point. Internal controls have been lacking in the poster's association. Two signatures mean two sets if eyeballs are analyzing expenditures. That along with the required monthly review by the board of association finances are needed.

MicheaL. Yes the transition was very poorly managed. Not puttling all the blame on the MC. The old president resigned saying it was too difficult to work with the new MC. Saying she was bamboozled by them from the start and they were not living up to expectations. I do belive an audit is a good idea. Is that something the board needs to vote on? How far will the audit go back? Hoping they will investigate the old MC as well. I Feel this situation is quite time sensitive. It has been a little over a year since new MC has taken over.

Do you have any evidence of criminal activity? If not, and all you have are mere suspicions, say nothing. Accusing anyone of a crime without any evidence whatsoever is defamation or will certainly invite the accused to lawyer up. Which means the HOA attorney will have to get involved.

Do your Bylaws or CCRs require any kind of audit every X years?

The board most certainly does have to vote on when to have an audit and who will do it. Also there are different levels of "audit."

What is your experience with reviewing the books of a nonprofit corporation?

You posted that the problem with reviewing what was on the flash drive is at your end. Come on. I would cease these suspicions until I had examined what was on the flash drive.

I hear you about what you feel is sloppy record keeping and a sloppy turnover. But so far, it sounds too gossipy to justify doing anything other than checking the Bylaws/CCRs for requirements for audits and studying what is on the flash drive.

And not a good internal control. Plenty of cases of two or more people associated with the HOA stealing money.

Stephanie,

Sorry to hear of your issues.
Your goal is to find out what your Associations financial situation is.

My suggestion, ask for what financial copies the current MC has.
Bank statements are your friends.

Take the time to organize them (yes, do the PMs job).

Short of that, you may simply have to wait for the current MC to catch up.

The other option: it's a new year.
Get the Dec bank statement and a list of all outstanding checks (those that have been written but not cashed).
Start a spreadsheet and go forward.

Why can people post a link to davis-stirling.com or other links all day long but my link gets removed without giving any reason?

Ellen,
So when reviewing our current by laws there is no mention of having to perform audits periodically. The only thing mentioned is quarterly review of bank statements and reserve studies every 3 years. The only part where I did see audit was :

"A review of the financial statement of the Association shall
be prepared annually in accordance with generally accepted accounting principles by a
licensee of the State Board of Accountancy for any fiscal year in which the gross income
of the Association exceeds $75,000. If the annual report is not prepared by such a
licensee, it shall be accompanied by the certificate of an authorized Officer of the
Association that the statement was prepared without an audit from the books and records
of the Association. "

I will reviewe the bylaws more in depth. Thank you

Good citation, Steph. Davis-Stirling salutes also require an "annual review" at minimum. Do you have any for the past few years?

CIVIL CODE SECTION 5500. BOARD REVIEW OF ASSOCIATION FINANCES.
Unless the governing documents impose more stringent standards, the board shall do all of the following:

(a) Review, on a monthly basis, a current reconciliation of the association’s operating accounts.

(b) Review, on a monthly basis, a current reconciliation of the association’s reserve accounts.

(c) Review, on a monthly basis, the current year’s actual operating revenues and expenses compared to the current year’s budget.

(d) Review, on a monthly basis, the latest account statements prepared by the financial institutions where the association has its operating and reserve accounts.

(e) Review, on a monthly basis, an income and expense statement for the association’s operating and reserve accounts.

(f) Review, on a monthly basis, the check register, monthly general ledger, and delinquent assessment receivable reports.

Does the HOA's gross income exceed $75,000? If so, then Cali Civil Code 5305 is slightly different than the bylaw above and, as it happens, trumps the bylaw. See https://www.davis-stirling.com/HOME/Statutes/Civil-Code-5305.

Do understand that "review" is an accounting industry term. Specific requirements are associated with a "review" of a corporation's financial statement. A "review" is not as intense (or expensive) as an audit. Nor is a "review" a trivial matter.

A HOA attorney should not simultaneously have the manager as a client and the HOA as a client. And I do not care what any HOA manager says to the contrary. While the practice is allowed as long as certain disclosures are made, it is a bad idea and will at times require the attorney to refer the HOA to another attorney. I advise that the board start keeping its collective ears to the ground for a good HOA attorney.

Good job. This act represents wisdom IMO.

Kerry,
A new treasure was appointed the same time as me. He is trying to play catch up as well. The last treasure didnt seem to be very involved. Just a body to sign the checks, unfortunatly. We dont have any sort of website that the directors can look through financials. The only thing that the MC posts are checks for us to sign with an attached invoice and that is through an app. I will look for any sort of audit that might have been done
in 2022.

Yes our fiscal year begins 1/1. We have 3 new directors the treasure, myself, and the vp. The secretary and 1 other member have been serving on the board since 2020. This is the first time in probably 20+ years that our community has a full board.

In my opinion, the Treasurer should have access to the online banking site of your bank.

https://echo-ca.org/protecting-your-hoa-fraud-and-embezzlement/

No, an audit is not required. A review is required. The difference between an "audit" and a "review" is large.

This is accounting jargon. Any reader not understanding this should start reading on the net.

This is pure, uninformed applesauce. In the context of Civ Code 5305, "review" is obviously accounting jargon. Excerpt from Civ Code 5305:

"... a review of the financial statement of the association shall be prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy... "

Furthermore, an "audit" also has an exact meaning in the accounting world. "Audit" is not interchangeable with "review."

I never claimed audit was interchangeable with review.

I never claimed that you claimed audit is interchangeable with review.

Your reading comprehension is deplorable.

Talking about a deadline is possibly what you may have intended but that is not what came out of your keyboard. The sentence is about statutory requirements; a deadline; and either a lack of your understanding of the statute section or incredibly poor writing by you.

Also your invented jabberwocky phrase "annual financial review" again reveals you do not know that a CPA's "review" has a specific meaning. "Review" in CPA land is not the same as "review" used colloquially.

You post this garbled junk time and again.