HELP! I stepped into a complete HOA mess!

Started by EnochS • 5 replies • 1621 views

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EnochS (Washington)
Posts: 1

Posted:

Previous Situation:

2005:
1. Apartments turned into condominiums by selling individual units.
2. Developers hire an unprofessional bookkeeper.
3. Developers leave the place a complete mess and with zero funds.

2006-2010:
1. There were 3 board members who didn't do anything.
2. The bookkeeper (list of its own):

a. All dues from the owners go to company (self owned by bookkeeper).
b. Bookkeeper cashed a check that was meant to go to a different address for a mortgage payment.
c. Bookkeeper created a CD without disclosure.
d. Bookkeeper acted as a board member.
e. Bookkeeper possibly embezzled funds.
f. Bookkeeper was the only one with access to funds.

3. On our part, no one stood up against this nonsense because we weren't aware of any board meetings.

2010:
1. Regime was broken.
2. 5 of us got sick of it and called a board meeting.
3. Placed new board members into office (myself included by nomination lol).
4. We still have the same bookkeeper so we can find out what happened in the past.
5. Kept one of the old board members so we can have construction advice and also find out what they did in the past (secretly).
6. 3 of the 5 of us are for helping the people and increasing the value of our properties, the other 2 (one of them doesn't live there so perspective is different, he owns a
property but rents it out. The other is the old board member.)
7. There is some distention between us 3 and those 2 due to possibility of them siding with the bookkeeper.
8. So far us 3 have been watching videos of how to run an HOA properly and currently its FAR from legal and correct.

The main goal of this is to establish a solid foundation where there are checks and balances and internal controls.
The second goal is to find out what needs to be done to get rid of properly the old bookkeeper and find out how to bring justice to the people that were being mistreated if its true.

I am a college student and in my third quarter of accounting but dont know what the first step is to unraveling all this mess. I am the treasurer for the HOA. We need an audit. Can anyone point me into the right direction or give me more tools to better help this community?

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

The main goal of this is to establish a solid foundation where there are checks and balances and internal controls.

Just dont go overboard.

Quote:

The second goal is to find out what needs to be done to get rid of properly the old bookkeeper

Dont get rid of the bookkeeper yet.... You need them to work out what happened in the past with the finances.

Quote:

find out how to bring justice to the people that were being mistreated if its true.

Nothing against the law about mistreating people. Dont waste your time on this. You will see this everywhere your entire life.`

Quote:

my third quarter of accounting but dont know what the first step is to unraveling all this mess. I am the treasurer for the HOA. We need an audit.

Audit it yourself. Its Jr High math, not rocket science. Start by: number of units x dues = $$ per year. This is what should be in receivables each year. Next start working with the accountant to see what the expenses were per year. What is left over? Its basic math.

Next start digging into it more.

- Receivables too low? Who isn't paying?
- Expenses too high? Ask for a breakdown.

Like I said, dont get rid of the bookeeper. You will need him to figure out this mess. Keep your enemies close. Setup a free mint.com account. Monitor every check and deposit made. People always yell embezzlement first because they have no idea where the money is going. Its usually just normal expenses. Do the audit first. Dont accuse anyone of embezzling unless you have proof.

If he is embezzling funds keep working with him to figure out how much, dates, etc. Setup a payment plan to pay it back. If they ever stop paying you can take legal action. This will be expensive, and time consuming, so try and get the person to pay you back without going through the courts.

Now that you have all the info you need get another accountant or do it yourself. Deposit checks into a HOA account, pay bills as they come in. Dont want to deposit checks? Use a bank lockbox service. Most charge but some banks offer it for free and will provide you detailed reports.

SusanW1 (Michigan)
Posts: 5,202

Posted:

When no one was watching the store, the bookkeeper set up a CD. See mothing wrong with that.

You have made the statement that bookkeeper "possibly" embezzeled funds. Thats a serious charge. What do you base it on?

Do you have an approved budget?
Start with today and work backwards. See the YTD revenue/expenses report against the budget and work from there.

After being out of action for so long, it will be difficult for the board to get control again. It is always more difficult to get back that board authority when things have been running so long like they have been.

Prioritize your actions, too.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Enoch,

My first thought is that it's ridiculous to keep the bookkeeper just so you can find out what happened in the past with the finances. If funds were, or are being, embezzled as you claim (a rather strong charge if you have no sound proof!) why would he/she give you straight answers? Instead hire a board certified CPA to perform an audit. Make sure to let him know you suspect embezzlement. It will cost some $$$ but will be worth the expense. With a 5 member board, the 3 who are thinking alike have the majority vote so it doesn't matter what the other 2 want. Since the bookkeeper was hired by the contractor she may be under contract. Check the terms to determine what the procedure is to end the contract or just do not renew it.

As Steve suggested, prioritize your goals. However, IMO, obtaining an audit shuold be number 1 on the list as it's imperative to get your finances in order. If funds were embezzled then legal action should be taken against the bookkeeper.

Also, I wouldn't get into trying to find out if members have been mistreated in the past. What's done is done. Your board needs to move forward. Develop rules to operate by and stick to them. Operate openly and treat each member equally and fairly and you won't have any problems.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

why would he/she give you straight answers?

They will help if they dont want to go to jail. We're not talking about opinions, where things can be grey, when dealing with money your dealing with a dollar figures it black and white. Just need to track where comes from and where it goes.

I've been through this before with someone accused of embezzlement. It turned out the bookkeeper was incompetent. No crime there, just not very good at their job. Also the members didn't have a good idea of the expenses. Pretty much the same thing that goes on in every dysfunctional HOA. Its better to keep a working relationship with the bookkeeper until you get up to speed, then let them go. If you sever the relationship, you will never get any answers. If the answers are bull, its easy enough to check into. Remember we're talking about money.

Quote:

Instead hire a board certified CPA to perform an audit. Make sure to let him know you suspect embezzlement. It will cost some $$$ but will be worth the expense.

Depends.... if your HOA has thousands of members and your dealing with big money it may be worth it, but dont expect it to explain the expenses. I mean.... why pay big bucks for a CPA to audit, if you don't know what to do with the results? Is John Doe plumbing a legitimate vendor? Did they actually do anything? A CPA wont know that along with many other things.

If its a small association, you may want to just do the audit yourself. You will learn much more about what is going on. You need to start getting to know the costs and work done at your association to begin to figure this stuff out. Whats going on with income? Its going to take at least 1 year to get a firm grip on expenses/income.

Your an accounting student, think of it as a school project. Repairing the books for this HOA will be a good resume builder and learning experience.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

That you did Enoch, that you did.............you have no idea.

First, I want to say that you will get some awful good free advice here. But Lord, it is confusing and intricate tos try to get everything back on the train and the train back on the track. Read, read read, your documents, get them all and really know them well enough to know more than who you are talking to. Take the advice of what is posted here.
Let me add that it does the old body good to hear of a young person opening their eyes to what goes on around them, I commend you.

I dodn't think it has been mentioned but build some support, get some people power and have some coffee meetings to discuss where you all want to go. You will find you have some regulations that could be state, city, county or federal, get to know your limitations and don't follow in the footsteps of whatever brought you to where you are now. That track record stinks.
Good luck Enoch and hang in there, you will meet some awful nice people on this trip........and make not mistake, it will be a trip.

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