Confidentiality of financial audits

Are financial audits of the association confidential to the board or can they be shared with homeowners? What if there are material findings of internal control issues - can these be discussed at open meetings of the board?

Executive Sessions

Purpose. Executive sessions are provided for by statute so that boards can address issues which involve privileged information or matters of a private nature. Civil Code §1363.05(b). As a result, homeowners do not have a right to attend executive sessions of the board. Boards may go into executive session for the following matters:

1. Legal Issues. Current and potential litigation matters may be discussed in executive session. This preserves attorney-client privilege, litigation strategy and settlement strategies. The association's attorney does not need to be present either in person or by phone for the board to meet in executive session to discuss legal issues.

2. Formation of Contracts. So as to avoid unfair bidding practices, the board may meet in executive session to review bids and vote on contract proposals (termination of contracts is also a consideration).
3. Disciplinary Hearings. Boards should meet in executive session for all disciplinary hearings. The accused member is entitled to attend the executive session.

4. Personnel Issues. Personnel matters include, but are not limited to, hiring, firing, disciplinary matters and performance reviews.

5. Payment of Assessments. Board may meet with members in executive session to discuss requests by such members for payment plans for delinquent assessments.

Who May Attend Executive Session? Directors, managers, recording secretaries, association attorneys, members subject to disciplinary action as well as witnesses called by either side (but only for that portion of meeting involving them), and others invited by the board (such as vendors bidding on a project) may attend executive sessions.

Read more: Executive Sessions
from Davis-Stirling.com

Robert,

Wouldn't turning the audit over to an attorney automatically make it able to be withheld from release to the membership (legal issues)?

Typically, results of an audit, including the report (if any) should be made available to the membership as part of the financial records. The only reason that I know of to withhold it would be if it is part of a legal action. If the membership knows an audit was done and the board doesn't want to release it suspicions increase and conflict can be the result as the perception of the membership can change from "everything is good" to "if they are hiding this what else are they hiding they aren't telling us?".

If administrative actions were advised, it would be better for the BOD to report to the membership that they were informed of a better way to do things and we've implemented or are in the process of implementing them.

Tim

Can't we ever learn that transparency is good governance? What information in an audit report are incapable of comprehending?

The audit was paid for with funds provided by the owners/members. It is for the owners/members. The applicable AICPA Audit and Accounting Guide for Common Interest Realty Associations states in §1.33

"The primary users of the financial information of a CIRA are unit owners, whose periodic payments of assessments or carrying charges enable the CIRA to perform its functions. They are primarily interested in information that indicates whether assessments are used for their designated budgetary purposes, and whether adequate funds have been accumulated for future major repairs and replacements. Adequate financial reporting may assist owners in assessing the extent to which the CIRA is meeting its responsibilities to maintain the common property."

Also check your applicable state law. It likely requires that annual financial reports be provided to members.