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WilliamT
(Arizona)

Posts:489

07/27/2006 9:08 AM
Here is the scenario: 1. A board votes and approves to give the MC rep a bonus at Xmas time. A couple of months later a check is discovered in the register that was made out to the President for the same amount that was approved for the MC bonus. The check register did not state what the check was for. On questioning the MC rep about what that check was for, it was revealed that the check was for the MC rep's bonus and was written to the President, who then gave the MC rep cash. The Board was not made aware of this transaction. Questions: What would you do if you discovered this type of transaction? Could this be called an inappropriate collusion, a segregation of duties, and a violation of many basics of a sound accounting/internal control system? 2. In this Association, the MC does the following: Writes the checks Signs the checks Approves the invoices I know that no one checks to see that work on the property has been perfored properly, and I have gone to check several times and discovered shoddy work. We do not have a maintenance committee or a budget committee. 3. Our Bylaws require an "Audit" and Audits need to be performed by an independent CPA firm. State law says if our bylaws require an Audit, then that is what the law requires. So by not performing an Audit the Board operates in conflict with the Bylaws, and in violation of State law. When asked about the Audit, the MC rep stated that the MC company provides us with a Certificate which suffices for the Audit. She did not say what type of Certificate; Audit, Review, or Compilation, but she would have to have meant a Compilation. However they have not provided us with a Certificate of Compilation. My feeling is that a Cert of Compilation is worthless when it comes from the same company who is writing the checks, signing the checks, and approving the invoices, and does not go into any review of documents that would uncover suspicious transactions. A Compilation also does not substitute for and meet our requirements for an Audit. Our Bylaws require the Treasure to have the Audit performed. It states: "...shall cause an annual audit of the Association books..." The duties of the President in the Bylaws are: "...shall see that orders and resolutions of the Board are carried out..." Questions: Is it the ultimate duty of the President to see that the Treasurer does his job and has the Audit performed? What would you do to to rectify this situation as it currently stands, with our current Bylaws requiring an Audit, but it has not been performed, and the President is not interested in doing anything about it? For the future we can determine if we should amend the Bylaws to require a "Review", providing that we have some more checks and balances by the Board members. Thanks for your help, Bill

RogerB
(Colorado)

Posts:3725

07/27/2006 12:12 PM
Bill, I would replace the President immediately and the MC as soon as possible. The Board should set up proper money handling procedures and have a financial review each year by someone experienced in accounting who is independent of the person keeping the books. The example of the bonus certainly appears to be fraud. I would ask the President and the MC to provide documented proof or else return the bonus. Why did the Board give a bonus to someone doing a poor job?

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

GeraldT1

Posts:0

07/27/2006 12:44 PM
WilliamT, 1) I'd require that detail of the transaction be written into the general ledger, in other words shine a light on it, and every other transaction as much as possible. This may be the more subtle way of ousting the pres and mc, or at least making their activities more difficult. 2) I'd have a dollar threshold for the amount your current mc, and all future mc's can write and sign a check. If the board is going to continue the practice of "bonuses" I'd make sure the bonus (if any) is $10.00 over the threshold, or just high enough to be actionable. If you have a check cut threshold now, I'd lower the threshold. Should send a nice signal to the current mc that a future bonus (if any) isn't going to be so generous. 3) The current duties of the officership of president are a little vague, clarification of the expansion (not limitation) of orders would assist your HOA. 4) As for audit, not performing one by an independent CPA especially after the accounting practices of your current pres. and mc MAY be viewed by disgruntled owners that the board members are guilty of gross negligence. GeraldT1

WilliamT
(Arizona)

Posts:489

07/28/2006 8:55 AM
Roger and Gerald, Thank you both for your comments. It's such a pleasure to have such knowledgable people on this forum who are willing to be generous in sharing their experience. The incumbent board members have blinders on. They take everything this MC rep says as fact, without any question. To them, he is doing a wonderful job. He made me look bad in the incumbents eyes when I asked about the Audit which is very clearly spelled out in the Bylaws and the AZ Revised Statutes as being required. The MC said we do not need an Audit and asked why I wanted to waste $3000 of the Association funds when an Audit is not needed. I said we MUST follow the Law and our Bylaws. The incumbents allowed the subject to be dropped. I'm still pressing it. I reviewed the MC contract and it states that any of their agents may accept a Holiday gift not to exceed $50.00. The board gave him $300. Apparently, he then colluded with the Pres to have the check made out to the Pres, and for the Pres to give cash to the MC rep. The actual check (according to the check register) was for $302.00. That extra $2.00 may have been to disguise the action somehow. I'm considering sending the Pres a private email telling him that handling the check in this manner was an inappropriate collusion, segregation of duties, and a violation of many basics of a sound accounting/internal control system, and could border on fraud, since the MC was by contract not authorized to accept over a $50 gift. Therefore, it would be best for him to resign now, in order to prevent embarassment if I make this incident public. I agree with setting thresholds for bonuses, and even question the need for bonuses. Our Landscape company is not doing a good job, and I believe we're getting over billed by our Gate maintenance company. They were given bonuses last year, and if I have anything to say about it this year, they will not get bonuses. I'll write a letter to all the board discussing all of the information I've learned about Audits, Reviews, and Compilations, and the advice I've received from this forum and an accountant friend of mine. I'll tell them that it is required of the board to have an Audit and that one should be ordered by the Board without further delay. Beyond that my hands are tied for the moment. However, the email will CMA in the event that the Board is challenged later on about this. Thank you again, Bill

GeraldT1

Posts:0

07/28/2006 9:24 AM
Hi Bill, Just take out the word "collusion" from your email, or use phrases like "seems to be collusion", or "gives the appearance of collusion and innapropriate activities". No need stating the obvious and getting accused of defamation of character from these bozos. Definately, CYA. GeraldT1 NNJ

WilliamT
(Arizona)

Posts:489

07/28/2006 1:13 PM
Gerald, When I send the email I'll definately be careful about the wording, and it will be a private email only to the individual. It won't be copied to anyone else. Bill

BradP
(Kansas)

Posts:1742

07/28/2006 2:27 PM
William: Put a disclaimer at the bottom of your email basically saying it is for their eyes only and should not be distributed to any unauthorized personnel. I agree with Roger 100%, first of all the MC is in violation of the contract if he received $300 in holiday pay. I would fire them on the spot. Secondly the president receives a check for $300 with no receipt, why? We all know it went to the MC, but he should resign or be recalled immediately for that type of behavior. Maybe the other residents in the development should know what is going on, heck let the cat out of the bag and see what happens.

WilliamT
(Arizona)

Posts:489

07/28/2006 3:04 PM
Brad, Those are more good ideas. Thanks. First I need to get my hands on the copies of both sides of the check to see who signed it. So far all I have is the check register and the statement of the MC. In addition to the MC, The President and the Treasurer also have check signing authority, so it's important to know who signed the check. I have also asked for all receipts for the checks I need to see. Once I get it all together, then I will take the actions, and one action will most likely be to make an appointment with the local General Manager of the MC company and present him with all the documents regarding the transaction. In the meantime I'll be quietly interviewing other management companies in the area. Bill

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