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Subject: HOA AUDIT
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JC7


Posts:31


04/12/2012 2:55 PM  
Our HOA balance sheet came back from the Auditor stating under the DUE (to)/from fund ($141,000) from Replacement due to Operating?
My understanding is this money represents expenses that were paid from operating but should have been paid by reserves? This number has been growing over the last 5 years never been corrected. Can someone give me some insight has to what is going wrong?
JohnC46
(South Carolina)

Posts:8827


04/12/2012 3:14 PM  
JC7

I do not have an answer but reserves are generally money set aside/funded for long term projects.

Simple example is we are setting away $10K per year for 20 years ($200K) to reroof buildings. Line item budget might just be listed as Reserve Funds, Roofing 2032.

Now I understand the BOD can "borrow" money from this "Roofing 2032" fund but it must be paid back one way or another. So I suppose a good budgeting system might just show this line item as negative if borrowed from.

Ask for an explanation.






DavidW5
(North Carolina)

Posts:565


04/12/2012 5:00 PM  
JC,

I think the implication of this entry is that expenses were incurred in the operating account that were for the replacement of items that were intended to be covered by reserves. As a result, the balance in the operating account is lower than it should be and the balance in reserves is higher than it should be.

That being said, if the operating account still shows a positive balance, without the transfer of funds from reserves, it may not be necessary to make the transfer.

While funds are set aside in the reserves to replace the items covered by the inventory of common elements shown in the reserve study, the board can elect to pay for the replacement of any given item from the operating account if the flexibility exists there.

The folks on this forum might be able to be more helpful if you post the balance sheet from the audit.
TimB4
(Virginia)

Posts:16542


04/12/2012 5:50 PM  
JC,

In addition to what David posted, if the Operating fund was to transfer funds into the reserves, the amount of operating funds spent on reserve expenses, could be use to offset what needs to be transferred.

Does your Association budget show an amount to be transferred each year?

JC7


Posts:31


04/13/2012 10:33 AM  
Thank you everyone for your help. As this point the HOA books have not been balanced since 2006. What I mean by balanced is the audit figures have never been balanced with the Prop Mgnt.Yes I know HOW is this possible. I've driven myself crazy trying to go back in time to find where mistakes were made. I have found several such has $36K was charged to reserves and then the same amount was voided the following year, a vendor was paid three times the same amount for work with identical description of work done, any my favorite $9,700 office supplies expense (budget $2,000) 33% was paid by a check written on the last day of that year? My budget doesn't have a line item for office supplies (LOL) I'm assuming I will have to write a resolution to fix this mess right? Should I contact the HOA attorney to write this? This year is my first year being treasurer do I have a duty to futher investigate this is so how should I go about it? Thank you
DavidW5
(North Carolina)

Posts:565


04/13/2012 1:17 PM  
JC,

Did the audit report you referred to issue a "clean opinion"? This means that the audit did not find any material misstatements and that the financial statements fairly portray the financial position of the association. If this is the case, then there should be valid explanations, available from the auditor, explaining any apparent discrepancies you referred to.

You said that "the audit figures have never balanced with the Prop Mgnt." If the property management company is the entity keeping your books and preparing the financial statements, then the audit is an audit of THEIR processes. If your statement is correct then this audit could not have reported a "clean opinion".

It may be that you are confused by comparing the year-end statement with the results of the audit. Audits typically include numerous audit adjustments that, after the fact, correct entries that were shown on the original year end statement.

I think you need to have a detailed discussion with the person who conducted the audit.
JC7


Posts:31


04/13/2012 5:19 PM  
Hello,

No they did not offer a "Clean Option". Maybe I am misunderstanding the process? We maintain two seperate reserve accounts. The first is called a General Reserve all homowners contribute and the second is a Equine reserve which is self supported by the homeowners who pay rent to board. The audit shows a due (to)/from line item of ($204K) 122K adjustment to operating from reserve and 82K to Equine reserve from General Reserve. The auditor explained the 122K back to operating was for money spent from operating account that should have been paid out from our reserves. That number has been accumulating over serveral years they said. We didn't spend 122K in a year. The same for the Equine Reserve. I'm confused as to why the PM would be reporting 49K over what the audit says that Equine Reserve should be? Shouldn't the PM figures when it's all said and done be fairly close to what the audit is reporting? Thanks
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