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KW3
(California)

Posts:146

07/14/2010 3:06 PM
Hi, I recently became a new BD of a 80 units HOA in CA (as in my another thread: "independent accountant"). The HOA has a budget of about total income $270k (70k for reserve exp and 200k for opr exp). An accounting exp of $1975 is included for the review of financial statement. Is this amount appropriate for the compensation of a CPA's work on this matter? The CPA was chosen by the MC (MC does bookkeeping and financial report) and how do we (HOA) know if the CPA works on our case "independently"? This year's review is done by a different CPA from previous years, but I found the review report is almost exactly the same as previous year's review except of course the names of the CPA are different. Is this normal or not? Appreciate all helps and advice.

MaryA1

Posts:0

07/14/2010 3:24 PM
KW, I would suggest getting bids from several CPA firms, this is what our HOA does. In fact, our property manager negotiated the bid amount of the CPA we wanted to hire and was able to get it reduced. If you have them also prepare the tax returns you may be able to get a better price. I would definitely not use the CPA that the manager uses as that would definitely be a conflict of interest on the part of the CPA. I see nothing wrong with the manager "suggesting" a certain CPA but the manager should not be "choosing" the CPA; this is a function of the BOD. Exactly what do you mean in saying that this year's review was ". . .almost exactly the same as previous year's review,. . ."? The wording in the cover letter may be the same (it's standard wording used by all CPAs) but I would think the figures on the financial statement would be different.

KW3
(California)

Posts:146

07/14/2010 3:59 PM
Thanks, Mary. I would suggest getting bids from several CPA firms, this is what our HOA does. In fact, our property manager negotiated the bid amount of the CPA we wanted to hire and was able to get it reduced. If you have them also prepare the tax returns you may be able to get a better price. So, it's the matter that the Board would have to work on finding the CPAs (getting quotations etc) and let MC negotiate a best deal. Yes, the figure ($1975) does include the cost for tax returns. Still, would like to hear if the figure is appropriate/normal or too high or too low? I would definitely not use the CPA that the manager uses as that would definitely be a conflict of interest on the part of the CPA. I see nothing wrong with the manager "suggesting" a certain CPA but the manager should not be "choosing" the CPA; this is a function of the BOD. Ok, I am not sure if I use the right phrase that MC chooses a CPA to perform the task, but I am pretty sure that there is absolutely no instant in the board meetings that MC asked board to approve using any certain/recommended CPA to review financials like any other contractors MC would ask for approval. Exactly what do you mean in saying that this year's review was ". . .almost exactly the same as previous year's review,. . ."? The wording in the cover letter may be the same (it's standard wording used by all CPAs) but I would think the figures on the financial statement would be different. Now I understand this, thanks.

MaryA1

Posts:0

07/14/2010 4:10 PM
KW, Sorry, I didn't mean to imply the BOD must obtain the bids. The MC can obtain the bids, but the decision of who to hire is left up to the board. Just remember that the MC should not recommend the CPA used by his/her mgmt co as this would be a conflict of interest. I can't comment on the figure you quote; there are too many variables such as the size of the assn and your location. Getting bids from several CPAs should give you an idea of what the going rate is.

KW3
(California)

Posts:146

07/14/2010 4:50 PM
Sorry, I didn't mean to imply the BOD must obtain the bids. The MC can obtain the bids, but the decision of who to hire is left up to the board. Now this is exactly the problem that "let MC obtain the bids for the board to decide" is mathematically equal to "let MC choose"! (hope you see it) Just remember that the MC should not recommend the CPA used by his/her mgmt co as this would be a conflict of interest. How do we know whether MC is recommending a CPA that is used by the MC or involved in financial interest with the MC? Pardon me for trying to learn rapidly a great deal of serving my HOA in a professional manner, but with little knowledge before jumping into this unchartered dark water.

SusanW1
(Michigan)

Posts:5035

07/14/2010 7:56 PM
Why is the CPA doing the Audit Review AND the tax returns? Is it in your bylaws that a CPA must do the audit review? An audit review is not the same thing as an audit.

SusanW1
(Michigan)

Posts:5035

07/14/2010 7:59 PM
From Google: Audit vs. Review There are significant differences between the objectives of an audit of financial statements in accordance with generally accepted auditing standards and the objectives of a review in accordance with statements on standards for accounting and review services. The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not contemplate obtaining an understanding of the internal control structure or assess control risk, tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation, and certain other procedures ordinarily performed during an audit. A review may bring to the accountant’s attention significant matters affecting the financial statements, but it does not provide assurance that the accountant will become aware of all significant matters that would be disclosed in an audit.

KW3
(California)

Posts:146

07/14/2010 8:50 PM
A yearly financial review by a CPA is required by state law (CA) and filing tax return is just a fed requirement, but does not require to be done by a cpa. Putting the extra work (tax return) in cpa's contract could get a better deal of fee for HOA.

MaryA1

Posts:0

07/15/2010 7:41 AM
Susan, FYI There is no such thing as an "audit review". It's either an audit or a review -- two different animals.

MaryA1

Posts:0

07/15/2010 7:45 AM
KW, I disagree. Letting the MC obtain the bids is definitely not the same as letting the MC choose the CPA. If the BOD doesn't trust the MCs judgment then they should ask for another MC for their property, or if the MC is an individual contractor they should seek a new one. Generally speaking the MC handles obtaining bids for contractors so why not for a CPA? How would the BOD know if a particular CPA is not the one used by the MC -- just ask. Or better yet inform the MC to obtain bids but to not include the CPA his/her mgmt co uses.

DavidW5
(Virginia)

Posts:297

07/15/2010 2:47 PM
Our association is considerably larger - $2M annual budget. In recent years the audit has cost between $3500 and $4000. Given how small your association is, $1950 seems pretty high to me.

KW3
(California)

Posts:146

07/18/2010 3:20 PM
Hi Mary, sorry for the late response. I disagree. Letting the MC obtain the bids is definitely not the same as letting the MC choose the CPA. If the BOD doesn't trust the MCs judgment then they should ask for another MC for their property, or if the MC is an individual contractor they should seek a new one. See that if "trust" is taken out of the issue, it would become an equation. The problem in our HOA is that currently there are 3 BD having trust in MC and the other 2 having no. So it comes down to "being unable to vote out the MC." Generally speaking the MC handles obtaining bids for contractors so why not for a CPA? I see that, but I didn't see the MC ever provide the bids from CPAs and the MC ever obtain the approval from the board for using specific CPA's service. How would the BOD know if a particular CPA is not the one used by the MC -- just ask. Or better yet inform the MC to obtain bids but to not include the CPA his/her mgmt co uses. I am a bit confused here: to my knowledge, the MC has an accounting dept and its accounting manager (in charge of bookkeeping and preparing financial report to our and other boards), and the MC contract a outside CPA, for our HOA, to review our financials. Does the MC need to use a outside CPA to audit/review their own financials? I am pretty sure the accounting manager of the MC is an accountant, but not sure he is a CPA who would audit/review the MC's financials? Update: In the board meeting in July, I brought up the issue that the board (and so the MC) has not sent out the annual report to owners and this violates the state law/bylaws that within 120 days after the end of the fiscal year (dec 31, 2009) the annual report must be provided to the owners. The only thing the MC said was that "we were late for this." And then, after 2 days I received a copy on which the date the CPA signed on the review report was April 4, 2010! I would like to hear comments on this matter. Thanks

MaryA1

Posts:0

07/18/2010 4:09 PM
KW, Are you saying the BOD did not vote on the CPA who would review the accounting records of the assn? If this is the case then the BOD is remiss in not doing their duty. As I stated earlier, it's OK for the MC to provide bids, however it's a board decision as to who shall perform the review. I would think the mgmt co would have an audit or at least a review performed yearly and what I'm saying is that CPA should not be the same one who would perform the review for your assn, or any assn that the mgmt co contracts with for that matter. All you need to do is to ask the CPA if the mgmt co is a client of his. BTW if the mgmt co employs a CPA he would NOT perform a review or audit of the mgmt co financial record -- that would definitely be a conflict of interest as he would be auditing or reviewing his own work! Copied below is the pertinent statute regarding the review. As you can see it must be provided w/i 120 days of the close of the fiscal year. It appears your board was remiss in not providing this info to the members by the end of April. This is just another example of your board not performing their duties. However, like most states, when there is no governing agency for HOAs, boards tend to get away with breaking the law unless a member chooses to file a lawsuit which is very costly. But that doesn't mean the members cannot let the board know they have broken the law, perhaps by calling for a recall election. ---------------------------------------------------------------------------- Davis Stirling 1365(c) 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 for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000). A copy of the review of the financial statement shall be distributed within 120 days after the close of each fiscal year.

KW3
(California)

Posts:146

07/18/2010 4:51 PM
Mary, Are you saying the BOD did not vote on the CPA who would review the accounting records of the assn? If this is the case then the BOD is remiss in not doing their duty.... "yes" is the answer to your question, but to say "the Board is remiss in duty may be not the case; it maybe a course in the state law/bylaws that whatever the service fee being below a limit, the MC may issue the work order without approval from the Board ($1975 seems to be a low number for this matter). This is what I can come up with why I didn't see the list of CPAs and bids from the MC and the MC's asking for approval. (I have never seen the MC provide bids and ask approval for some minor-low cost maintenance/repair jobs)

MaryA1

Posts:0

07/19/2010 7:02 AM
KW, It's not unusual for the BOD to allow the MC to take care of small, routine maint projects w/o first obtaining a majority vote of the BOD. The manager of my assn does this. However anytime a contract is entered into the BOD must (should) review the bids and decide who will get the job -- no matter the cost. The same goes with hiring a CPA to perform a review or an audit. It sounds to me like your BOD allows the MC to run the assn. This happens in many HOAs, but it is not proper. The BOD should be managing the assn with the "assistance" of the MC. The MC acts on the orders of the BOD -- not the other way around. BTW, have you read it in your bylaws that the MC may issue the work order w/o approval from the BOD if the project is under a certain dollar amount? I would be surprised if it was! I haven't seen anything regarding this issue in the Davis-Stirling Act.

KW3
(California)

Posts:146

07/19/2010 3:00 PM
Mary, ... However anytime a contract is entered into the BOD must (should) review the bids and decide who will get the job -- no matter the cost. The same goes with hiring a CPA to perform a review or an audit. I am not sure about this, but the fact is the MC is not doing what you mentioned they should. It sounds to me like your BOD allows the MC to run the assn. This happens in many HOAs, but it is not proper. The BOD should be managing the assn with the "assistance" of the MC. The MC acts on the orders of the BOD -- not the other way around. This is exactly what I and another new director had in mind after first-time attending a board meeting before we decided to get on board. Now it appears that we have 3 BD serve heavily depending on and influenced by the MC and the 2 new BD are fighting to change the way around. It's hard and nasty ahead. BTW, have you read it in your bylaws that the MC may issue the work order w/o approval from the BOD if the project is under a certain dollar amount? I would be surprised if it was! I haven't seen anything regarding this issue in the Davis-Stirling Act. It maybe in the Bylaws, or the Decoration, or the state non-profit corporation law, or the state property law? I am sending such questions to the MC to see what they are behind of. Post here when the answers are in. I don't know if I should make a new thread about how the management contract works at a HOA? (to gain a knowledge of how to handle the management co) I did anyway (see the thread "management contract").

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