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Subject: Member Assessment Account Audit

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TimG1
(Florida)

Posts:7

09/05/2010 7:16 PM
Hi, I'm on an HOA board in Florida and Florida Chapter 720 requires HOAs to maintain financial records for at least seven years. A specific requirement of our financial records pertains to member's assessment accounts. We have several members who habitually pay their assessments late and incur interest penalty. Apparently, our management companies in the past have not properly accounted for the interest penalty as required by Florida law. We recently went to self-management and our Treasurer arbitrarily applied interest to late accounts and it appears he exempted his friends. A recent audit, inputting all assessment account info into a spreadsheet, revealed that one member owes about $200. Of course that member thinks we are being unreasonable for doing the audit and requiring payment. If Florida law requires us to maintain the records for at least seven years, are those records audit liable for as long as we are required to maintain them? Can we collect interest penalty from seven years in the past? Per Florida law, the interest penalty is actually unpaid assessment, because the law requires us to apply payments to accrued interest and other charges before delinquent assessment. Most accounts only have about $20 to $30 due after the audit, but as I indicated, one lot comes up owing about $200. Are we on firm legal ground? Regards to all.

GlenL
(Ohio)

Posts:3526

09/05/2010 9:06 PM
You really should run this by the HOA attorney but if the BOD is not willing to write off this debt (for all homeowners) I believe for this type of debt you can only go back four years.

Too bad the only people who know how to run the country are busy driving cabs and cutting hair. - George Burns

TimG1
(Florida)

Posts:7

09/05/2010 9:56 PM
Thanks Glen. I don’t see anything in the association law (FL Chapter 720) that indicates a statute of limitations on audits. I usually research these types of questions before I contact the attorney. There may also be a difference between careless accounting and officer misconduct. I was hoping someone here may have addressed this type of issue in the past. Regards

JanetB2
(Colorado)

Posts:1335

09/05/2010 10:54 PM
... and it appears he exempted his friends. Hi Tim: Keep in mind exempting friends is not just careless accounting. Check other statutes in your state ... In Colorado it is not only CCIOA that governs, but also Non-Profit Corporation Statutes, etc. Also check your state non-profit corporation statutes, statutes pertaining to billing, consumer protection, etc.

PeterB1
(Florida)

Posts:254

09/06/2010 4:02 AM
Tim, The Florida statute for Non-Profits is 620-it is available online. You need to review it.

TimG1
(Florida)

Posts:7

09/06/2010 8:14 AM
Peter, Is that chapter 620? I just looked at it and it appears to be about partnerships. Regards

PeterB1
(Florida)

Posts:254

09/06/2010 4:11 PM
My bad... See: http://www.flsenate.gov/Statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0617/0617ContentsIndex.html&StatuteYear=2010&Title=-%3E2010-%3EChapter%20617

TimG1
(Florida)

Posts:7

09/06/2010 5:37 PM
Thanks Peter, I looked at chapter 617, but didn't see anything that answered my question. Regards

JanetB2
(Colorado)

Posts:1335

09/06/2010 7:53 PM
Its fair doing the audit on anyone exempted due to shady circumstances and expecting payment if they actually participated in the shady dealings. However, for others not included in the "scratch my back" scenario are they to be punished for the association not keeping proper records? Let's use an out of the box example: If you purchased a new car and made payments for 6 months per your statement, then they came back and said we made a mistake you have to now pay $200 more ... what would your response be? I would just fix and move forward so everything in the future is correct. Better to have everyone happy with the association being fair than to have hard feelings and discontent. ... here is the financial reporting section which includes mention of audits: http://www.flsenate.gov/statutes/index.cfm?App_Mode=Display_Statute&Search_String=&URL=Ch0718/Sec111.htm&StatuteYear=2009 (13) FINANCIAL REPORTING.--Within 90 days after the end of the fiscal year, or annually on a date provided in the bylaws, the association shall prepare and complete, or contract for the preparation and completion of, a financial report for the preceding fiscal year. Within 21 days after the final financial report is completed by the association or received from the third party, but not later than 120 days after the end of the fiscal year or other date as provided in the bylaws, the association shall mail to each unit owner at the address last furnished to the association by the unit owner, or hand deliver to each unit owner, a copy of the financial report or a notice that a copy of the financial report will be mailed or hand delivered to the unit owner, without charge, upon receipt of a written request from the unit owner. The division shall adopt rules setting forth uniform accounting principles and standards to be used by all associations and shall adopt rules addressing financial reporting requirements for multicondominium associations. The rules shall include, but not be limited to, uniform accounting principles and standards for stating the disclosure of at least a summary of the reserves, including information as to whether such reserves are being funded at a level sufficient to prevent the need for a special assessment and, if not, the amount of assessments necessary to bring the reserves up to the level necessary to avoid a special assessment. The person preparing the financial reports shall be entitled to rely on an inspection report prepared for or provided to the association to meet the fiscal and fiduciary standards of this chapter. In adopting such rules, the division shall consider the number of members and annual revenues of an association. Financial reports shall be prepared as follows: (a) An association that meets the criteria of this paragraph shall prepare or cause to be prepared a complete set of financial statements in accordance with generally accepted accounting principles. The financial statements shall be based upon the association's total annual revenues, as follows: 1. An association with total annual revenues of $100,000 or more, but less than $200,000, shall prepare compiled financial statements. 2. An association with total annual revenues of at least $200,000, but less than $400,000, shall prepare reviewed financial statements. 3. An association with total annual revenues of $400,000 or more shall prepare audited financial statements. (b)1. An association with total annual revenues of less than $100,000 shall prepare a report of cash receipts and expenditures. 2. An association which operates less than 50 units, regardless of the association's annual revenues, shall prepare a report of cash receipts and expenditures in lieu of financial statements required by paragraph (a). 3. A report of cash receipts and disbursements must disclose the amount of receipts by accounts and receipt classifications and the amount of expenses by accounts and expense classifications, including, but not limited to, the following, as applicable: costs for security, professional and management fees and expenses, taxes, costs for recreation facilities, expenses for refuse collection and utility services, expenses for lawn care, costs for building maintenance and repair, insurance costs, administration and salary expenses, and reserves accumulated and expended for capital expenditures, deferred maintenance, and any other category for which the association maintains reserves. (c) An association may prepare or cause to be prepared, without a meeting of or approval by the unit owners: 1. Compiled, reviewed, or audited financial statements, if the association is required to prepare a report of cash receipts and expenditures; 2. Reviewed or audited financial statements, if the association is required to prepare compiled financial statements; or 3. Audited financial statements if the association is required to prepare reviewed financial statements. (d) If approved by a majority of the voting interests present at a properly called meeting of the association, an association may prepare or cause to be prepared: 1. A report of cash receipts and expenditures in lieu of a compiled, reviewed, or audited financial statement; 2. A report of cash receipts and expenditures or a compiled financial statement in lieu of a reviewed or audited financial statement; or 3. A report of cash receipts and expenditures, a compiled financial statement, or a reviewed financial statement in lieu of an audited financial statement. Such meeting and approval must occur prior to the end of the fiscal year and is effective only for the fiscal year in which the vote is taken, except that the approval also may be effective for the following fiscal year. With respect to an association to which the developer has not turned over control of the association, all unit owners, including the developer, may vote on issues related to the preparation of financial reports for the first 2 fiscal years of the association's operation, beginning with the fiscal year in which the declaration is recorded. Thereafter, all unit owners except the developer may vote on such issues until control is turned over to the association by the developer. Any audit or review prepared under this section shall be paid for by the developer if done prior to turnover of control of the association. An association may not waive the financial reporting requirements of this section for more than 3 consecutive years.

TimG1
(Florida)

Posts:7

09/06/2010 8:56 PM
Thanks Janet, I've read that portion of Chapter 720, but it doesn't answer my question about the time limitations of auditing past years. I don't think that anyone was getting a kickback or anything such as that. It's just arbitrary application of late payment interest to members accounts and some of our board members that think that they have the authority to do what they think is best regardless of what the law and our governing documents require. Some people think reading and complying with the law and governing documents is more than necessary to run the association. They prefer their "common sense" methods of association management. If you go with the basic theory that a board cannot pass any motion or resolution in conflict with our governing documents or federal, state or local law, then how could the board exempt some members from proper accounting of their assessment accounts? An attempt to pass a motion to exempt the errors could be killed by a point of order as it would be in direct conflict with Florida law. If we do exactly what the law requires and we happen to audit our past years which we are required to maintain, do we have any foundation in the law for writing off the discrepancies or are we required to amend the accounts for the errors? Also, since we are required to maintain files for at least seven years, what if a member decided to do an audit, as would be his right as I understand it, and determined that the board or previous boards were not treating each member's account equally? That member could demand a correction of the accounts as I understand it. He could probably file a civil complaint. I would think the board would lose any legal contest and be liable for the plaintiff's legal expenses. We have since replaced our incompetent board members and presently have a good board that wants to do things correctly. That's why I'm researching this topic. We prefer not to run up attorney bills for questions that can be answered with a little effort on the internet. Regards

GlenL
(Ohio)

Posts:3526

09/06/2010 9:03 PM
Posted By TimG1 on 09/05/2010 9:56 PM Thanks Glen. I don’t see anything in the association law (FL Chapter 720) that indicates a statute of limitations on audits. I usually research these types of questions before I contact the attorney. There may also be a difference between careless accounting and officer misconduct. I was hoping someone here may have addressed this type of issue in the past. Regards Not on audits but the number of years you can go back to collect a debt, each State has specific laws on this. Just this past year I had one of the bottom feeder collection agencies try to collect for a debt in 1987, two years after I closed the account. Oh and three years past the statute of limitations to collect on it.

Too bad the only people who know how to run the country are busy driving cabs and cutting hair. - George Burns

TimG1
(Florida)

Posts:7

09/06/2010 9:25 PM
Thanks Glen, I guess that is the proper legal issue. What is the statute of limitations on collections of this type? There is probably no limitation on doing an audit just that you can only collect on audits performed on the last so many years. I know that answer varies depending on different issues and different states such as verbal contracts and written contracts in Arizona vice Virginia. In some types of collections, it depends on when the problem was identified. It may be that the money is owed because it was identified on records we're required to maintain. It may be that we can't go back more than a statute determined number of years. I'd like to know what Florida statute addresses the question. Regards

TimG1
(Florida)

Posts:7

09/06/2010 9:43 PM
Below is an extract of the Florida law that we are relying on as authority for our actions. If you comply with 720.303(4)(j)2. by putting the information (assessments, other charges & payments) on a spreadsheet for a period of at least seven years and applying 18% interest from the due date if not paid within 15 days of the due date, you get a clear picture of how well the members accounts have been maintained. Some accounts had the correct amount of interst added and paid. Most of the accounts that show a balance only owe $10 to $30. But, as I indicated above, we have one member who's balance is $200. That is because two-thirds of her paymens since Dec 02 have been late; some by several months where she only was only charged about half of the law requied interest. 720.303 Association powers and duties; meetings of board; official records; budgets; financial reporting; association funds; recalls.-- (4) Official Records (j) The financial and accounting records of the association, kept according to good accounting practices. All financial and accounting records must be maintained for a period of at least 7 years. The financial and accounting records must include: 2. A current account and a periodic statement of the account for each member, designating the name and current address of each member who is obligated to pay assessments, the due date and amount of each assessment or other charge against the member, the date and amount of each payment on the account, and the balance due. 720.3085 Payment for assessments; lien claims.-- (2) A parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title. This liability is without prejudice to any right the present parcel owner may have to recover any amounts paid by the present owner from the previous owner. (3) Assessments and installments on assessments that are not paid when due bear interest from the due date until paid at the rate provided in the declaration of covenants or the bylaws of the association, which rate may not exceed the rate allowed by law. If no rate is provided in the declaration or bylaws, interest accrues at the rate of 18 percent per year. (b) Any payment received by an association and accepted shall be applied first to any interest accrued, then to any administrative late fee, then to any costs and reasonable attorney's fees incurred in collection, and then to the delinquent assessment. This paragraph applies notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment. A late fee is not subject to the provisions of chapter 687 and is not a fine.

JanetB2
(Colorado)

Posts:1335

09/06/2010 10:43 PM
If you go with the basic theory that a board cannot pass any motion or resolution in conflict with our governing documents or federal, state or local law, then how could the board exempt some members from proper accounting of their assessment accounts? Also, since we are required to maintain files for at least seven years, what if a member decided to do an audit, as would be his right as I understand it, and determined that the board or previous boards were not treating each member's account equally? That member could demand a correction of the accounts as I understand it. He could probably file a civil complaint. I would think the board would lose any legal contest and be liable for the plaintiff's legal expenses. Paragraph 1: If proper accounting of assessments had been done then you would not be auditing 7 years and wanting to go back and collect. Paragraph 2: The issue you may have is collecting on something properly billed for yet not paid vs. collecting for something that was not properly billed, due to HOA accounting practices. The law you referenced above specifically states “(j) The financial and accounting records of the association, kept according to good accounting practices.” Consumer Protection: http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=Ch0501/titl0501.htm&StatuteYear=2002&Title=-%3E2002-%3EChapter%20501 Also stated in one of the sub-sections: http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=Ch0501/SEC207.HTM&Title=->2002->Ch0501->Section%20207#0501.207 (4) If a violator shows that a violation of this part resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid the error, recovery under this section is limited to the amount, if any, by which the violator was unjustly enriched by the violation. (5) No action may be brought by the enforcing authority under this section more than 4 years after the occurrence of a violation of this part or more than 2 years after the last payment in a transaction involved in a violation of this part, whichever is later. Statute of Limitations on Debt: http://credit.about.com/od/statuteoflimitations/g/flsol.htm And do not forget you may need to consider any Federal Laws regarding debt collection.

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