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Subject: Audit seems to be made up: how would your HOA handle it
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ChrisE8
(New York)

Posts:134


10/06/2020 9:18 AM  
I own a rental property governed by a HOA. HOA dues are relatively steep and the common areas are in poor repair.

I received the annual audited financial statements, but they seem to be shoddy. For example, the residents have to pay cash each time they use the laundry machines, but revenues from the common laundry machines are exactly the same, to the penny, in 2019 as in 2018 and 2017. Clearly this line item wasn't checked, and I now question the whole audit.

I don't plan to do anything about it, but it is troubling.

How would your HOA board and owners in your HOA respond in this situation?

Thanks.
SheliaH
(Indiana)

Posts:3512


10/06/2020 9:40 AM  
Why bring it up if you don't plan to do anything about it? Isn't this attitude similar to your previous question about the property manager being on the board or whatever it was? How else do you expect any problems to be resolved?

Can you be more specific as to why you think the entire audit is shady just because the common area laundry machine revenue hasn't changed in three years? Have you even READ the entire audit? Could it be the numbers haven't changed because the number of residents using the machines hasn't changed, nor their frequency? It would appear the machines are operating well, otherwise you might see a bump machine fees to cover increasing costs. You own a rental property, so you know how expenses work - why not go to your Board with any questions?

Frankly, you sound like some of the investor owners in my community - don't give a rat's behind about anything as long as the rent check clears, and then scream bloody murder when the assessment increases. The place is nothing more than an income stream to you - who cares if the property is shoddy and the dues are relatively steep (whatever that means)? And then owner-occupants like moi have to serve on the board because you can't be bothered to attend meetings, let alone volunteer - and unlike you, we don't get to deduct our assessments on our taxes. I was on my board for 10 years and had to listen to crap like this - and what I said to you is what I said to some of the owner-landlords.

You don't like what's going in your community for whatever reason? Either get involved or shut the hell up, sell your property, buy elsewhere without an HOA and do whatever you want with it without worrying about pesky things like rules, reserve funds and whatnot.

So ends the rant of an owner-occupant.



AugustinD


Posts:4160


10/06/2020 9:48 AM  
Posted By ChrisE8 on 10/06/2020 9:18 AM
HOA dues are relatively steep and the common areas are in poor repair.
I think only one reasonable method exists for determining whether HOA dues are "relatively steep." This method is to review a recent reserve study. If the recent reserve study shows the dues to be far in excess of what the reserve study recommends, then sure, the dues are "relatively steep."

I would ask for a copy of the most recent reserve study.
KerryL1
(California)

Posts:7582


10/06/2020 10:41 AM  
I've noticed the same thing about ChrisE, Sheila: "I don't really care, but...." is in most of her/his posts.

I also can see how laundry room revenue could remain stable. Aren't there bigger $$ fish to fry,
ChrisE?
ChrisE8
(New York)

Posts:134


10/06/2020 11:26 AM  
Thanks, everyone. I've reviewed the whole audit and several figures are exactly the same each year.

Laundry revenue is $12,674.50 in 2017, 2018 and 2019. Really? I'm on a few nonprofit boards (including the audit committee for one organization) and I wouldn't like it if an auditor clearly didn't bother checking a line item.

I think it's important to get along, above all.
MelissaP1
(Alabama)

Posts:9649


10/06/2020 11:34 AM  
This is an AUDIT right? Which means it can be general #'s just to get an idea of overall budget health. Some Audits depending on the type aren't exact. So not unusual to see a line item that doesn't change much just to keep the same #. I'd request to see the actual #'s.

I am not sure how it is called "revenue". It's not a revenue item as much as covering the expenses of use. That money should go to a fund for later machine replacement in my opinion. Plus to cover maintenace and utility costs. So it may be reported as revenue but it may be dispursed as an expense.

Former HOA President
KerryL1
(California)

Posts:7582


10/06/2020 11:56 AM  
I've noticed the same thing about ChrisE, Sheila: "I don't really care, but...." is in most of her/his posts.

I also can see how laundry room revenue could remain stable. Aren't there bigger $$ fish to fry,
ChrisE?
ChrisE8
(New York)

Posts:134


10/06/2020 12:13 PM  
Posted By KerryL1 on 10/06/2020 11:56 AM
I've noticed the same thing about ChrisE, Sheila: "I don't really care, but...." is in most of her/his posts.

I also can see how laundry room revenue could remain stable. Aren't there bigger $$ fish to fry,
ChrisE?




In my experience with audits, the auditor verifies all line items and has a checklist of materials used to verify each line item.

So if $12,674.50 was the laundry room revenue in each of 2017, 2018 and 2019, in order to properly do the audit, the auditor would have needed to verify those amounts, and supporting documents (such as records of how much was taken in by the laundry card machines).

It's simply not plausible that the auditor properly verified records and found that the amount taken in by the washing machines was exactly the same ($12,674.50) in each year.

There are no notes or anything in the audit indicating that amounts are assumed; $12,674.50 is passed off as the exact amount of revenue in each of three years.

Clearly the auditor just wrote down a number instead of actually verifying an amount of revenue. That calls into question the entire audit.
DaveP8
(Oklahoma)

Posts:26


10/06/2020 12:44 PM  
Frankly, you sound like some of the investor owners in my community - don't give a rat's behind about anything as long as the rent check clears, and then scream bloody murder when the assessment increases. The place is nothing more than an income stream to you - who cares if the property is shoddy and the dues are relatively steep (whatever that means)? And then owner-occupants like moi have to serve on the board because you can't be bothered to attend meetings, let alone volunteer - and unlike you, we don't get to deduct our assessments on our taxes. I was on my board for 10 years and had to listen to crap like this - and what I said to you is what I said to some of the owner-landlords.

You don't like what's going in your community for whatever reason? Either get involved or shut the hell up, sell your property, buy elsewhere without an HOA and do whatever you want with it without worrying about pesky things like rules, reserve funds and whatnot.


Well said!
AugustinD


Posts:4160


10/06/2020 1:05 PM  
Posted By ChrisE8 on 10/06/2020 12:13 PM
In my experience with audits, the auditor verifies all line items and has a checklist of materials used to verify each line item.
I think you'd have to find out exactly what type of CPA check on the books this was. I'd ask for the paperwork that retained the CPA (I presume) and see if this was an "audit," "review," or "compilation." These are quite different. For one, "audits" are way more expensive. Unless the governing documents clearly state an "audit" is required each year, and unless the contract with the CPA states that she or he is to do an audit, then I would not trust that a full blown audit was done. I think your expectations of a certain level of detail, for whatever was done, may be misplaced.
ChrisE8
(New York)

Posts:134


10/06/2020 1:08 PM  
Posted By AugustinD on 10/06/2020 1:05 PM
Posted By ChrisE8 on 10/06/2020 12:13 PM
In my experience with audits, the auditor verifies all line items and has a checklist of materials used to verify each line item.
I think you'd have to find out exactly what type of CPA check on the books this was. I'd ask for the paperwork that retained the CPA (I presume) and see if this was an "audit," "review," or "compilation." These are quite different. For one, "audits" are way more expensive. Unless the governing documents clearly state an "audit" is required each year, and unless the contract with the CPA states that she or he is to do an audit, then I would not trust that a full blown audit was done. I think your expectations of a certain level of detail, for whatever was done, may be misplaced.




Perfect answer--very helpful. Thank you very much. If I am going too far--and it sounds like I might be--I certainly welcome being given some perspective, as you do. Thanks again.
AugustinD


Posts:4160


10/06/2020 1:12 PM  
Posted By ChrisE8 on 10/06/2020 9:18 AM
For example, the residents have to pay cash each time they use the laundry machines, but revenues from the common laundry machines are exactly the same, to the penny, in 2019 as in 2018 and 2017.
I think it is also possible that the condo/co-op has a contract with a laundry machine vendor. The terms of the contract may state that the vendor need only turn over a fixed amount each year, from the coins put into the laundry machines, to the co-op.
AugustinD


Posts:4160


10/06/2020 1:17 PM  
More likely:
There is a contract with a laundry machine vendor that states the vendor keeps all the coins from the machine and pays the Co-Op a flat rate of rent each year. Some chatter to reinforce this likelihood: https://cooperator.com/article/what-you-must-know/full
CathyA3
(Ohio)

Posts:1316


10/06/2020 1:22 PM  
Actually I'm with Chris on this one. My inner accountant would be hopping up and down hollering if I suspected that the audit wasn't done properly. An audit, if done right, would be one way to show that there are financial shenanigans going on, and that's kinda important, yes?

Income from coin operated laundry identical for several years? Nopity nope. Once is coincidence, twice is enemy action (unless the machines are set up in some way to stop at an arbitrary point, which would be weird).

Me, I'd take a harder look at the audits and put all of my concerns in writing, then send them to the board. Even if they do nothing, they're now on notice that people are paying attention.

I do agree with all comments about judging the level of assessments. Two identical communities could legitimately have very different assessments, depending on things like whether their reserves were funding properly in the past or if they're playing catch up. Or if they had some unusual maintenance expenses and are paying off a loan. Of if one community is self managed and the other employs a property manager. You really need to dig into the financials to be able to evaluate the reasonableness of the assessments.
JohnC46
(South Carolina)

Posts:10017


10/06/2020 1:23 PM  
My first blush is it is not a Annual Audited Statement. Few association have an annual audit. It sounds like more of a Budget where, for budgeting purposes, some items do not change year to year. I wonder if the association is self managed or poorly managed and they are calling things that are not as called.
CathyA3
(Ohio)

Posts:1316


10/06/2020 1:27 PM  
Posted By JohnC46 on 10/06/2020 1:23 PM
My first blush is it is not a Annual Audited Statement. Few association have an annual audit. It sounds like more of a Budget where, for budgeting purposes, some items do not change year to year. I wonder if the association is self managed or poorly managed and they are calling things that are not as called.




My Declaration requires an annual audit, and the few others I've read have had similar requirements. But you may be right that what Chris saw is actually a budget, would would explain the one item remaining constant.
JohnC46
(South Carolina)

Posts:10017


10/06/2020 1:41 PM  
Our docs do not require an audit:

Section 11. Financial Review. A review of the books and records of the Association shall be made annually in the manner as the Board of Directors may decide; provided, however, after having received the Board's financial statements at the annual meeting, by a majority of the Total Association Vote, the Owners may require that the accounts of the Association be audited as a common expense by a certified public accountant. Upon written request of any institutional holder of a first Mortgage and upon payment of all necessary costs, such holder shall be entitled to receive a copy of audited financial statements within ninety (90) days of the date of the request.

Our MC does prepare and present a Yearly Financial Review (Balance Sheet, Income Statement, Actual to Budget, etc) at our Annual Meeting. This report is 4 pages of our 30 page BOD Monthly Financial Reports from them. Any member can get the full financial report upon request. Usually within 24 hours.
ChrisE8
(New York)

Posts:134


10/06/2020 2:24 PM  
I took a look at the financial materials.

They are entitled "Report of Independent Auditors" and they state, "I have audited the accompanying financial statements..., which comprise the balance sheets as of December 31, 2019 and December 31, 2018 and the related statements of income and cash flows for the years then ended and the related notes to the financial statements." They then describe audit procedures.

They also state, "Management has omitted information about future major repairs that GAAP require to be presented to supplement the basic financial statements. Such missing information is required by the Financial Accounting Standards Board..."

Sounds like it is an audit, not less, and that omitting required information is a bigger issue, now that I look at this.
AndreaD
(Florida)

Posts:6


10/06/2020 6:57 PM  
I'd look into the Audit Opinion in the final Auditors report to see what conclusion they drew. Below are the 4 conclusions, and you can find more information here.

https://www.wallstreetmojo.com/audit-report/

#1 – Clean Opinion
An auditor gives an unqualified opinion, also known as an unqualified opinion if, according to him, the financial statements are true and fair, and there is no material misstatement in them.

#2 – Qualified Opinion
This type of audit report opinion is given by the auditor if, in the financial statements, there is no material misrepresentation. Still, financial statement preparation is not in accordance with generally accepted accounting principles (GAAP).

#3 – Adverse Opinion
The worst type is the adverse opinion that an auditor can give. It reflects that the financial statements of an entity are materially misstated, misrepresented, and do not reflect its correct financial performance.

#4 – Disclaimer of Opinion
In case the auditor fails to frame an opinion about the financial statements of the company, then he gives a disclaimer of opinion. The reason for the disclaimer can be the lack of audit evidence or the restriction by the client to examine all the records etc.
ChrisE8
(New York)

Posts:134


10/07/2020 7:27 AM  
Excellent, thank you very much. I checked and it's a qualified opinion.

Good to know that the revenue might just be a set amount of revenue per year regardless of what's actually collected.

Thanks again, everyone.
AugustinD


Posts:4160


10/07/2020 8:32 AM  
For the archives, regarding governing documents requiring audits: Of three HOAs/condos where I have resided (1) I am not sure what the requirements were in one; (2) at the other two (one a condominium and the other a non-condo HOA), there was no requirement for any kind of audit, review or compilation by a CPA or other finances professional. Nor do state statutes for these two HOAs/condos require any kind of audit, review or compilation.
ChrisE8
(New York)

Posts:134


10/07/2020 9:05 AM  
Thanks, AugustinD, and good point. I will give this HOA credit in that it got an audit, even if the audit was not quite right. I lived in what I thought was an upstanding HOA for a few years and it didn't get an audit despite a requirement (in the governing documents) to get one. And I'm on the board of a nonprofit that didn't get an audit one year because the CFO was such a mess. In both cases, nobody cared.
AugustinD


Posts:4160


10/07/2020 9:22 AM  
Posted By ChrisE8 on 10/07/2020 9:05 AM
I will give this HOA credit in that it got an audit, even if the audit was not quite right.
-- If it is convenient to you, I would be interested to know if the governing documents for this condo/co-op require some kind of audit/review/compilation. I did a quick check of what I think are New York statutes, and I do not think the statutes require one.

-- I do not know if this audit is "not quite right." I think it's entirely possible, maybe even likely, that the HOA/condo/co-op leases space to (or has otherwise contracted with) the laundry machine vendor and charges the vendor a flat annual or monthly fee.
ChrisE8
(New York)

Posts:134


10/07/2020 9:54 AM  
Posted By AugustinD on 10/07/2020 9:22 AM
Posted By ChrisE8 on 10/07/2020 9:05 AM
I will give this HOA credit in that it got an audit, even if the audit was not quite right.
-- If it is convenient to you, I would be interested to know if the governing documents for this condo/co-op require some kind of audit/review/compilation. I did a quick check of what I think are New York statutes, and I do not think the statutes require one.

-- I do not know if this audit is "not quite right." I think it's entirely possible, maybe even likely, that the HOA/condo/co-op leases space to (or has otherwise contracted with) the laundry machine vendor and charges the vendor a flat annual or monthly fee.




I'll check the governing documents. For the audit being "not quite right", I'll take your position (and appreciate your mentioning) that the laundry room revenue might be a fixed payment pursuant to a contract. That makes sense.

But the audit left out major repairs. "We have $250,000 in the bank account--let's not mention that we have a $1,000,000 HVAC repair project or another big capital project coming due next year, though." That's what I got out of the cover letter.
CathyA3
(Ohio)

Posts:1316


10/07/2020 10:24 AM  
Posted By ChrisE8 on 10/07/2020 9:54 AM
... snip...
But the audit left out major repairs. "We have $250,000 in the bank account--let's not mention that we have a $1,000,000 HVAC repair project or another big capital project coming due next year, though." That's what I got out of the cover letter.



I doubt any audit would mention something like coming reserve projects (at least I have seen one that did). For info about that, you'd have to dig through your latest reserve study and see the breakdown of projected spending.

CathyA3
(Ohio)

Posts:1316


10/07/2020 10:26 AM  
Posted By CathyA3 on 10/07/2020 10:24 AM
Posted By ChrisE8 on 10/07/2020 9:54 AM
... snip...
But the audit left out major repairs. "We have $250,000 in the bank account--let's not mention that we have a $1,000,000 HVAC repair project or another big capital project coming due next year, though." That's what I got out of the cover letter.



I doubt any audit would mention something like coming reserve projects (at least I have seen one that did). For info about that, you'd have to dig through your latest reserve study and see the breakdown of projected spending.





ARGH, I have *not* seen an audit that discussed reserve projects in the future. My kingdom for an edit button...
ChrisE8
(New York)

Posts:134


10/07/2020 2:57 PM  
OK, thanks. So it HOA audits usually omit information about capital projects and the like, then I'm going too far in my concern. I'll step back.
JohnC46
(South Carolina)

Posts:10017


10/07/2020 3:53 PM  
Posted By CathyA3 on 10/07/2020 10:26 AM
Posted By CathyA3 on 10/07/2020 10:24 AM
Posted By ChrisE8 on 10/07/2020 9:54 AM
... snip...
But the audit left out major repairs. "We have $250,000 in the bank account--let's not mention that we have a $1,000,000 HVAC repair project or another big capital project coming due next year, though." That's what I got out of the cover letter.



I doubt any audit would mention something like coming reserve projects (at least I have seen one that did). For info about that, you'd have to dig through your latest reserve study and see the breakdown of projected spending.





ARGH, I have *not* seen an audit that discussed reserve projects in the future. My kingdom for an edit button...




I agree on both......LOL
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