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The Auditor's Consideration of Fraud
in a Community Association Audit
Why are an auditor’s assessments of risk of
material misstatement important to a board
of directors? Because, while many
association board members are very good at
what they do in their individual
professions, they may not be experts at
running a multimillion dollar association.
Most board members donate their spare time
to the concerns of the association, and rely
heavily upon third party individuals or
employees, also known as “Association
Managers”. What many board members do not
realize is that, even though they employ a
management company or an on-site manager,
the final responsibility for the affairs of
the association rests with them.
read more
(PDF)
Related Party
Transaction
The accountants performing audits and
reviews on the associations that I manage
come to my office each year and among the
questions that they ask is: “Were there any related
party transactions?” I dread that question and with a clear
mind I answer, “not to my knowledge”. Of
course, if I knew of one, I would have to
disclose it and I would.
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| Basics |
Review vs. Audit
- There are two basic types of financial
oversight that must be contracted from
outside sources-a review or an audit.
Selecting a Certified Public Accountant
(CPA) As legislation related community
associations increases in many states
across the U.S. , one aspect that is
receiving attention is the need for the
Association's Board of Directors to
maintain credible and timely financial
statements. More and more Associations are
being required (not only in their
governing documents but by law) to engage
the services of a CPA (Certified Public
Accountant) to conduct annual audits and
to report these results to the membership.
No longer may it be deemed sufficient to
rely upon the Management Company,
Association Treasurer, or Finance
Committee of the association to present an
unbiased and independent audit of the
financial records. |
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| Audit and
Financial Review Articles |
Auditing Replacement Reserves
(PDF)
Auditing in the homeowner
association industry is unique, to say the
least. If fact, the American Institute of
Certified Public Accountants (AICPA) has
prepared an audit and> accounting guide
specifically for Common Interest Realty
Associations (CIRAs). The primary difference
between common interest realty associations
and other not-for-profit organizations is
the existence of the replacement fund for
major common area components. The
replacement fund makes the audit process
somewhat specialized as well, and in this
article, we will take a look at some of the
audit procedures, unusual problem areas, and
required disclosures that are unique to
replacement reserves. One unique aspect of
this industry is the AICPA’s requirement to
include unaudited supplementary information
on reserves as part of the standard required
financial information attached to the
audited financial statements.
Understanding
Financial Statements – What are internal
controls?
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| Protecting the
Money |
Tips for Protecting
Your Association Finances
(PDF) Volunteer boards of
directors of condominiums, cooperatives
and homeowners’ associations often perform
a number of functions vital to the
successful self-governing of the
association: fostering community harmony,
maintaining common areas and establishing
and enforcing rules. The ability of the
association to perform these functions
depends upon its success as a business.
And one of the most important business
functions of the board is to oversee the
association’s financial well being. Here
are 15 tips to help protect association
finances. Before implementing the
suggestions in this pamphlet, however,
check your governing documents and state
statutes.
Check Fraud,
Identity Theft and Embezzlement
Union Bank of California has published
a brochure (PDF) that has some
excellent guidelines to protect your
association or business from various
financial issues
Investing Association
Funds: Be Reasonable and Prudent
The board of a homeowners association wants
to exercise its discretion to invest a
portion of the association’s reserve funds
to make the money “work” for the
association. However, since the declaration
is silent on how this may be done, the board
is unsure of how to proceed. How should the
board exercise its discretion to invest
reserve funds?
Although written for Colorado, there are
some excellent thoughts here.
10 Commandments
of Internal Control
- What are some
general procedures that an Association
can implement to protect its financial
resources?
Proactive
Measures Safeguard Association Assets
- As associations grow in size and
sophistication, their funds become
more vulnerable to market loss and
theft. Though many associations are
adopting policies to protect their
investments from market loss, not all
adequately protect their funds from
theft--an oversight that could cost
thousands of dollars.
HOA Fraud
Standards - The
biggest changes result from the
American Institute of Certified Public
Accountants' (AICPA) Statement on
Auditing Standards No. 99.
The WOLF in
Sheep’s Clothing:
How to protect your association’s
finances. -
Limiting the risk of embezzlement
means limiting the number of people
who control funds. |
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Resources |
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AICPA - Common Interest
Realty Association financial statements
and required supplementary
information. The American Institute of
Certified Public Accountants has
recently issued comprehensive auditing,
accounting, compilation and review
guidelines for common interest realty
associations (CIRAs). The guide,
entitled 'Audits of Common Interest
Realty Associations,' introduces
significant changes to current auditing
and accounting practices. One of these
changes is the requirement for CIRAs,
which include condominium associations
and homeowners' associations, to report
any planned major repair and replacement
activities.
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| CPA's |
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Working With Your
Accountant How to Maximize Board-CPA
Relations
- While cooperatives
and condominiums generally hire accountants
to take care of the fiscal necessities-the
annual financial statement, budgeting, tax
returns, etc.-they still need to be educated
about how to maximize their relationship
with these professionals. |
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