What to Expect During an Audit Webinar with Hafer and Co. - Campbell Property Management

Summary

In this webinar, Campbell Property Management and Hafer Co. dive into the intricacies of conducting audits for homeowner associations, particularly in Florida. The discussion covers the importance of internal controls, the audit process, and compliance with relevant state statutes. The presenters emphasize the critical role of board members in overseeing financial practices and making informed decisions. They also tackle common misconceptions, the need for timely and accurate financial statements, and the significance of setting a proper tone at the top to ensure robust financial practices within associations.

Highlights

• Ashley from Campbell encourages board members to subscribe for tips on making sound decisions 🎥
• April 30th is the crucial deadline for associations to complete and disclose their audits 📅
• The webinar stresses the need for strong internal controls and the role they play in audits 🤓
• Financial accuracy through proper recording and compliance with Florida statutes is emphasized 💰
• It’s crucial to reach out to auditors well in advance and avoid last-minute audits 📬

Key Takeaways

• Board members must be proactive and involved in the audit process to ensure financial transparency and adherence to regulations 📚
• Internal controls are crucial for preventing fraud and ensuring the accuracy of financial statements 💼
• Associations should engage auditors early, ideally before the end of the fiscal year, to ensure timely audits 🎯
• A clear understanding of financial responsibilities and the role of management companies is essential for effective governance ⚖️
• Adopting a systematic approach towards audits can help in identifying and mitigating financial risks early 🔍

Overview

In a lively and informative discussion, Ashley from Campbell Property Management introduces the webinar, highlighting the significance of audits for board members who aim to make well-informed decisions. As April 30th marks the deadline for many associations, the timing couldn't be better to dive into audit matters.

The presentation delves into the nuts and bolts of auditing processes, emphasizing internal controls as the backbone of any solid financial overview. The speakers humorously touch on accounting stereotypes while providing practical advice on ensuring timely and efficient audits that comply with Florida law.

Highlighting the benefit of early preparation, the webinar underscores the importance of establishing clear, strong internal control policies, and the potential risks and consequences of overlooking financial responsibilities. It's a call to action for board members to adopt proactive measures and maintain oversight to protect financial integrity.

Chapters

• 00:00 - 02:24: Introduction and Purpose The introduction chapter begins with Ashley from Campbell expressing gratitude for the audience's involvement in their community. She encourages viewers to subscribe for more informative content, aimed at empowering them as board members. Ashley expresses excitement to present to the audience, acknowledging familiar faces, and notes the date of the presentation as April 30th.
• 00:30 - 02:00: Understanding Audit Deadlines In this chapter, the focus is on understanding audit deadlines, particularly within the context of association audits. The speaker mentions that while it may seem like audit season is ending, the current day is actually the deadline for associations to complete and make their audits available to owners. The importance of preparing and submitting all work to auditors in a timely manner is highlighted. Moreover, the chapter promises to delve into the workings of an audit, offering examples of requirements as per Florida Statutes concerning income levels and whether an audit, review, or compilation is necessary.
• 02:00 - 05:00: Importance of Internal Controls The chapter emphasizes the importance of internal controls for associations and their relevance in the audit process. It highlights that many board members often overlook the significance of internal controls. The discussion also ties the concept to compliance with Florida Statutes, underscoring that proper internal controls should be considered a crucial part of the entire auditing cycle.
• 05:00 - 08:00: Audit Process and Standards This chapter discusses the audit process and standards. It introduces the Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS). The importance of understanding the audit process for board members is emphasized. The chapter also encourages questions and offers direct communication for clarification.
• 08:00 - 13:00: Evaluating Financial Statements and Compliance The chapter titled 'Evaluating Financial Statements and Compliance' begins with a light-hearted introduction where the speaker notes the importance of responding to board members' inquiries through email, emphasizing the importance of getting questions answered for effective board functions. The speaker humorously admits that auditors are typically not perceived as humorous, providing a joke about auditors using an engagement letter as a proposal. The 'engagement letter,' in a professional context, is described as a tool for initiating audits, highlighting the importance for associations to initiate contact appropriately when starting an audit process.
• 13:00 - 19:00: Challenges in Internal Controls The chapter discusses the challenges in internal controls relating to auditing, specifically focusing on the timing of engaging auditors. In the current busy industry climate, there are insufficient auditors to meet the demand, as many organizations are reaching out too late in the year, such as in March or April, expecting audits to be completed by April. To mitigate these challenges, it's recommended to send engagement letters to auditors well in advance, preferably after the tax season, to prepare for the upcoming year. This proactive approach helps ensure that auditing needs are met timely and effectively, avoiding the crunch of last-minute requests.
• 19:00 - 22:00: Forensic Audit versus Regular Audit The chapter 'Forensic Audit versus Regular Audit' discusses the differences and significance of internal controls in the context of forensic and regular audits. It highlights the importance of being organized and composed, especially in preparation for the tax season. The necessity of strong internal controls is emphasized, particularly in differentiating between having a management company versus being self-managed. The chapter underscores the potential for stronger internal controls in some instances when opting for self-management over using a management company.
• 22:00 - 27:00: Roles and Responsibilities in Internal Controls The chapter titled 'Roles and Responsibilities in Internal Controls' discusses the importance of balancing trial balances and ensuring budgets are compliant with regulations, specifically Florida Statutes. Despite budgets not being formally audited as they are estimates, they are reviewed for compliance. Some associations strive to maintain a surplus, but the focus remains on balance and adherence to legal requirements.
• 27:00 - 32:00: Key Issues and Recommendations The chapter titled 'Key Issues and Recommendations' discusses the crucial task of balancing budgets, particularly towards achieving a surplus. It suggests allocating more resources to repair and maintenance line items to have a surplus at year's end. The chapter also delves into the importance of internal controls during an audit. The aim is to convert technical accounting jargon into understandable, real-life examples, making the information more relatable and comprehensible for readers.
• 32:00 - 40:00: Audit Engagement and Tax Compliance The chapter discusses the challenges faced by board members and property managers who may not have a strong understanding of audit processes. It emphasizes the importance of explaining audit engagement and tax compliance in layman's terms to ensure that everyone involved, especially volunteers, can grasp the concepts. The narrative highlights the necessity of a process within an organization that provides reasonable assurance, aiming to clarify complex audit topics for those who might not be familiar with them.
• 40:00 - 48:00: Audit Process and Types The chapter titled 'Audit Process and Types' explains the concept of reasonable assurance in the context of audits. It clarifies that auditors do not go through every line item or check that everything is booked correctly but rather ensure that nothing is materially misstated. The distinction between regular audits and certified audits is also addressed, with an emphasis that all audits are certified, a point that often requires clarification.
• 48:00 - 67:00: Conclusion and Q&A The chapter titled 'Conclusion and Q&A' discusses financial statement accuracy and the role of auditors in the accounting process. It highlights common discrepancies such as unrecorded accounts payable and the importance of understanding materiality thresholds in auditing. The text emphasizes that auditors should not be mistaken for bookkeepers, as their role is to evaluate and verify financial information rather than maintain daily accounting records.

What to Expect During an Audit Webinar with Hafer and Co. - Campbell Property Management Transcription

• 00:00 - 00:30 hi I'm Ashley with Campbell thanks for investing your time to help your community be a great place to live before you watch the video make sure to click the Subscribe button so that we can help you make educated decisions as a board member thank you so much Ashley um I'm sure I know a lot of you in the audience so I'm excited to present this today especially today is April 30th so everybody this morning in my office sent
• 00:30 - 01:00 an email to everybody and said congratulations we're on our last day so it's not that it ends an audit season ends but today is the deadline for associations to have their audit completed and made available to the owners so hopefully you got all of your work to your Auditors and got everything put out and it's ready to be released so today we're going to really highlight through how an audit works and I am going to give you some examples of what you're required on Florida Statutes in regard of income levels are you required to an audit a review or a compilation
• 01:00 - 01:30 this is also going to walk through the association's audit but also how it regards into Florida Statutes and also internal controls a lot of associations when I do when I first meet them or their new client and we start talking about internal controls a lot of board members don't realize how much internal controls are important to an association also how relevant it is in an audit when you're getting an audit done all of this should be taking place throughout whole
• 01:30 - 02:00 entire audit whatever firm you're using there are standards in regards to audits so there's called generally accepted accounting principles which we're going to talk about and gas gaas which is generally audit accoun auditing standards and we're going to talk about this because as board members you should understand the audit process so I really want to make sure we go through anything Ashley also is on the side that if there's questions that come up that are really important I do want to make sure that I address them I'm also going to give you my email address and if anybody
• 02:00 - 02:30 you know knows that I do respond so if you send me an email I will get back to you regarding any questions that you have because I feel that it's very important for board members to get their questions answered so we're going to start off with some jokes um Auditors are not funny we're we're pretty black and white um but how did the udor propose to his girlfriend with an engagement letter so an engagement letter is really an initiation to start the audit you want to make sure as an association that you're contacting
• 02:30 - 03:00 whoever is doing your audit well before year end it's interesting because the industry is so busy right now with there's not enough Auditors to do the work that's out there and there's many associations that are reaching out too late they're reaching out in April or they're reaching out in March it's pretty late in the year to reach out to an auditor to say can we have this done by April so I always recommend engagement letters to reach out to an auditor even after tax season to get ready for the next year because a lot of Auditors like our firm we get everybody
• 03:00 - 03:30 in line by the end of this tax season for next year so you want to make sure you're well ahead of that why are account and so calm composed and methodical they have strong internal controls so we're going to talk about that very strongly through this presentation of why it's so important and what the differences are with having a management company versus being self-managed and why those in controls are so important and what the difference is when you have a management company versus when you're self-managed to be able to have sometimes stronger
• 03:30 - 04:00 controls um accounting joke why do you call what do you call a trial balance that doesn't balance a late night so getting making sure that the trial balance balanced also making sure your budget's balanced so a budget isn't audited because they're just estimates but we do look at your budgets to make sure you're in compliance with Florida Statutes make sure your budget's balance I have some associations we go back to and they're like well we wanted to make sure we had a surplus well you don't
• 04:00 - 04:30 have you got to balance the budget if you want to have a surplus maybe you budget a little bit more in a repair and maintenance line item and have Surplus at year end but you don't not have the budget balance okay so let's start really into the nitty-gritty of what is internal controls in an audit a lot of the stuff I'm going to discuss today I'm going to try to put stuff in perspective give examples make it more real life than just accounting words because a lot of people read this and say this doesn't make any sense to us this is something something that is accounting language
• 04:30 - 05:00 that's over our head so I'm really going to go through it and try to make it as lame in terms as possible for anybody that's on the board because as we know you're all volunteers um sometimes property managers also their strong point is you know construction or management side and they don't really have the best understanding of the the audit side so it's good to get an understanding today from a layman term so a process within an organization designed to prevent reasonable Assurance I really really want to stress
• 05:00 - 05:30 reasonable Assurance why I say that is I'll talk to some new board members they'll come and they'll interview us to do an audit and they'll say well you're looking at everything right you're going line by line you're making sure that everything is booked correctly Auditors are making sure that it is not materially misstated so what I mean by that is they're not going through in your regular audits that are certified Audits and all audits are certified I get that question a lot but making sure that everything is not materially
• 05:30 - 06:00 misstated so is the depreciation booked is your financial statements overall correct you might have a accounts payable let's say a bill that was in January but it didn't get recorded in December and it was for $500 that might not be something that gets booked by the auditor because materiality might be $2,000 so they might say it's under materiality it's not going to be booked make sure you understand that your Auditors are not your bookkeepers
• 06:00 - 06:30 they are not the ones that are going and recording all of the invoices making sure it's recorded in the proper area it's reasonable Assurance it is not absolute Assurance I really stress this to anybody that's meeting with their Auditors you're not going to be 100% in their audit and that's not their obligation they have to make sure that it's just reasonably presented that information is reliable accurate and timely that's a great thing we're going to be interviewing board members saying
• 06:30 - 07:00 when do you get your financial statements and if they say to us well we get our financial statements three or four four months after January we get in like March or April that's a problem as a board member you should be seeing those financial statements timely also asking questions um is it accurate are you looking at those monthly financial statement making sure that everything's booked in the proper period what I mean by that accels if you have your utility bills is it booked in the proper period because if you're not looking at financial statements that are accurate
• 07:00 - 07:30 how are they reliable for you to make a good business decision if they are not on a cruel based financial statements you're not going to be able to make good business judgments and what I mean by by acral based financial statements a lot of associations will say we want to be on a cash basis Cash basis is Cash in and out you're not going to see the accounts receivable who owes the association very important in associations who owes the association any money is there bad debt
• 07:30 - 08:00 do you have a note payable on the books if you have a note which you owe the bank money that's not going to show up on a cash basis so you want to make sure that they are on true acral basis I would say probably a majority of the associations are on a hybrid acral meaning that they're booking new acels but if one bill comes in super late in the next month they might book it in that period That's why I say it's a hybrid acral and that's very common in associations it's not going to be a 100% acrel And weuse recognize that at year
• 08:00 - 08:30 end the most important is at year end is that truly AC cruel based financial statements before you give it to your auditor I have a lot of times I'll have people email me and say we have your financials ready January 2nd I said that's impossible that means that nothing is booked there's no way possible that all of your invoices came in by January 2nd if your year ends December 31st so make sure you're giving a timely report to your auditor that you're giving them a reasonable time
• 08:30 - 09:00 maybe around January 25th or January 30th February 1st because a lot of those bills will be in or you can make an estimate to book it on acral which a lot of the management companies do also are you in compliance with all of your policies procedures laws regulations contracts the Auditors are looking at that they're going to be asking for your minutes reading all through your minutes and seeing what happened through the year as an auditor we have to get an understanding of your internal controls
• 09:00 - 09:30 and also what took place through the entire year an auditor that doesn't read the minutes how do they know what happened what was past were their special assessments you want to make sure your minutes are as detailed as possible but not overboard so some associations will put everything in there somebody raised their hand and asked this or this that's not necessary you want to make sure anything that was passed and anything that was important or put in that minutes so that auditor can get an understanding of what took place through the entire year
• 09:30 - 10:00 also your documents an auditor is going to get a copy of your documents originally when you hire them and they're going to read those documents and see what is required do you have an audit deadline in there versus what's different from the statute um special assessments is there requirements in your bylaws and documents for a special assessment do you need a majority vote there are many things that are in your documents that you must abide by so as a board member if you're new to the association uh condo you have to take a course and make sure that you're getting
• 10:00 - 10:30 certified but also just taking that course also reading through your documents and bylaws to make sure you understand what that Association has to do and every Association is unique another thing is staying in touch with your attorneys to make sure that we're making a decision should we be asking our attorney first yes is there something in our bylaws we're not sure about reach out to your attorneys it's very important and I can't stress it enough from an audit perspective that you rely on your professionals your
• 10:30 - 11:00 management companies that have all the resources your attorneys um Engineers that do your reserve studies rely on those that's what you pay for it's very important because you are a volunteer board that assets including people are safeguarded do you have employees are you understanding all the IRS regulations under employees when you have a management company those employees are hired by the management company so there's less risk in the sense that you're not doing payroll tax returns you're not having to worry about
• 11:00 - 11:30 IRS did you file them did you do the 941s the W2s we have noticed in the last three years so everybody's kind of up on what's going on the IRS has really come down on the W2s the filing of the 941s filing of your payments when they're recorded if they're late we've had numerous notices from the IRS that people haven't filed the W2s then they come back to us and say what do we do there's a lot of penalties and interest on that when they're not filed correctly so you're taking on a lot of respons ability in those self-managed properties
• 11:30 - 12:00 to make sure you're regulating with all human resources and IRS guidelines as an auditor we're looking at that and if we see any deficiencies we're going to put that in an internal control letter of the most economical and efficient use of resources making sure that everything that you have available you're taking advantage of from an internal control standpoint seeing that there's regulations safeguards on everything that you have in an association overall established objectives and goals are met what are the goals go of the association
• 12:00 - 12:30 did you meet those goals at year end are you doing everything that you tell us you're doing our firm particularly any audit we do we interview the board members president and Treasurer and the property manager if we interview them and we ask questions now we go back to the source documents and say is this taking place we're doing walkthroughs saying is this person telling me there's two signatures on checks I'm going back and checking that to make sure that what they're telling me is actually taking Place intended to prevent errors or
• 12:30 - 13:00 irregularities identify problems and ensure that corrective action is taking place and we must evaluate internal controls one thing I definitely want to highlight to everybody that's here because it's a misperception that's out there it's in our engagement letters but a lot of times it's a misperception when people hear audit the auditor's goal is not to find fraud so you'll notice in the engagement letter it specifically states that Auditors absolutely are going in and saying okay okay we're looking at stuff there's definitely
• 13:00 - 13:30 Auditors that are finding this fraud but their specific goal is not to say we're coming in here to find fraud and a lot of times when a board member or property manager will reach out to me and say I got a call last week we know we have fraud and I'll say the question what do you have proof of and then they'll say well I heard this or I heard that hearing something is not proof of fraud sometimes it can be mismanagement so be very careful as anybody that's in the association using the word I believe
• 13:30 - 14:00 that there's fraud going on because using that you're now basically stating that someone has committed fraud and you have no proof of that I always say until it's proven in a court of law and there's been things done that's proven that's fraud do not use those words you can say I believe there might be misappropriation of funds and then you might go into where you need a forensic audit but that would be something down the road once you get into the documentation of where you believe there's fraud the internal control Mystique so internal control starts with a strong set of policies and procedures
• 14:00 - 14:30 internal control starts with a strong control environment I always from Accounting 101 audit 101 I always remember my professor saying tone at the top and I cannot stress that enough you as the board of governance need to set that tone at the top the tone at the top is we are not going to stand for not following procedures what we put in place must be followed and they're going to get that your property manager or your assistants anybody that's working
• 14:30 - 15:00 for the association will feel that from the board of directors and say this association takes our internal control serious and you want to make sure you start that from the board of directors not a board of director coming in and saying well we need two signatures well today we're just going to do the one signature that is setting a tone in there that you're not really that concerned about the internal controls that opens up the risk area for associations and it also opens up the auditor from a risk standpoint audits are based on risk now really looking at
• 15:00 - 15:30 the areas that are high risk and focusing on those areas from an audit perspective a lot of things Chang in the audit industry in the last couple of years with really risk-based audits internal control that's why we have internal Auditors management is the owner of internal controls your auditor is not coming in and telling you this is what needs to take place yes they're going to give you recommendations absolutely at the end of the audit after we've done our evaluation of the internal controls we're not auditing
• 15:30 - 16:00 internal controls we're evaluating them and giving you recommendations you'll notice it in the letter which we'll talk about later on but you as the association should be setting a list of almost like an accounting Manual of your of your internal controls and making sure you own that as management and management is the board of directors even if you hire a management company the people that are making the ultimate decisions and setting the policies and procedures are the board of directors you're the board of governance the oversight I'm sure on your insurance
• 16:00 - 16:30 policies which I would talk to your insurance agents you are the ones responsible for the association not the management companies internal controls cannot ensure success so in the audit process you'll hear a lot of times I'll go to board meetings with unit owners present the audit they say well we had an audit done that means that everything was perfect not necessarily the audit might come out and you might get a clean opinion but it does does it mean that the internal controls were an absolute
• 16:30 - 17:00 success first you want to make sure you're looking at your internal control letter to say okay do they have any recommendations but some of the things that don't ensure success are bad decisions did a did the board of directors make a bad decision bad decision is not fraud meaning maybe they chose a vendor and they didn't realize that that vendor ended up taking a deposit and never finish the work that's not the board of directors fault maybe they didn't realize that company wasn't what they said they were making sure
• 17:00 - 17:30 that you're doing background checks or checks on any employees or any contractors are coming on site um a good thing is making sure that you're documenting that do you have a book when those contractors come in and make sure they sign in it's interesting in some of the audits we do we'll ask to see a copy of that login to make sure that vendor actually showed up and was doing the work we can see the contracts but was the work actually done on the property when a contract is signed poor managers sometimes there's not enough experience a manager will come in to a high-rise
• 17:30 - 18:00 condo that has millions of dollars running in there and they don't understand how the association Works they don't understand condo condo law they don't read the documents so that can be a problem in internal controls if they come on as a new manager they didn't read the documents they get a special assessment pass never reach out to the attorney and didn't realize that it requires 51% of the unit owners to pass it they're the kind of things that cause bad internal controls and problems for the assoc Association unethical
• 18:00 - 18:30 Behavior that's one of the hardest ones probably to stop is you might do a background check on someone and do all these things and not realize that person isn't what they say they are they come in there's pressures they end up doing something unethical it's something that board members should be overseeing making sure that they're watching and overseeing the manager the assistant managers and the employees what they're doing I know it's a lot of work as a board member absolutely it is and I give all board members credit but when you sign on to that your job is to oversee
• 18:30 - 19:00 that Association and the funds that are running through there and it's going to get even little more complicated in the next couple of years under condo because there's going to be a lot more running more money running through those associations due to these new law changes and it's going to be very very important for board members to make sure internal controls are in place to protect those assets that cash that's going to be in there how it's spent and how it's protected collusion it's one of of the hardest things to uncover in an
• 19:00 - 19:30 audit even in a forensic audit is there collusion between the president and Treasurer between the president and property manager and they're in cahoots together they're two signers and they're the ones doing everything very hard to uncover kickbacks from vendors it's another area I hear it a lot from associations I had one a few weeks ago that came to me and said there was definitely kickbacks from a vendor to the property manager I said do you have proof of that no but the contractor does work on his property but how do you know that he didn't pay for that so one of
• 19:30 - 20:00 the it's very hard to uncover and that's where associations sometimes turn into a forensic and they'll believe that it's going on and they'll hire a forensic auditor the difference between a forensic and a regular audit I want to make sure kind of clear that up because I don't know if it's the TV that everybody talks about forensic today but that word is going around everywhere I think in the last three months I probably had 20 calls for a forensic audit forensic is when you even when you start with a regular audit you're doing a certified a audit and that auditor
• 20:00 - 20:30 finds fraud that can turn into a forensic audit or a board member brings proof documentation of actual fraud that took place turning into a forensic audit a forensic audit is absolutely more costly than a regular audit because they are literally going line by line they're going to be potentially um expert Witnesses in trial if it goes to trial and it's proven this is fraud it's they can subpoena records they're able to go to the vendors and get information it's much more detailed it's much more
• 20:30 - 21:00 getting into every transaction versus an audit that is auditing the overall picture of the association and then override of controls so that's one of the things that we as Auditors really need to understand is there ever an override of controls let me give you an example we had an association we were doing the audit and they had credit cards which many associations have credit cards and on the payment line it's a um AC H so we're like okay why is
• 21:00 - 21:30 there not a check issue do they have an automatic withdrawal with the credit card if they do are the board members seeing this because if they're just every month being withdrawn who's approving that so we went into the credit card statements and see that there's no signatures of approval on these credit cards so we went back and questioned it and the board members said well no we actually don't see the statements so we went back and what was happening was there was an override of controls so the property manager was telling who whoever was cutting the checks that there wasn't enough time
• 21:30 - 22:00 between the check and when the credit card got the actual payment so they were getting late charges so he was calling in the payments and every month it was being deducted what was happening is the board members now were not seeing any of the transactions so we asked to see copies all them and what it turns out was there was many items on that credit card statement that were not Association expenses so there was an override of controls the board members did not know what was going on when the auditor came in they questioned it and was able to
• 22:00 - 22:30 find the documentation to say these were not authorized charges so override of controls is something that is an auditor we're very concerned about we want to make sure that the controls are being followed that are being told to us who's actually responsible for your financial statements and the internal controls the number one or the top of the chain is your board of directors they are responsible for the financial statements the oversight of the organization ation and making sure those
• 22:30 - 23:00 internal controls are being properly done management is second a lot of times I'll hear from board members when we do the interviews and we do the process in the audit well that was the management company they're the ones responsible for that they're not ultimately you are and management follows your decisions so if you at a board meeting vote for a contractor your manager now goes and calls the contractor gets the contract presents it to the board they're doing all the everyday tasks but your board of directors is overseeing that and making
• 23:00 - 23:30 the final decisions I always always stress anything with contracts or major um Financial impact on the association the board of directors should be signing and your attorney should be reviewing it that's great internal controls and then your personnel is last so your employees are not the ones that are going to be making the decisions the property manager is overseeing your employees but they're not going to be making the everyday decisions for the association so responsible for internal controls board of directors ultimately
• 23:30 - 24:00 responsible management is primarily responsible and the independent Auditors gain an understanding of internal controls in order to determine the nature timing and extent of their audit procedures what I mean by that layman's terms so what does that mean as from an accounting standpoint our job is to understand how those internal controls take place through an inter interview process through a walkth through going to your management company going going on site talking to the board members
• 24:00 - 24:30 doing the interviews when you interview them you're understanding how the process works who's signing checks who's reconciling the banks then the auditor takes that information now and goes back and says okay how am I going to audit this Association they have no controls they have one signature on a check one person's reconciling the bank approving and signing the checks auditor notes go off high risk high risk one person's doing everything now the
• 24:30 - 25:00 auditor goes back and determines what they need to do in the audit what is their testing what are they going to put in the internal control letter and now they go through all of the records and documentation to get an understanding and to get a feel that everything is being properly done even though the internal controls are weak you can have an association that has extremely low internal controls and not a lot of oversight and nothing's going on and everything's fine the report for the internal control letter the Au 265 which
• 25:00 - 25:30 I'll talk about later on might have a lot of comments on there but the financial statements have a clean opinion and everything's fine they don't really go hand inand if the financial statements were able to get all the documentation and give an opinion which is all the Auditors own they can still put a lot of comments in the internal controls one thing I definitely would like to bring up that's very important just because there's a lot of things on the internal control l the Auditors are trying to make your
• 25:30 - 26:00 organization better I would never take that as a negative I have some board members that will call us and say we need this off of the report I do not want any of the unit owners to see this this looks bad it's just helping you as an association do better so we're actually giving you recommendations to do better as an association it's not a negative and then as you put those in place they go away on the internal control letter and your organization runs better so always reach out to your Auditors even throughout the year I
• 26:00 - 26:30 always tell my associations use your Auditors as a resource I had one call me the other day it was excellent he's he's a board member excellent guy call me and ask me they're doing some transition in their Association to give them recommendations which would make their Association better for their internal controls and that's what we did and I think that really benefits you as board members and even as property managers calling them and saying you know what are other associations do because a lot of times if you're a self-managed community you know you're not going to be like a Ford Motor Company that you
• 26:30 - 27:00 need an accounts payable accounts receivable hire all these people to have segregation of Duties you can still do it with small amount of people but just making sure there's enough segregation of Duties control activities the dos and don'ts of Association control activities approvals so very important that who's approving the invoices is not the same person that's actually getting the work in so let's say you have an Home Depot order and somebody orders the Home Depot stuff and it comes in and delivered
• 27:00 - 27:30 somebody else that actually ordered the stuff should be different than actually signing it in because that's a segregation of Duty so a Home Depot order comes in the person that ordered it gives it to let's say the assistant manager ordered it the property manager now oversees it checks it off and logs it in then he approves the invoice that invoice now goes to the board of directors to approve it because they're the ultimate ones that sign those checks to say we received the good now we're going to authorize the payment
• 27:30 - 28:00 of them authorizations who's authorizing who has the ability to authorize property managers general managers on site should have the ability to authorize so they should have a certain threshold yes we need to get supplies they have the right to authorize it it comes in but the signers would be the board of directors because he's authorizing it the segregation of Duty would be the board of directors signing the checks verifications same thing who's verifying that the materials were
• 28:00 - 28:30 actually received is different than the person that was ordering it so like I said you don't need a lot of people you can have segregation with smaller amount of people but making sure there's enough oversight reconciliations very very important in segregation of Duty you should never have somebody reconciling the bank that has the ability to sign checks especially if you're using systems like quickbox so Auditors have a LoveHate relationship with QuickBooks a lot of small businesses use them the problem
• 28:30 - 29:00 with QuickBooks is you can do a lot of things in there that Auditors do not likes so you can delete a check you can actually write a vendor's name print it and then you can change it in the QuickBooks program so a check could come in that's cash to another vendor in the QuickBooks it's made out to somebody else so there's things that can be manipulated override of controls that we don't like as Auditors um other programs that are used you can't do that you actually have to make a journal entry to
• 29:00 - 29:30 change something that's in the system which that's what we like to see if there's ever a check that's wrong you do a journal entry to adjust it and somebody should sign off on that journal entry that's been done segregation of Duties so in associations it is difficult sometimes if you're not with a management company a lot of your management companies will have like a supervisor that's a CPA under them is the bookkeepers and then somebody that's reconciling the bank so there's many levels of oversight in that process in a
• 29:30 - 30:00 management company whereas when you're self-managed they have somebody that's on site where they Outsource the bookkeeping but let's say somebody that's on site that's there doing the bookkeeping so they're writing the checks they're reconciling the bank and then they're the ones that are actually producing the financial statements so what needs to happen in that situation because I'll have board members saying well we're not going to pay for two bookkeepers I agree you have to watch you also have have to say is the financial benefit worth it in who we pay
• 30:00 - 30:30 so a lot of times associations might Outsource the accounting so they'll have somebody that's not an employee of the association which I like because that employee now is not tied to oh well this is my job I work here they're an independent company so they're more likely to go to a board and say something isn't right I see a check that was issued wrong or they'll be the ones that say let's make sure the internal controls are in place if you have somebody that's on payroll that's fine also but make sure that that person is
• 30:30 - 31:00 now not doing everything so they're not the ones retrieving the mail signing it in doing the reconciliations cutting the checks and signing the checks there has to be segregation the most important in that process is that the board of directors are the ones approving the invoices and signing the checks because they're going to see everything they're authorizing and then signing that very important security of assets everybody say well associations really don't have assets not many but things like golf
• 31:00 - 31:30 carts gym equipment office supplies is that being overseen that something can't be taken so we took on a new Association a few months ago and we had asked for all their inventory they have a lot of inventory they have golf carts they have pole Furniture gym equipment nobody had any schedule of it so I said well how do you know that a golf cart didn't go missing and they sat back and said well we never thought about that I said you need to keep an inventory of all of your assets to make sure that things aren't
• 31:30 - 32:00 being taken from the association now a lot of associations do not have a lot of that a lot of times you're not going to see somebody taking a piece of full pool furniture and putting it in their car but there are certain things that can be taken sometime associations will do inventory they'll keep like filters for the air conditionings for the units is there a tracking of that make sure that you're overseeing all of that that things aren't disappearing from the association performance reviews if you have employees for the association it's very important
• 32:00 - 32:30 to do performance reviews you should be evaluating that person so they don't get complacent in their job oh nobody's overseeing this are we doing our job nobody's asking so they get very complacent you want to make sure you're staying on top of this I think a lot of times people will say oh it's an association you guys are a business an actual business that you're running millions of dollars through there we need to run it like a true business an organization controls in place oversight and making
• 32:30 - 33:00 sure you're securing your assets and information system controls so I think in the past a lot of board members did not take this as serious as a lot of people should your computer systems and everything is very important to the association passwords oversight backup you want to make sure associations are protected we've heard through many associations we're doing in the last couple months mon that some associations have been hacked where they've had
• 33:00 - 33:30 emails sent to board members that were fraudulent um somebody that hacked their entire systems and shut them down they had a golf course they had a restaurant they actually been they were where they had they had to pay a ransom to get everything back make sure that you are talking to your insurance companies do you have cyber Insurance do you have all these type of insurances to protect you as an association as Auditors we look at that one of the things in our association I mean in our firm that we do is make sure we're looking at that
• 33:30 - 34:00 insurance policies and you have the protection that what most associations have very important that you're talking to your insurance companies now as you notice I'm sure you're seeing on the news also but there's a lot of hacking going on and you are subject to that as an association there's a lot of information Social Security numbers birth dates that the association keeps on record and most associations now are paperless so there's more susceptibility to that that you have on file key is isues for associations just going to highlight through this quickly
• 34:00 - 34:30 segregation of Duties lack of resources associations will say well we don't have the money to do that well you want to make sure you build that into your budget so you're able to have good internal controls trust the environment do you feel that you have a good trust environment with your employees your board of directors do you also have a whistleblower policy that if an employee know something that's going on they feel comfortable enough that they could go to somebody to report this whistleblower policy is something we put into our internal controls to make sure boards
• 34:30 - 35:00 are putting that in place you want to make sure your employees feel comfortable to be able to do that addition of new responsibilities and Technical knowledge are your employees staying up on all Florida Statutes are they staying up on their cams license to make sure that their license is renewed every year taking the courses are they up on the new statutes there's a not a lot of new laws in condo they need to make sure that they are up on that because if you're not when an auditor comes in you're going to get written up in the audit for compliance issues these
• 35:00 - 35:30 audits that are done in the State of Florida are compliance audits are you in compliance with your documents and bylaws and Florida Statutes and also in compliance with gap but very important for Florida Statutes because there are penalties if you're not doing things correctly buy those knowledge of internal controls compliance with Florida Statutes and then the Au 260 preliminary letter I want to highlight this very important so associations in
• 35:30 - 36:00 the last few years have gotten these preliminary letters some of them are they're actually in your engagement letter so they can be in the engagement letter or they can be a separate letter our firm puts it in a separate letter it's called the a260 preliminary letter when you get it as a property manager or a board member do not panic so this year we had associations get it they read it immediately I got phone calls emails what is going on are you telling us something's happening no so it's a preliminary letter and we are stating to you as the Auditors the risk areas we
• 36:00 - 36:30 are telling you these are the area that are high risk and these are the areas we are going to address in the audit then at the end of the audit you're going to get an au 260 conclusion letter and that letter is going to hopefully resolve all those areas and say we do not believe those areas are risk anymore and they're off the letter so it's just a preliminary letter and in when we ask for that and we send it out with our original open items list we put in there this is
• 36:30 - 37:00 a preliminary letter to address the risks that are in your Association it's very important to read it but just make sure that they're preliminary the ending letter is what's important and if there is stuff on there to make sure that you're meeting with your Auditors to find out what's going on you have a few questions if you want to answer a few of them absolutely um okay would an asset list be considered an official record document of the association so yes you would definitely if somebody asked to see that you would
• 37:00 - 37:30 have to make that available because that is an association record of all of your assets and when you refer to management are you including a management firm and a manager in both of this or are you referring just to like a management company great question so if you're self-managed your property manager would be management and if you have a management company they would be management so anybody that's at that level property manager or management company are considered management perfect and does a condo association
• 37:30 - 38:00 nonprofit need to file tax yearly if this has not been done how do you start go doing this going forward and is there a penalty for not doing this excellent question whoever asked that so it's been interesting so first thing let me explain what associations are so associations in the State of Florida are considered not for-profit not nonprofit not for-profit there still subject to sales tax in the state of Florida they
• 38:00 - 38:30 are not exempt like a nonprofit a nonprofit is a trable organization a social club associations do not fall under that under IRS code they are considered a profit organization so they either can file the 1120h homeowners association tax return or the 1120 which is a regular corporation which you would also file an f120 which is a Florida return basically the 11208 which a majority of associations file the 1128
• 38:30 - 39:00 homeowners association tax return you are basically exempt from any monies that come in from special assessments reserves maintenance fees all of that is not taxed any income that comes in from outside of that interest income laundry income is subject to tax the 112h is taxed at 30% so this year which is very interesting 2023 which were a auditing now most associations are paying taxes because of
• 39:00 - 39:30 the interest they've earned regardless if it's an operating or Reserve that income is subject to tax so I've had associations that have had made 100 150,000 in interest this year and there's not enough expenses direct expenses to offset that so they are subject to tax if you have not filed your tax return first thing make sure you have it second reach out to a firm that does associ a work you can look up online there's many firms that do that
• 39:30 - 40:00 contact them get a hold of somebody that can get the IRS and get a transcript to see the last time a return was filed most likely there was no taxes due this is the first year that most associations pay tax if taxes haven't been due you can go back and try to file the 1120h we've done that and we haven't had an issue you're supposed to elect every year of the 1120h when you file the extension or you file the return you can actually ask for a relief follow the return if they come back to you and say
• 40:00 - 40:30 you're not obl you're not eligible for the 1120h you'll do the 1120 most likely they will accept the 1120h and you move forward get the last tax returns done get them up to date filed I haven't seen in the associations we've done where we've done past tax returns I have not seen an Association hit with a penalty or interest for not filing I'm not saying it can't happen because it is late filing but the ones we've done we've asked for a relief and there wasn't any tax due so there wasn't any really consequences you just had to get
• 40:30 - 41:00 it filed but if you think you haven't I would get on it right now reach out to a firm get them to file it and then you can move forward perfect perfect all right I'll let you keep going we can answer some more in a little bit sure of course specific internal controls I wanted to give you some examples and I'm going to try to get a little faster through the presentation I do talk a lot so I try to give you as much information as possible um two signatures on checks right now a lot of Association are using electronic signatures Auditors have gotten
• 41:00 - 41:30 comfortable with that with the procedures that are in place so that is okay too but I do recommend two signatures on on checks that just shows two people are overseeing the approvals no rubber stamps I actually have not seen that in the last 10 years do not have stamps of people signatures in your office first of all somebody breaks in they have your signature and that should never be laying around never leave blank checks to signed please do not leave your signature on checks and leave 3 weeks out of the country there's ways to do that electronically versus your
• 41:30 - 42:00 signature just laying around limits to Authority who has the ability to sign checks it should be only certain board members officers on the association supporting documentation never ever sign a check without a backup even if it says it's coming later say I want to see the backup first before I'm signing a check um staff members should prepare journal entries then a supervisor approves them and post them to the financial system great internal controls staff member who is in receipt of the money does not
• 42:00 - 42:30 account for it so money should often be counted by two two staff members I do not recommend accepting cash most associations do not um if you do there's got to be good internal controls for oversight most associations I see that do not accept that monies that are received over the counter or through the mail are taken to the bank by a courier or a different person other than the person who opened the mail people say why would you do that there's many associations that I had an instant where
• 42:30 - 43:00 an association they somebody set up a similar name to the association a bank account and checks would come in they would take one out of the pile deposit the rest take one and posit in their account they set this up and then they would do like almost like the next check they came in they posted to that person so one person was always a month behind and a month behind that person's not going to get a late notice never noticed that there was always one person behind we caught it and said why is this on usual pattern but that person can set up an account and be taken from the
• 43:00 - 43:30 association um two staff members should always be involved in wire transfers banks are very strict on wire transfers which is good um always board members it should not be staff members approving wire transfers um one staff should prepare the time sheet then a superv approves it people will say why payroll payroll is one of the highest areas of Fraud and you'd be very surprised overstating their hours not deducting uh taxes their federal income tax but then filing it paying it where the
• 43:30 - 44:00 association paid the federal tax they didn't pay it the association paid the federal tax um ghost employees putting somebody on there and they're no longer there terminated employees still paying them but the bank account is actually going to somebody else that actually still works there payroll is a high-risk area and as I stated at the bottom do not accept cash we are in a very uh cashless world right now which is definitely scary too but Association world with the internal controls I recommend not accepting cash audit
• 44:00 - 44:30 process audit process is unique although every audit process is unique the audit process is similar for most engagements and normally consists of four stages your planning stage you're going to have the initial a lot of associations will send our their December we do a preliminary we sit down as a team and say okay where are the areas we're going to focus on we're going to highlight what we're going to do then we do our field work after we after we've made our plan for the audit we do our field work that's interviewing testing getting the
• 44:30 - 45:00 documentation then we do our audit report and then we do a follow-up review if the board members want to go over the audit to understand what took place and how we came to our conclusion that's the follow-up review client involvement is critical at every stage of the audit process I will never do an audit my firm if I am not allowed to speak to the board members I will not do an audit they are involved in the everyday process process and they should be able to communicate with us their it's their
• 45:00 - 45:30 organization and I need to understand what's going on and it's concerning as an auditor if a board member doesn't want to do the interview or they get I have some that say can you send me the questions ahead of time I want to make sure I can answer them this isn't a test you're doing the everyday operations anyway we're just asking you questions so we get an understanding what is the purpose of the financial statements the object of financial statements is to provide information about the financial Pres position performance and changes in the financial position of the
• 45:30 - 46:00 association it is basically telling the end user which is a bank is it a unit owner is it the association's management company to understand do we have enough cash are we in a good Equity position do we have low AR did we have a surplus last year do we need to pass a special assessment are we deficit in our reserves it's the over Financial overall financial position of the association are you healthy or do you need to do more and it helps in your budget process
• 46:00 - 46:30 where you're at financially also for prospective investors or lenders right now after the whole Surf Side collap tragic Surf Side collapse associations anybody that's coming in and buying into the community is asking for these audits they want to see the financial stability of the association it is very important to have a yearend especially from an independent person an auditor a CPA firm they want to make sure somebody independently has evaluated that and issued the report why the need for financial
• 46:30 - 47:00 statements the first is Florida Statutes requires it 78 condo 719 cooperative and 720 homeowners association all require based on thresholds the audit anything over $500,000 requires an audit in an association on last the membership voted to lessen the audit to do a review or compilation but you must have one report done many people say we voted to do
• 47:00 - 47:30 nothing that's not allowed you must do one of those reports if you have a review the income is from 300,000 to 500,000 and a compilation is 150,000 to 300,000 anything under 150,000 is a cash dispersement cash receipts report they're very they're one of the I would say the worst reports out there it's a cash position most Association that require that step up and do a compilation and they do that because
• 47:30 - 48:00 it's more beneficial to the association for the overall financial position what are the differences the differences is an audit is you are getting a test work that means in layman's terms we are actually going in and verifying we are testing your invoices we are looking at your minutes we're going through your bank statements we are testing we are doing a test work we're actually sampling and going through and being able to issue an opinion after we do that a review is basically analytical
• 48:00 - 48:30 procedures we're going in and saying okay let's look at their repairs and maintenance why is that over under why was it different from last year let me pull up the GL maybe I'll do a little looking through some invoices but it's not a test work and a compilation is basically taking the association's financials putting it on our letterhead making sure everything looks good foots but it's not doing any really type of analytical procedures no testing we're not going through invoices and posting any of that minimal adjusting entries
• 48:30 - 49:00 from a financial standpoint from our firm benefits an audit is giving that Assurance to associations that overall we think that the financial statements are not materially misstated we're adjusting certain line items to make sure that they're in compliance and that they're Financial reported correctly the reports are not much different so if you looked at a compilation report audit and review there's still footnotes there's still an income statement balance sheet cash flow statement they look similar the only difference is the audit report
• 49:00 - 49:30 the audit report is giving you an opinion and one thing I want to make sure I'm very clear on is that associations the only thing the auditor owns is the opinion all the footnotes and all of the financial statements are owned by the board of directors and that's why you sign off at the end of the audit report because you are taking ownership of that the auditor only owns the opinion what are the requirements of Florida statute 718 to have an audit review or compilation I just highlighted
• 49:30 - 50:00 that for you if anybody wants those listed out you can email me I'll give you those what requires an audit review or compilation remember if your finan if your documents require an audit talk to your attorney that might override the actual statutes that's something that you need to ask your attorneys that's a legal question what is gap generally accepted accounting principles what is gas generally auditing standards make sure the Auditors when you interview an auditor you ask them that it's very
• 50:00 - 50:30 important review of the audit process first you're going to get an understanding of the internal controls you're going to determine the plan what am I going to do in this audit then you're going to perform the test of controls you're going to reassess the control risk and modify it if you see something comes up if a board member gives me a different answer I'm going to go back and test extra because it doesn't match what he told me perform substan of test and complete the audit and then form an opinion and issue the report so people will say to me that should be an easy process it only should take a couple days no it takes a lot of
• 50:30 - 51:00 time to go through that document get all the information and they get all the open items types of opinions that the Auditors can issue an unmodified opinion that's the one that associations want to get it is telling you that there's not any material adjustments the the financial statements that were given to you are in good order and we feel confident that the association has not materially misstated what they presented to us there's things that we can add to that for example there can be an emphasis of matter if something in the
• 51:00 - 51:30 association we feel that we need to highlight in that opinion that's concerning to the association um questions going concern I haven't seen any of them that we've done I've heard from some firms that they've seen that a going concern is is this Association going to basically go into receivership I find that hard in associations because the board has the right to special assess so I haven't seen that opinion out there some have said they've seen it seen it um conditions required for an unmodified report the financial
• 51:30 - 52:00 statements must be presented in accordance with gap and adequate disclosure so everything in your footnotes is needs to be disclosed anything on your balance sheet income statement or their lawsuits your FD FDIC Insurance must be disclosed all of this and one thing you're signing off at the end as a board member is the management rep letter making sure that you have told us everything have you ever missed represented something to us you're signing that letter saying you haven't
• 52:00 - 52:30 it's very important if board members will not sign that management rep letter you actually get a disclaimer of opinion because it's a scope limitation the next paragraph says the audit was performed in accordance with gas and there were no significant scope limitations that means anything I asked for I was given if it's material and you cannot provide it to me my opinion would change very important everything the auditor asks for you give types of opinions a modified opinion is there a departure from Gap it if there
• 52:30 - 53:00 was and it's not Material you might get a modified opinion for example some associations choose to capitalize nothing they decide we're going to capitalize no assets even though only tangible assets get capitalized it's still a departure from Gap so that could be a modified opinion scope limitations are they material or not Material if they're not Material it might be a modified opinion adverse opinions I have never issued one and I hopefully never will have to I'd probably disengage before
• 53:00 - 53:30 that but that's a very material departure from Gap that is something that is completely misleading that's in the financial statement that the Auditors not feel comfortable putting it out and a disclaimer of opinion is basically we are not issuing an opinion on the financials it's either um a major scope limitation you're not providing information to us that is important in the disclosure if it's important in the disclosure and you don't put it in it's misleading to the end user for example is there a major litigation going on
• 53:30 - 54:00 that you're not disclosing in there that's a problem because the end user needs to be aware of that um significant uncertainties a lack of auditor Independence so one thing in an audit position when they come in they have to be independent they cannot have any affiliation with the association they couldn't live there they couldn't be on the board of directors because they're basically auditing themselves so they must be independent when they do an audit this is an example of the audit report so many of you probably have seen its
• 54:00 - 54:30 Chang in the last couple of years the audit report used to be one page then it became a page and a half now it's almost two full pages so you really want to look at this and you're going to see the actual um second highlighted down the basis of opinion that's where your opinion is it's basically telling you that we're comfortable with the financial statements and we're issuing a clean opinion and then this on the end of the report is what's been added last years it's basically going through and telling you about um accepted auditing standards and it's listing all of that
• 54:30 - 55:00 out it's basically explaining to you what we've done what the Auditors are responsible for and making sure you understand it I think one of the most important things in an audit when you get it is you read it I cannot stress that enough I'll issue an audit report and then two minutes later the approval comes back in the manager up letter and they're like we're good you can send it out there might be stuff in there that you told us that we put in the footnotes that is incorrect or maybe something's off Auditors are not perfect there are
• 55:00 - 55:30 things you need to read in there and make sure it's being told right for example sometimes in the minutes there will be a minutes that weren't sent to us and you said there wasn't a meeting and it was the meeting to wave the reserves so in the audit report it says you might not be in compliance with Florida Statutes well maybe there was a minute you never sent to us and now it's saying you're not in compliance it's something very important to read the audit to make sure that everything is correct in there what is a balance sheet a balance sheet is a statement of a financial position at a point in time at
• 55:30 - 56:00 December 31st what is your cash position what is your accounts receivable position your fund balance your liabilities at at a point in time so like for example your cash position at 1231 might be a million dollars by then by January 2nd you might be down to 500,000 depending on the invoice is paid out so it's a point in time of your uh assets liabilities and your fund balance most important part of your financial
• 56:00 - 56:30 statement the financial stability of your Association what are your current assets cash accounts receivable that's the main area of what associations have deposits might be on there too prepaid expenses depreciation not me every Association has depreciation liabilities do you have a no payable out there that's on there they make sure they verify that with the bank the ending balance also now something new in the liability section is your contract liabilities or your deferred revenue the
• 56:30 - 57:00 new topic 606 the revenue change in 2019 you're going to see a large number under contract liabilities on your reserves the reserves change in the sense that you're basically deferring all your Revenue till it's spent so you're it's under liabilities because it's actually money collected for future projects that you're going to recognize as Revenue in the future it's the same thing as almost a special assessment you defer it till it's actually spent your Equity position that's your surpluses and deficits over
• 57:00 - 57:30 time is what your Equity is if you're in a positive Equity position that you means you've had more surpluses and deficits since Inception of the association this is your balance sheet I'm trying to get I know only have a few minutes left so I want I have a long presentation but this is what your liabilities is and then your fund balance fund balance is the financial position of the association a lot of people go right to fund balance it's like Equity that's in regular corporations what is an income statement it's your profit and loss revenues less
• 57:30 - 58:00 expenses how do we end the year and that's on a cruel base that means that there will be expenses that you may have paid in January and February but they're aced for at December because that's when the bill was actually the service was performed in that year and you want to make sure that's important cash flow is just your net cash from beginning of year to end of the year and what the net change was in your cash position what are footnote disclos I'm going to go through this quick for you footnote disclosures I think are the most important part of a financial you
• 58:00 - 58:30 are highlighting through the aspects of the financials and disclosing it so you're basically going through and saying what are key important Financial points that people need to read about special assessments FDIC Insurance reserves very important a part of footnote disclosures uh litigation is there litigation what is your insurance deductible these are the kind of things that are very important concentration of credit risk are you under the FDIC if you're not it's going to be disclosed
• 58:30 - 59:00 income taxes did you have an income tax liability um we need to disclose that what are you filing the 1128 or the 1120 litigation as I spoke about special assessments really important part of an association also if you had a special assessment after year end it's going into to your subsequent events so anybody reading that can say oh they had a special assessment after year end that must included so make sure you're reaching out to your Auditors if you had one the fact that you need to disclose
• 59:00 - 59:30 that future major repairs and Replacements is required by Florida Statutes it's a supplemental supplemental um report that's included in the audit it is required and there's certain language that has to be in there the auditor's communication with charge of governance this is the letter I talked about this is the conclusion letter that you want to make sure you look at the the initial one you looked at look at the clusion to make sure it's different and then the two Au 265 letter
• 59:30 - 60:00 is your internal control letter that gives you all the comments that the auditor found and said this is the things that you need to work on I got through that so I I'm happy if if we have questions that are there that maybe I could answer or yeah of course and yes you did get through that um all right let me um I am going to launch the poll um that way if anybody does have to leave um we would really appreciate you um you know giving us your Fe feedback on how we did today and just real quick I will be emailing out the presentation
• 60:00 - 60:30 the recording for this Nicole's contact information after via email so you will get that we did have some questions that were very specific to an association so if that's the case maybe if you want to email Nicole separately we're not going to answer those right now um just a few that we can run through um Nicole how often is the association is supposed to have an audit yeah so if their income is over 500 it needs to be done every year unless the membership votes to wave it for a lesser service okay and when
• 60:30 - 61:00 should the audit begin for the previous year sure so you should really re you should have your engagement letter signed before year end and you should reach out to your otter by February 1 so they can get the information and start the audit process by February all right let's see here let me get a few others here good questions um let's see here one person asked are cams included in this decision so now I'm not sure which decision they were do you remember sure yeah we need a little more clarification
• 61:00 - 61:30 on that um should an HOA file an 1120h or a 990 good question 990s are not filed by associations 990s are nonprofits every association either files the 1128 or the 1120 okay and that somebody else just asked is it 1128 or 1128 R IRS filing but you just said it's 112h 1128 or 1120 it depends on what qualify for it all right um let's see here what is a direct expense offset to
• 61:30 - 62:00 bank interest on Reserve Bank account great question so the really the only direct expense is Bank fees which most associations don't have a lot then the auditor can look at allocated so what we do is we take a percentage of administrative fees your management fees your insurance and we take maybe five four% of that and offset to try to reduce the interest that's taxable all right it looks like there was clarification we were speaking in
• 62:00 - 62:30 terms of boards of directors and management when she referred to cams okay and she's asking who's responsible yeah we were speaking in terms of board of directors and management okay so board of directors is ultimately responsible for everything the managers take direction from the board of directors and they do the everyday task of the association yeah um let's see here um um can you confirm what financials are considered official records of the association and must be
• 62:30 - 63:00 given to a homeowner upon request sure so you definitely want to reach out to your attorneys too on this but from an accounting perspective not legal but I always tell my associations like your monthly financials that you get as a board of directors that would be made if someone asked for it you would make that available but if you have bank statements in there you want to make sure that you are not showing the account numbers so you'd want to make sure that's taken off um and if you have an accounting program like a QuickBooks program you are not obligated to let them have a copy of your actual software
• 63:00 - 63:30 so you can have print out so you can print out you know I'd also be talking to your attorneys are you obligated to give an accounts receivable Report with people's names on it that I don't know that would be a definitely a question for legal but if you get a monthly Financial things like that like your balance sheet income statement um any of your reconciliations that definitely would be made available to an owner um what is gap sure generally accepted accounting principles perfect does the signing of
• 63:30 - 64:00 the engagement letter by the board need to be voted on by the board at a meeting no it is not required what I do recommend is if you've interviewed three and you make a decision I would bring it up at a board meeting so it's documented but the president or Treasurer can sign that and it's not required that it has to be voted on at a board meeting unless you're documents stay different all right let's see here what does 718 say about audits are not provided to owners by the end of April what recourse would owners have when an
• 64:00 - 64:30 audit isn't delivered in compliance with 718 so SE obviously April 30th is the deadline but many associations don't get engagement letter signed or the work to the auditor so they can't have it done there's there's no longer requirement to turn that audit into the state the state does not review any of the audits unless a unit owner turns you in there's really no recourse meaning there's the state it's not coming after you what I always say is I mean that unit owner ends up paying it too if you get fined they pay
• 64:30 - 65:00 that so what I would be advising the unit owners it's coming we got the work in you got extended by the IRS and once all the work is they'll issue the draft so there's really no recourse unless somebody turns you in all right and let's do one last one here actually we'll do two more what should a board do if they are unable to sign the rep letter specifically making representations about internal controls of the management company so your management rep letter if if you're saying you're not comfortable that's a
• 65:00 - 65:30 problem too so you should be talking to your auditor to resolve those issues why you're concerned because if you can't sign that rep letter to represent to the auditor they can issue an opinion and I would not want a disclaimer because you're concerned about internal controls what I would be doing as a board member reaching out to my auditor having a conversation and saying these are my concerns let the auditor now do more testing on it and come back to you and say this is why we're comfortable or this is why or not let them put it in the internal control letter and then maybe the management company can make a
• 65:30 - 66:00 change based on what the auditor represents all right let's do one last one this is kind of interesting our HOA turned over at the end of February we are still waiting for the turnover audit from the developer what recourse do we have okay great question so first of all it's due 90 days after turnover so what I'd be doing is reaching out to the developer have your attorneys maybe reach out and say what is the time frame of getting this a lot lot of turnovers do go over the 90 days and the reason why is it's getting information a lot of
• 66:00 - 66:30 times the turnover is going from inception to turnover and the amount of work that the turnover auditor has to do is extensive and a lot of times work is missing so it's taking a long time what I would ask is ask to find what the auditor anticipates getting it and if they're telling you it might be a little delayed it's worth a delay in the sense that you're getting good financials that turnover import is very important to your 558 or whatever you're doing so I would give them a little more time if needed but it is due 90 days I would get
• 66:30 - 67:00 a time frame from them and then talk to your attorneys about what the recourse is because if you're in HOA I don't know if the state gets involved where condo is different condo does have more regulation on that thanks for watching for more great educational content click the Subscribe button now