Financial audits and audit of condo manager

[Karen Bennett]

Posted : 04/08/2021 11:10 pm

@MarkH

Our 175‑unit, three‑building apartment condominium has an annual operating budget of about $1.5 million. The property’s insured value (replacement cost, not including individual owners’ policies) is about $79 million.

Our bylaws provide (in part):

ADDITIONAL DUTIES OF BOARD

18. The Board SHALL:

(edited)

d) cause proper books of account to be kept in respect of all sums of money received and expended by it and the matters in respect of which receipt and expenditure shall take place;

e) prepare or cause to have prepared proper accounts relating to all monies of the Corporation, and the income and expenditure thereof, for each annual general meeting;

f) maintain financial records of all the assets, liabilities and equity of the Corporation;

(edited)

h) on written application of an owner or mortgagee, or any person authorized in writing by him, within twenty‑eight (28) days, make the books of account available for inspection at the unit of a member of the Board at a time convenient to such member;

i) cause to be prepared and distributed to each owner and to each mortgagee who has notified its interest to the Corporation a copy of the audited Financial Statements of the receipts and contributions of all owners towards the common expenses and disbursements made by the Corporation and a copy of the Auditor’s Report within ninety (90) days of the end of the fiscal year of the Corporation;

Normal practice over the last ~15 years has been to prepare an audit after the fiscal year‑end, which is June 30. The auditor presents the audited accounts at the AGM in December. The audit is prepared according to the prescribed practices of the accounting profession and the requirements of the CPA&R. I suggest you review your corporation’s practices against the requirements of the CPA&R and your bylaws.

I regret I can’t tell you about auditing the property manager. Presumably, there is at least an annual performance review, and the contract with the company will presumably be reviewed annually by the board. I am not on the board; a review of the manager’s performance would normally be confidential.

Whatever the CPA&R requires is a minimum standard; there is nothing to prevent a corporation from exceeding the minimum requirements to achieve a ‘best practice’. I am not qualified to tell you what that might be in your case!

Please spread the word!

[Karen Bennett]

Posted : 05/08/2021 9:10 am

@jeremyconverge

Hi Roger!

Condominiums are NOT required to get an audit done. You’d have to look at the governing bylaws to see what your condominium requires. It is prudent to get some level of assurance for a condominium but sometimes an audit is too expensive for a smaller condominium. A Review engagement more‑so confirms plausibility of the balances while an audit will confirm reasonability.

Furthermore, a Treasurer’s role should be to scrutinize the books, ask good questions, and be diligent when it comes to financial expenditures but by no means are board members required to audit the books of the condo manager.

Please spread the word!

[Karen Bennett]

@emjayel

There is nothing in the Act or Regulation requiring that financial statements be audited, just that they be prepared according to GAAP (generally accepted accounting practices), which really should be ASNPO (Accounting standard for not‑for‑profits) as that brings in the concept of a restricted account, e.g. our Reserve funds, which can only be used for the purposes defined.

Condominium Property Act

Annual general meetings

30(4) Subject to the regulations, the corporation shall (a) prepare financial statements, in accordance with Canadian generally accepted accounting principles, for the corporation’s preceding fiscal year, an annual report on the reserve fund and an annual budget for the corporation’s fiscal year that immediately follows the corporation’s preceding fiscal year, and

Note that too many Corporations are not preparing an annual report on the reserve fund, as required. See the Regulation for specifics.

Check your by‑laws.

‑ Ours state that The Board must retain a qualified accountant who shall prepare audited financial statements at least once each year within one hundred and eighty (180) days of the end of the fiscal year of the Corporation.

‑ Ours also state that The Board shall on written application of an Owner or mortgagee, or any person authorized in writing by him, make the books of account available for inspection at all reasonable times.

Please be aware that Condominium Corporation audits are not as rigorous as those I’m used to in my former professional life dealing with SOX audits. One auditor that won’t be working for us again tried to simply rubber‑stamped the accounting of our previous condominium property manager, who we knew was not doing an acceptable job, which meant additional effort to get to the correct results.

No Corporation can have accurate, complete financial statements without accurate complete processes, including data entry (GIGO), Receivables processing & Payables processing.

Things to ensure an auditor gives attention to should include:

Bank reconciliations: CPAs typically start with bank reconciliations to ensure that the Corporation’s bank account balances are the same as the amounts found in the financial statements.

Budget: This part involves a comparison between the Corporation’s budget and its revenue and expenses. The CPA will look out for mis‑coded entries and make sure that the numbers balance each other out.

Cash disbursements and cash receipts: This is to ensure that incoming funds and outgoing funds are accounted for. This includes things like resident assessments for the former and petty cash or bills for the latter.

Insurance: The Corporation should have insurance cover for board member liability, general liability, property & casualty as well as fidelity bond coverage.

Vendor contracts: It’s important to ensure that the figures reflected for long‑standing contracts match with the corresponding payments.

Reserves: The Corporation’s reserve account should be properly funded according to the reserve study.

As the Treasurer on our Board, I have a process I follow whereby I check all the reports against the “Balance Sheet” or Statement of Financial position. I also have access to a data export of our financial statements and I check / attest for keying errors and/or completeness, as that makes more sense to clean things up as they are found instead of waiting for the audit.

Condominium accounting is very simple: we are collecting condo & other fees (e.g. pet fees) to be used for annual Operating expenses and to save/set aside for future capital expenditures (Reserve fund). It’s essentially a household on steroids: there are no complexities such as foreign exchange etc. I continue to be disappointed as to how many times I’ve experienced and heard about poor accounting practices in the condominium world. Hopefully we can work together to get that changed!

Agree that there should be a formal annual review of the condominium property manager, per COF’s Guidelines for choosing a condominium property manager.

Please spread the word!

[Michelle J Lucente]

New information received from an auditor indicates that preparing statements according to GAAP implies audited financial statements.

Refer to your Bylaws.

A best practice would be to have some sort of external review of annual financials:

Audit engagement:

•objective examination and evaluation of financial statements to make sure fair and accurate representation; includes an opinion and can include review of internal controls

Review engagement:

•performed by an accountant but with a higher focus on verification and analysis than Notice to Reader

Notice to Reader:

•compilation of financial statements provided by management prepared by accountants

•does not provide assurance on the correctness of the financial statements; meant to provide level of trustworthiness

Please spread the word!