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2006 Audit Problems
Elizabeth Anne VanderPutten
May 12, 2008
Introduction
When the Lauren was first converted from rental
apartments to a Condo, we had enormous difficulties in getting an
audit. The records we inherited from the previous owners, the developer, and our
first financial management firm were, in clear, non-technical language, a mess.
After two years of
intensive work by our auditing firm and by our treasurer at the time, who is a CPA, we finally
got an audit. Our CPA treasurer was very pleased that this was
"an unqualified audit." I was so disappointed that this was
the highest praise that an auditor can give (I was president at the
time). Over the years, however,
I have come to really love that word "unqualified."
We do have an unqualified audit for 2005. This
report was not ready for
last year's meeting.
Unfortunately, we have a qualified audit for the year ending
2006.
Analysis
We only recently received the draft of this report, and the final
copy was received today, so the Board is still analyzing the results.
In the words of the report,
"Because of the significance of the matters ... the scope
of the work was not sufficient to enable us to express and we do not
express an opinion on the 2006 financial statements."
The issue that led to the report being qualified concerns
approximately $50,000 for which our auditors could not find
appropriate documentation. These included cash receipts, missing
homeowner assessment receipts and withdrawals for which there is
inadequate documentation. They have listed this amount as due from
Koger Management (our previous financial management firm).
Board Actions
Based on the audit and our own analysis of the situation, we have
referred the matter of the undocumented $50,000 to our attorney to
seek redress either from Koger or from our insurance company.
- The report recommends that the Board consider and implement steps
to ensure an unqualified audit next time.
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- During 2006, the Board did not get timely bank reconciliation
statements. This was one of the signs we had that something was
wrong at Koger. We have spent considerable amount of time this
year developing procedures to ensure that we do get bank
statements on a regular and timely basis.
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- The auditors recommend that the board review how interest
payments on our investments are recorded. This was a concern for us
at the time and was one of the reasons we switched to having
Smith-Barney handle all CD accounts. We now get monthly consolidated
statements.
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- They recommended that we develop a more systematic way of
accounting for security deposits. The Board is considering the
recommendation that deposits be replaced with non-refundable
payments.
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Conclusion
There is good news.
- As
the auditors note, we changed management firms.
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- The Lauren conforms with the industry guideline of having about 10%
excess operating funds. This is important so that replacement funds
are not diverted to operating funds.
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- Funds are accumulating in replacement reserves according to the
remaining useful life of the buildings components. Their listing of
our assets and our own analysis are consistent, and at the end of the
year we had 902,963 in cash. The auditors did point out that, in one
situation, we had $27,158 more in a bank than the 100,000 covered by
FDIC. As noted by the treasurer, we have since developed procedures to
avoid that potential. We have also moved or are in the process of
moving all reserve funds into interest
bearing accounts.
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- The audit notes that our delinquent accounts were higher than
normal. However, more than half of the arrearage was due
to difficulties in transition from Koger to Simmons Management.
Approximately $16,000 of the $24,553 reported unpaid condo fees was a
result of the failure of Koger to deduct payments from 34 owners who
used Automatic checking. This sum has since been collected, and our manager, backed by the Board, is aggressively
working to collect all owed assessments.
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- The auditors lauded the detailed minutes of the board
meetings.
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