We understand that your community managers and bookkeeping staff have a lot to do at year end, especially when you have several associations coming due at the same time, like 12/31. There are 1099's to issue, possibly payroll reports and maybe even last minute bills to pay.
But the end of the accounting year is also a good time to take stock of how well your homeowner association clients are doing. The last few weeks of the fiscal year allow you to help the board evaluate important information which can help them start the new year off right and prepare for their condo audit in Portland Oregon.
And the first few weeks of the new year can be a time to help with strong planning, especially where the association has a great board who understands the value of your service.
Below we offer some ideas on how to plan for the end of the year to help the homeowner association audit in Portland go smoothly. By taking the time to understand what the auditor is looking for, the financial statement can be prepared and issued timely, making boards and owners very happy with all their professional service providers.
Year end can be challenging enough without the added requirement of "GAAP" adjustments to take the condo association's books to "full accrual". We understand that the challenges and frustrations you face as managers trying to adjust the books to full accrual and we have some tools which may help you in the document section below.
The largest adjustment is typically going to be recording the unpaid assessments at year end. The good news is you keep very good records of owner payments so it should not be too difficult to post. By posting this amount, you help the board and readers understand how much money remains outstanding and should have been collected to pay operating and reserve expenses.
The next largest is likely vendor invoices that were received after the end of the year. It is often the utility invoices but sometimes it is a repair invoice from a vendor for work completed before the end of the period. It is helpful to have that information so that readers can see how much of the cash really has a claim to it so actual reserves, or amounts available to carry forward to next year, there is.
The final big accrual item is the amount of expenses considered prepaid. Prepaid insurance is the one we typically see and, while it is not hard to calculate, it can take some time.
While boards and owners usually understand the cash-basis financial statements you typically issue each month, it does make sense to make a few adjustments at year end so they have all their income and expenses recorded to the right year. It will help the board make better decisions.
There are two items which are almost universally requested during an audit: the legal representation letter and bank confirmations. Both are extremely effective audit tools to help the auditor evaluate the association's financial statements.
One thing you can do to help the auditor is prepare a brief summary - no more than a paragraph or two - of issues that the board sought legal representation about. This could be a collection issue (typically the biggest issue facing boards) or it could be about construction defects. At either the beginning or end of the summary, provide the attorney's name and contact information. Her email address is also very helpful if you have it.
This information helps the auditor prepare an effective letter for the attorney to review and sign-off on. One of the biggest challenges is when we identify an issue in the board minutes and after talking with the community manager think it needs to be disclosed and then we find out that the lawyer didn't add it to the legal representation letter. This generally requires the auditor to send a new letter which adds time and costs to the process.
Bank confirmations are another very important step. At C.O.R.E. we use an online confirmation system which helps us control the work flow. But, the important thing is to make sure that the auditor knows if the association's authorizing signers has changed - like the board president or treasurer. Updating the documentation with the right signers allows the confirmation process to go smoothly and timely, speeding up audit completion.
Finally, every once in a while it is necessary to confirm other balances, like past due owner balances. When the auditor feels that step is necessary, it is very helpful to make sure that all the contact information is made available so that returned mail is minimized.
If you would like to know more about how you can more effectively prepare for the annual audit and also minimize the time it takes to help the auditor complete the work, feel free to contact us. We will be happy to assist you in the process.
An area we often spend time and effort working with managers and boards with is addressing allowances for doubtful collections. This is also known as bad debt and is probably the least understood accounting adjustment we have to explain.
As the books are adjusted to accrual, one of the questions that the association faces on its audit is, "How much of the past due balance is probably not going to be collected?"
Sometimes, property owners fall behind on their mortgage, property taxes and sadly their assessments. We know you work hard to keep owner payments up to date and communicate constantly with them to help get payments caught up. The reality is though, sometimes all your hard work and effort isn't going to pay off.
The allowance is an accounting adjustment which attempts to address that sad fact. It is meant to put the expense of the uncollectible amount in the period in which the assessments were recorded.
There are several methods to determine the amount that should be allowed. Every accountant and auditor has their preference, but it is really best left to your professional judgement in working closely with your board.
The most common is using the specific allowance method. With this method, you and the board evaluate which of the past due accounts are unlikely to ever be collected and the total amount is written off to bad debt and recorded to the account Allowance for doubtful accounts. It is not the preferred method as it does not take into consideration the fact that other past due accounts may fall into the category of uncollectible in the near future, but it may be the best way to handle it.
Another method is looking at the aging of the past due amounts and assigning a percentage based upon your experience. It could be that your experience in managing community associations has taught you that 50% of accounts with balances past due more than 90 days will likely never be collected and than 10% of those more than 30 days late will go without being paid. You would record the total calculated amount to bad debt and off set this to the allowance account.
Finally, the association can look at the bad debt as a simple percentage of the assessments. If you look across your companies entire portfolio of associations you can select the best percentage which reflects your understand of collection patterns.
Regardless, your deep understanding of your association clients will help them record the most appropriate amount, making their homeowner association audit go that much smoother.
Typically, when auditors perform a condo association audit, we do not test internal controls. There are many reasons but the most honest is that each association, individually, does not usually have tens of thousands of transactions. But the fact that the auditor isn't testing your controls, doesn't mean they are not important.
Where you have standardized processes, let your auditor know. This is especially important around the reserve fund. If, for instance, none of the community managers has signature authority over reserve funds, this is an important area to understand as it points our audit work to look for possible breakdowns between the approval of the expense and the actual check writing and signing.
Some areas where the auditor is most concerned is how funds are deposited to the association bank account, who reviews expense transactions and how reserve projects are put out to bid.
If you have written accounting policies and procedures, this is an important tool to help us complete the association audit timely and effectively. Email them to the auditor so they can add them to their file and your association clients will be thankful you did.
The auditors' goal is to issue a clean, unqualified audit opinion on the associations' audited financial statements. We get there by performing tests of the balances, confirmations and analysis. Your help by answering questions timely and truthfully can speed up completing the audit tremendously.
At the end of the condo association audit, you and the board are generally asked to review and approve the
Some auditors combine the Management Representation Letter and the Board Representation Letter.
The important thing to understand about the representation letters is that it is a summary of everything you, the community manager, and the board, have stated and provided to the auditor.
For instance, in most representation letters, one of the items is that the association has title to all assets listed on the balance sheet. Another representation is that the auditor was provided all relevant information.
We occasionally hear concern about signing the representation letter at the close of the association audit. Thankfully, the concern mostly comes from a new board president or treasurer who is not certain about what was provided. When this happens we are happy to discuss their concerns to help them feel comfortable with providing the signed letter.
Once the representation letters are received, the audit is considered complete and the association receives the financial statement.
If during the homeowner audit, you have particular concerns, you should reach out to the audit manager and discuss them. At C.O.R.E., we understand that you work hard and appreciate that you try to set up strong controls to help minimize the risk to your association clients.
We hope we can be of service to you and your association clients.
We have provided some files which you can use or share to help your associations with their audits and accounting.