Subscribe for Daily Updates!
As a new Board member I was recently made aware of gross financial mis management by the prior management agent as well as suspicious financial oversight by both the President and Vice-President. Shareholders are not only calling for their resignation but a full financial audit of the cooperative's financial records, including all revenue and expense activity.
Has anyone conducted an audit of their cooperative's financial activities? Is this something that can be done with a special committee of shareholders in lieu of hiring a CPA?
Steve-Inwood is correct. There is a lot of gray area between what is poor or bad judgement and what is illegal. The kind of audit you are asking about is called a "forensic audit", intended to uncover illegal activity. These are very expensive and most likely will not add any value to the issues you are facing.
Following what Steve suggests is a very good place to start.
Unfortunately my coop was plagued by this situation for over 20 years- also include the accountant in this group because they produce the financial statements which cover the fraud - we had massive overstatements of expenses etc - However we did have a forensic audit but beware who you hire - Our former management company had not paid total withholding taxes for almost a year, we paid over $50,000 to IRS, they did not pay the union which cost us $200,000, etc etc - during this time we had increases and assessments of 25%, 15%+ every year - yet the accountant couldn't find anything, absolutely amazing - so where did all this money go because the corporation did not have the money
Introduce yourself to other members of Board Talk! Log in below or register here.
Board Talk members who registered prior to March 9th, 2016 will need to reset their password.
Hi Craig,
An audit will only tell you if the financial statements are reported in accordance with generally accepted accounting principles (GAAP). (They may also catch gross mismanagement, unreported assets and potentially theft). In my opinion, you need an independent voice confirming the finances. If an audit has not already been performed (my complex performs one every year), then I would absolutely have a CPA firm perform an audit. If you need a suggestion on which firm, please respond back. This is not an activity that a typical Board is able to perform.
However, an audit will not give an opinion on business decisions within the law. For example, the question “was it really wise to do “x” with shareholder funds?” would not be answered. However, this is something that a Board along with a financial advisor can perform (either a finance person on the Board or a hired consultant).
I would also be really careful in alleging “theft” or “mismanagement” without due proof as it may open you and the Board to lawsuits.
Additionally, sometimes a change in management companies is in order.
Finally, think about unintended consequences. If theft or fraud has actually happened, be sure to contact the authorities or place lawsuits. However, if the issue turns out to be differences of opinions on permissible matters, remember to respect each other as you all have to live together in the same community. Certainly discuss what is needed but remember to come together in the end.
Steve
Thank you for rating!
You have already rated this page, you can only rate it once!
Your rating has been changed, thanks for rating!
Board Talk members who registered prior to March 9th, 2016 will need to reset their password.