“Why should we engage C.O.R.E.?”, asked the condominium board president. It is an interesting question which deserves an entertaining answer. And, even though Kubae says I should never do it, I always answer that question with another question.
“What do you hope to get from your audit?”
If you are looking for an independent CPA firm who believes that it is important to hold management accountable, then you should engage C.O.R.E. If you want to feel good that the financial information you are using for decision-making is accurate, you should engage C.O.R.E. If you want to understand how to better protect your neighbor’s hard earned money, then you should engage C.O.R.E.
If you are interviewing audit firms for your association, you may want to think about asking the following questions of the prospective firms:
- Have you ever had a disagreement with management? If so, explain the disagreement and how it was handled
- Who do you believe is responsible for the preparation of the financial statement?
- What steps do you take to ensure that client money isn’t misappropriated by management?
- How do you handle GAAP departures when management doesn’t record a transaction correctly?
- What are the three biggest weaknesses you see in association accounting overall?
- Who do you believe is your client?
- Have you ever caught management doing something which showed a significant weakness in the internal control structure?
- What did you say about it?
- Did you help management resolve it?
- Did you help the board understand the weakness and how to address it in the future?
Each of these questions will give you insight into how the auditor might respond to your particular needs when it comes to auditing your association’s financial statements. It is important to remember that your role, as directors, is oversight, not operations. You are there to make sure that the management team you hired is presenting accurate information that you can use in making decisions about your association.
You want to make sure your auditor takes their role as independent, objective auditors seriously. They do not need to go out of their way to find fault with management, but the reality is, they have almost total control over how your money is being spent. You should want your auditor to focus on their spending of your money to ensure it is done to support your association.
As a director, you want to feel confident that the financial information that management presents is accurate and follows some standard. How your auditor handles a GAAP departure could be important as the more management does things “their own way” the harder it is for you and your neighbors to follow it. Make sure your auditor challenges management’s accounting treatment so you get the best information possible.
You want to feel confident that your auditor is looking for risk of material errors. Your auditor should have a strong idea of what could go wrong and plan the audit for those key risk areas. Thinks like spending money over the approved budget; paying themselves above their contract without the board reviewing the additional charges; hiring businesses where there is a conflict of interest. The auditor should be on the look-out for those activities.
Keep in mind that the auditor works for the board. This means you will want to interview the auditor and approve the audit engagement letter. The audit is focused on management’s work so you never want to allow management to select the auditor. Keeping these questions and approach in mind will help you get the maximum value from your audit and auditing professional.
Have a great Monday.