It’s worth it

This week, well actually almost this entire month, has been trying to overcome bad advice and management practice which was provided to a client.  I would love nothing more than to share names, opinions, and actions which got this entity into the mess they are in but that won’t solve the problem.  It would make me feel a whole lot better though.

Last night, after spending another 7 hours trying to figure out how to take incorrect balances and make them right, while at the same time trying to write the letter which explains to them why they now owe new balances, I asked myself, “Is it truly worth it?”

And when I almost convince myself to really question what I am doing, I think about the poor accounting clerk at the unnamed management company who, several years ago, no doubt discovered that what was being done, was wrong.  This accountant, filled with the righteous fury of making accounting meaningful, marched up to the unnamed boss at the management company, and laid out the facts.

“We are wrong.” The intrepid accounting person said.

“You are fired.” Said the boss.

Shooting the messenger is so much a part of the game isn’t it?  When things are not going well, it is easier to get rid of the those who question the steps, who report the unpleasantness, than to deal with the problem.  For the people who don’t want to hear it, they get silence and are grateful.  The ones who sounded the warning likely become gun shy and possibly vow to never raise a concern again.  There mantra might become, “It’s just how they do it here.”  Without realizing that by mouthing the phrase, they too become caught in the trap of decay.

Let’s be clear.  I think that when you start to simply accept poor behavior you become part of the problem.  When you see your manager using the company car on weekends, the same week you were involved in a termination of an employee who borrowed a work hammer, and you are silent, you are part of the problem.  Excusing the behavior of the manager simply because she is manager means that the rot won’t end.

Wrong is wrong.  Oh don’t misunderstand, no one will thank you for taking the stand.  Not your boss, not your bosses boss.  If you are lucky, you keep your job but get stuck with the title SNITCH.   But maybe, just maybe, people will start acting a little more ethical, at least in your presence.  And maybe, just maybe, they will act a little more ethically all the time because frankly it is too much work always looking over their shoulder to see if you are watching.

To that accounting clerk who, years ago, noticed that their employer was doing something completely wrong and called them on it, I thank you.  I know you tried and you succeeded.  Perhaps not as quickly as you might have hoped long ago but you are being vindicated.

One journal entry at a time.

Is it worth it?  Yes.  Doing right by people isn’t a zero sum game, it is the easiest way to live.  And like any questing knight, when you see people not wanting to correct a mistake, don’t be afraid to call them out.  Do it for the sake of the game, not because you expect an atta’ boy (or girl).  The greatest rewards in life are from within, when you can lie your head on the pillow and say, “Thank you, me, for a job well done.”

An Open Letter to Certain Community Management Companies

Dear Community Management Company,

In response to the emails we have been receiving, please allow me to once again point out to you certain truths regarding the relationship between the auditor, the board, you as management and the owners.  This is a very important point to understand and can save you from performing an inordinate amount of rework, recriminations, general ill-feelings and time wasted writing pointless emails to me about how your feelings are hurt.

First, please understand that we are performing an audit of the financial statements prepared by management on behalf of the readers of that financial statement – i.e. current and prospective owners.  We are engaged to perform the audit by the board of directors who are elected by the owners’ within the association.  Our audit is on the financial statements prepared by you, as management.

It has likely not slipped by you that you, as management, are not included in the chain of authority.  We are engaged to audit your work.  The people who hire us, as part of their fiduciary responsibility, verify that we are independent of management.  That means we do not work for you, are not paid by you, and are not responsible to you.  We are, in fact, completely independent of you.

Auditor independence is an ethics requirement.  Auditor independence means that we are not involved in any manner with the people or companies we are auditing.  One step that we at C.O.R.E. take is to verify, prior to the start of any engagement: be it audit, review, consulting or other, that the work we are being asked to do does not put us in a position where a reasonable person might conclude that our work could be compromised because of some other relationship.

This doesn’t mean, by the way, that we cannot perform consulting or even management services.  We can even elect to perform certain services on behalf of management.  As a matter of fact, given the, shall we say, ethically challenged behaviors we have witnessed of late, we are seriously contemplating offering association management services.  The owners have the right to have someone looking out for their best interest and we think we are a superior choice for the right board and association.

What we could not do, is perform an independent audit of that association for which we are also performing management services.  THAT, is a conflict of interest.  The board and owners deserve to have someone independently examine our work to ensure we comply, not only with GAAP, but with basic common-sense internal control.  The obvious things like getting board approval for writing yourself a check in excess of your contract.  And the not so obvious things like performing and paying yourself for work that the board authorized another contractor to do.

Being able to offer a superior service to what you are offering is not a conflict of interest.  It is competition.  Modern capitalism encourages those who can offer a superior service at a reasonable price to put inferior businesses in that marketplace – OUT OF BUSINESS.  Walmart put tens of thousands of small time corner drug stores out of business and there was never a conflict of interest – there was just good old fashioned competition.

But you are correct, we could, in theory, leverage our position as the independent auditor to point out your significant internal control weaknesses over your clients’ money to suggest they hire us instead.  But if you were to think about it you would realize that would create a conflict of interest.  I cannot audit someone with the intention of going to work for them in another capacity because, you guessed it, there are ethics rules against it.  And we take our ethical responsibility seriously.  You do not want to even hint otherwise.

No, I do not owe you an explanation for a report to the board on your material weaknesses over internal control.  No, I am not obligated to help you fix your accounting errors.  No, I don’t have to ignore your failure to follow ethical business practices.  And, finally, no, I don’t have to communicate with you directly.  Unless you are ready to pay my rather hefty consulting fees.  Which, by the way, I couldn’t take, because it would cause a conflict.  Elegant, isn’t it?

Competing with you for management services is not a conflict of interest my dear management company friends.  Making journal entries to paper over your accounting errors 12 months after the fact possibly is.  Perhaps other auditor’s don’t see the irony, but make no mistake, we do.

Because if a board ever questioned your logic, they would wonder why they have to pay three times:

  • Once for you to get it wrong in the first place
  • Once for the auditor to make adjustments to fix your error
  • and you the second time to post the journal entries to the accounting system you control and shouldn’t have gotten wrong to begin with

Please, management, remember that the auditor does not work for you.  We are ok if you don’t want to refer us to your boards – they will find us anyhow.  We are even OK if you want to form a CPA firm to perform audits in competition with us.  We actually encourage it – after all –

you might learn something.

And for those management companies who take their responsibilities seriously, we would like to work with your boards in auditing you.  We appreciate that are open to the fact that sometimes things go wrong and you want to get it right.  We are thankful that you are open to constructive criticism and are willing to evaluate how our thoughts on effective internal controls might work better for you.  And we are happy to refer our audit clients to you.  Not because we are friends or you give us a kick-back but because you have your clients’ interest in mind and that makes our job just a little bit easier.  So thank you and we look forward to auditing you.

Have a great day.