HOA management companies need CPAs on staff

I am the Treasurer of my HOA and a licensed CPA here in Arizona. Over the past several months I have been complaining to the Board of Directors that the financial statements provided by the management company are grossly inadequate and appear to contain errors. Since I only received limited financial information from the management company I could not be specific on what the errors were. Therefore, I requested that I do the annual compilation and tax return for 2007 and the Board granted my request.

About a month ago I was provided full access by the management company and I have been going through the accounting with a fine tooth comb. I have not completed the work and from what I have found so far I will be recommending that the management company be fired. Before I began I figured the problem was simply using lay people to do the accounting work instead of someone who has actually had training but would be diligent in their work. What I am finding is a complete lack of diligence.

The most serious error that I have found so far is a missing deposit from June that still to this day has not been completely corrected. Here's what the records show. On June 29, 2007 there is a deposit in the records for $1,681 representing checks received from 10 different homeowners. In July the management company reconciled the June bank statement and listed the June 29th deposit as outstanding, which is appropriate. Then in August the management company reconciled the July bank statement and became aware of the error on August 16, 2007. Most likely these checks were actually received but somehow got lost before they were deposited in the bank. While this is disconcerting I would consider this an honest mistake that happens from time to time. None of us like to see this happen but it does and you just have to deal with it. That's where problem lies. The management did not deal with it. They reversed three of the homeowners' accounts on August 20, one on September 20, three on October 2, and three accounts still reflect the phantom deposit. The total of the three that still haven't been fixed is $630 and the HOA is at risk of losing this money.

Here's what could happen. These three homeowners could sell their property. During the closing process the HOA, via the management company, is required to provide the current status of the seller's account with the HOA. Right now the management company would be providing false information and the lien that the HOA currently has against the property would be legally extinguished. The HOA's only option at that point would be to pursue action in small claims court assuming that we can get the seller's new address. The three accounts are $165, $165, and $300 so the cost of pursuing these relatively small accounts would probably be prohibitive. A simple fix is to correct the records and then when the property is sold we have an inexpensive way of collecting those fees.

There are many other errors but, as I said, the above error alone is so bad that the company needs to be fired. I will be presenting a preliminary report to the Board this Thursday and try to convince the board that we need to pursue other avenues.

My conversations with members of other HOAs around the Valley have indicated that this is not an isolated incident. These conversations and this exercise with my own HOA has led me to conclude that CPAs need to be in charge of preparing these financial statements and overseeing the accounting function. According to the Community Associations Institute (CAI), there are more than 60 million people living in HOAs throughout the country and pay far in excess of $5 billion in assessments each year. Can you imagine $5 billion being accounted for by non-professionals? That is a scary thought.

This year I will be presenting my case to the Arizona State Board of Accountancy and the Arizona State Legislators that this needs to change. Management companies in this state have absolutely no oversight and we definitely need some oversight of the money.

If you live in Arizona, please join me in my quest to get this changed.