Are you really doing your job as a Board Member?
By: Helsing Admin
Every year, associations with a gross income in excess of $75,000 must have a review of their financial statements prepared by a licensed Certified Public Accountant (CPA). A copy of that review must then be provided to all of the homeowners within 120 days following the end of the year. A review is one step below an audit, and the purpose of this review is to allow the membership to have an understanding of the financial position of their association.
The actual completion of this review, however, is many times held up because, under the requirements of the California Board of Accountancy, the association must provide to the CPA a “Representation Letter”. Basically, this letter is a confirmation by the Board that many things that are the responsibility of the Board and that are material to the accuracy of the association’s financials have been properly accomplished. This letter needs to be signed by the President and Treasurer – but the number of these officers that balk at signing them is concerning. It is concerning because everything the Board is being asked to confirm is something they are charged with being aware of, and usually the reluctance to sign is because they in fact are NOT aware!
What kind of scary things are being asked? Let’s look at a few of them:
· “We have no plans or intentions that may materially affect the carrying amounts of classifications of assets and liabilities.”
· “There are no material losses that have not been properly accrued or disclosed in the financial records.”
· “The association has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.”
· “The board of directors has reviewed the Association’s insurance coverage for the current year and believes it to be adequate.”
– “We acknowledge our responsibility for designing, implementing, and maintaining internal control relevant to the preparation and fair representation of financial statements.”
There are twenty-two of these and yes, if the Board is not doing its job they probably are pretty scary. I complete list of the questions can be found here. Typically, what we hear from Board Members not wanting to sign is “How would I know, management does this!” The problem, of course, is that the Board is supposed to know those things; they are not responsibilities that can be delegated to management. My suggestion to Board Members is to get a copy of the representation letter you will be asked to sign; read it; and if you cannot attest to these issues, make an appointment with your managing agent to visit their office and get familiar with these issues so that you have no concerns when it is time to sign. It would probably be educational in many ways, not just concerning these financial operations – but other aspects of what is involved in operating your association.
The Helsing Group, Inc.
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