Condo Media - July 2011 - 22

ASKED & ANSWERED

Open Invitation
Should Managers Attend the Annual Financial Reporting Session?

Q A

QUESTION: Should the community association’s manager be present when our CPA discusses the annual financial report with the board? Board members are divided on the question. Some think it makes no sense to exclude the manager; others think it is “inappropriate” for the manager to attend. Is there an industry protocol or standard practice that might provide some guidance for us? ANSWER: We’re going to respond first with a question of our own — why do some board members think the manager should be excluded? This suggests a lack of trust in the manager that may or may not be related to financial matters. Whatever the cause, the board and the manager should address the problem directly. If the board has reason to question the manager’s handling of the association’s finances, you should contact your accountant immediately. You don’t want to wait for the annual audit; if there are problems, you want to identify them as soon as possible. Sometimes suspicions that an association’s finances are being mismanaged are well-founded, says Kenneth Bloom, CPA, a partner in the Massachusetts accounting firm Bloom, Cohen, Hayes LLC. But more often than not, he has found, these suspicions arise because board members don’t fully understand the association’s finances. “Many trustees aren’t comfortable with financial issues and few are familiar with accounting methods and procedures,” he notes. For that reason, although post-audit meetings with the association’s accountant aren’t required, Bloom encourages them, because they give accountants an opportunity to explain the audit report

and any issues it has flagged, and allow trustees to ask questions about the report specifically and about the community’s finances generally. Unless board members have specific concerns about the manager that they want to discuss, Bloom says, in most cases “there is no reason managers shouldn’t attend these sessions,” and there are good reasons to include them,

he is more likely to approach the manager first, avoiding the risk that boards might overreact in ways that would be unfair to the manager and detrimental to the community. “I think there’s room for the auditor to exercise some judgment here,” he explains. But, there is considerable middle ground between minor management errors and occasional lapses that

Unless board members have specific concerns, there is no reason managers shouldn’t attend these sessions, and many good reasons to include them.
because their expertise and knowledge of the community’s operations can provide helpful insights. Some boards ask the manager to leave the room briefly and then ask if the accountant wants to discuss any issues privately — a better approach, Bloom thinks, than excluding the manager entirely. Sometimes the manager should be excluded from these meetings, however. The obvious example: If the audit uncovers evidence of fraud or mismanagement in which the manager is implicated, Bloom says, he will immediately request a private meeting with the board to discuss the findings. Fortunately, he says, these situations are rare. Less serious problems — errors or sloppy management practices, for example — are more common. And in Bloom’s view, these issues don’t always rise to a level that requires a private discussion, or any discussion at all, with the board. If he finds a few careless errors or isolated “slips” on the part of a company “that has consistently done a great job year after year,” Bloom says Bloom doesn’t think auditors need to report to boards and major problems, such as fraud, which Bloom agrees, “I’d be negligent if I didn’t report. “If the audit identifies a pattern of sloppy practices over a period of time” resulting in “inaccurate or misleading information” on which the trustees are relying, Bloom says, “clearly, that requires a discussion with the board.” What isn’t clear is whether the manager should participate in the discussion. “That’s a judgment call,” Bloom says. Sometimes, it’s the auditor’s judgment about “the best way to resolve the problem,” but in most cases, Bloom says, it’s the board’s judgment about how they want to handle the issue. It’s not a question of whether it is “appropriate” or not to include the manager in these sessions, Bloom says. It’s what an individual board feels it needs and what a particular situation requires. There is no protocol that applies to all boards and all situations, he emphasizes. “Life is too complicated for a black and white rule on this.” CM

CONDO MEDIA • JULY 2011

Condo Media - July 2011

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