Finance & Legal minutes: 2017-01-28

Minutes:

GO Finance & Legal Committee
Minutes of 1-28-17 Meeting

Present: Becky H., Becky G., Debbi, Keith, Amy

AGENDA

1. Debrief and next steps from discussion at 1-16-17 Community Meeting
a) Audit vs. Review vs. Tax Return
b) F&L Mandate: comments
2. 2015 Audit Wrap-Up
3. Bookkeeping Updates
4. Arrears
5. Insurance
a) Truck
b) Walk-through with insurance agency - Keith
6. Garage inventory response deadline is January 31. Revisit at next
meeting.
7. Other matters carrying forward or arising
8. Next Meeting: Wednesday, February 8 @ 7 pm



1. Debrief and next steps from discussion at 1-16-17 Community Meeting

a) Audit vs. Review vs. Tax Return

At the 1-16-17 Community Meeting, F&L invited the community to pose
questions that would help them decide on a proposal regarding doing an
audit vs. a review vs. a tax return. The questions are pasted in below
with F&L’s answers, followed by Becky G’s initial response via email.

Michigan Condo Law is explicit about requiring us to vote every year about
what we are going to do (Audit vs. Review vs. Tax Return). The auditor
recommended that we establish a pattern, but we could decide to change this
at any time.

If we decide to do an audit of the 2016 books, it would be very smooth, and
we could start right away because we have the process down and the audit
firm is also going to do our taxes. There is value in doing an audit of
the 2016 books because Becky G. could ask the last few questions she has
about the CH special assessment. The auditor could review what Becky has
done in Quickbooks and give feedback on how to maintain this.

We recalled that there is a new owner-CPA replacing Len Pytlak. Working
with the auditors during the transition could be good. While we’re getting
up to speed with the new CPA, we’d be comfortable having the auditor as a
resource. We totally trusted Len when we started with him. It was a time
of change then. We didn’t give Len complete info, and we didn’t understand
that there were multiple ways to do things. For example, when we changed
the interest rates on the CH assessment, we didn’t tell him that people
kept making payments during that month, and he assumed they hadn’t. If the
auditor Jessica blesses how we do things in Quickbooks at the end of the
audit, then we can go to the new CPA and tell him this is how we’re going
to do it.

Ask the community: What questions do you have about our money that are not
currently being answered by the reports?

1. Proposal: do another audit right away – of 2016 books.
2. Separate proposal to amend the Bylaws to say we’ll do an audit every
third year and just tax returns the other years except when the community
wants to do it more frequently.
3. Recommend that we go through consensus first to strengthen the proposal,
though if someone blocks, we’re not sure what we’d do. If enough people
have concerns, we can wait with the vote, change the proposal, and bring it
back again. If then someone blocks, we could try to address that concern
further.

Becky H. will get info about what audit reports have that reviews don’t.

Our Bylaws say, “…qualified auditors will review annually, and audit on a
basis as specified in the Book of Agreements.”

Michigan condo law: “…annual basis…independently audited or reviewed. An
Association of co-owners may opt out on an annual basis… by an affirmative
vote of its members.” Debbi will look into whether individuals vote or
households.

We want to bring forward a proposal at the February community meeting.
Becky H. won’t be at the Feb. community meeting.
Debbi may miss both community meetings in Feb.
Becky H. will draft proposals in time for next meeting.

Argument for every 3rd year:
- hadn’t even done one in 13 years
- special assessments will be paid off in 5-6 years
- we have two professionals we’re working with who might notice something
or who we can ask questions in the off years

b) F&L Mandate: the 1-16-17 Community Meeting generated a good list of
things to change after Skills & Thrills

2. 2015 Audit Wrap-Up – No news

3. Bookkeeping Updates – No news

4. Arrears

Becky H. sent an email to two households that are in arrears. One will
cross over the $1000 threshold as of Feb. 1 if they don’t pay this month.
There is also another household that will go above $1000 if they don't pay
something by the 1st. We received a payment from this household, as well as
one of the two others. We’ll place a lien on the third unit in question if
no payment is made by Feb. 1st, and notify them.

4. Insurance

a) Truck question – Nothing to report

b) Walk-through with insurance agency – Keith will walk through with the
insurance rep on Thursday around lunchtime. He asked for footprint
drawings of the buildings.

c) Amy will follow up with George regarding how much a tree house-only
policy would cost.

6. Garage inventory response deadline is January 31. Revisit at next
meeting.

Becky H. talked with the township assessor. He said he knows what this
issue is about, and to just give it to him. We need to make it clear to
the community that they need to let both the township and F&L know when a
garage changes hands. Twp. for taxes, GO for reserve.

We will look to see if we have a policy on this and make sure it’s right.

7. Other matters carrying forward or arising - none
8. Next Meeting: Wednesday, February 8 @ 7 pm


Questions:

In considering what to do for the 2016 books, the Finance and Legal
Committee and members of the GO community asked the questions below. The
questions are followed by the answers obtained by the F&L Committee.

1. What do other condominium association clients of Myles and Szczypka do
in regards to audits/reviews/tax returns?
About 50% of their condo association clients do an audit every year; about
25% have a rotation of doing an audit every other or every third year and
doing reviews in the off years; and about 25% have a rotation of doing an
audit every other or every third year and only do regular tax returns in
the off years.

2. What do other cohousing communities do in regards to audits/reviews/tax
returns?
Sunward Cohousing undergoes an audit once every five years and does reviews
in the other years. Touchstone Cohousing has not yet undertaken an audit,
but does yearly reviews. Both communities also use Myles and Szczypka.

3. How much does an audit cost versus a review?
Our audit cost $2450. A review would cost about $300 or $350 less than an
audit. And, having Myles and Szczypka only do the GOCA tax returns costs
approximately $250 or $300.

4. What percentage of our expenses for 2016 did the audit cost?
Our total expenses in 2016 were $76,217.33 and the audit cost $2450.00, so
about 3% of our budget was spent on the audit. Another way to look at it
is 2450/37 units = $66.22 per household.

5. What is the difference between an audit and a review?
An audit is an objective examination and evaluation of the financial
statements of an organization to make sure that the records are a fair and
accurate representation of the transactions they claim to represent. An
audit tests selected financial transactions by examining supporting
documents, even including proposals and minutes. Audits can help in
clarifying procedural issues and improvements.

A review provides limited assurance on an organization’s financial
statements. During a review, inquiries and analytical procedures present a
reasonable basis for expressing limited assurance that no material
modifications to the financial statements are necessary; that they are in
conformity with generally accepted accounting principles. A review looks
for anything unusual in financial statements. This “does it make sense”
analysis is useful when the organization needs some assurance about their
financial statements, but a review does not have the higher level of
assurance provided by an audit. Reviews are similar to what we do in our
annual community budget process.

Audits track transactions all the way through, to make sure that procedures
have been followed properly. Reviews just employ comparisons of one year’s
books to the next to look for anomalies.


6. How do final audit reports differ from review reports?
Jessica Myles, the auditor, says that the reports are very similar; it is
the work in the background that differs.

7. What does the internal bookkeeper recommend we do for the 2016 books?
The bookkeeper will recuse herself from making a recommendation because
this could be considered a conflict of interest.

8. Did we learn anything useful from the audit of the 2015 books? What
questions or concerns did F&L have about the audit?
F&L had many questions for the auditor and got good answers, and we learned
a great deal. Leading up to the actual audit, F&L gathered a list of
questions for the auditor, and we had several back and forth Q&As with her,
which will be posted for the community to see.

9. Were there any surprises?
Yes, there were three. The first was that Jessica determined that we
should only be counting the interest from the remaining Common House
Special Assessments as income, not the interest plus principal, as we had
been doing. The second was that, when doing an audit, and maybe even a
review, there are extra journal entries that should be made at the end of
one year and beginning of the next to isolate expenses that were incurred
in one year, but were not paid for until the next (the water bill being a
prime example). The third was that the bookkeeper expected more minor
things that needed to be fixed, but this did not turn out to be the case.

10. Could we learn more and make more useful refinements to our bookkeeping
systems if we immediately underwent an audit for the 2016 books? The
internal bookkeeper's guess is yes. We may come up with another level of
refinements as we integrate the auditor's suggestions from the first audit.

11. What would the bookkeeper not be able to get done in 2017 if another
audit was undertaken right away (for the 2016 books)?
Becky G. would probably not be able to do as much work on documenting
bookkeeping procedures, but would try to document the audit procedures.

12. What checks and balances do we have in place for our bookkeeping?
Currently, one person does the deposits (Kathy Boblitt), one does the check
writing and reports (Becky Grover), and one does the reconciling and
sending out of statements (Susan at our accounting firm). Also, every
year, we as an entire community go through the budget line by line. That
is rare for a condo association. Usually, a board of a few condo
association members does this.

13. Are there different types of audits?
Yes, but higher level audits are geared towards businesses that have
payroll and/or inventory. And those have a much higher price tag.

14. How much of our bookkeeper's time did the audit take?
This first audit took a great deal of Becky Grover's time, probably upwards
of 40 hours. A third of that was the tedious work of gathering all the
data and putting it where the auditor could easily access it
electronically. Now that we know what to expect, Becky has started moving
that information regularly into electronic folders so it will go faster
next time. Another third of the time was managing all the back and forth
questions we had for the auditor about how we are and should be doing the
Common House special assessments, creating a revised spreadsheet and then
breaking out the tracking of each assessment in Quickbooks. That part is
now done, and shouldn't be a factor the next time we do an audit.


15. What are the succession plans if/when Becky G. steps down as bookkeeper?
There is no succession plan in place right now, but doing an audit does
highlight the need for one. It is on Becky G's radar to document her work
processes (about 10% finished now), and doing another audit immediately
would allow her to do process documentation for that. We don't typically
pay members to do community work, but there may come a time in Becky G's
life when she would no longer be able to do the job without being paid, or
we may need to pay someone else.

16. Are there any ancillary benefits to doing audits?
This might reassure a buyer that we are scrupulous about our books,
although this question has not been asked by buyers in the past. The
bigger draw for buyers seems to be that we have a robust reserve fund.
This is something mortgage companies ask about, along with how many units
are in arrears on their association fees.

17. Is there some more creative way of doing this that would cost less than
an audit?
We could possibly hire someone to prepare graphs and charts to present the
info more visually, but working with this person would probably take as
much of Becky's time as if she did it herself.


E-mail response from Becky, January 17, 2017

Hi All,

During last night’s presentation that Becky H. led about whether or not we
should do an audit, review or nothing for 2016, she gathered lots of
questions from everyone. Many of them centered around what the experience
of the first audit was like, and what I think we should do. F&L will be
doing a presentation about the audit results, but here are my thoughts
about the process and the questions people had last night.

1. As the bookkeeper, I should not be the one deciding which we do. One
of the main reasons an organization does either an audit or review is to
make sure anyone with their hands in the books is following standard
practices, doing an accurate job, and not ‘cooking the books'. I know
many of you trust me, but it is really a good business practice to have
checks and balances in place. As to the frequency - that is up to the
full board to decide. I will refrain from giving my opinion.

2. Yes, we learned a great deal doing this first audit for the 2015 fiscal
year. Leading up to the start of the audit, F&L gathered a list of many
questions for the auditor (Jessica), and we had several back and forth
Q&A’s with her. These will be posted so the entire community can read
them.

3. Were there surprises? Yes, there were three. The first was Jessica
determined that we should only be counting the interest from the remaining
Common House Special Assessments as income, not the interest plus principle
that we were. The second was that when doing an audit, and maybe even an
review, there are extra journal entries that should be made at the end of
one year and beginning of another to isolate expenses that were incurred in
one year, but we didn’t pay for them until the next (the water bill is a
prime example of this). I will also be publishing a list of the journal
entries Jessica had me make. The third…..I expected her to find more
minor things for us to fix, but it turns out we are doing a pretty good.
Would we learn more if we had another one right away? My guess is yes,
because we might come up with another level of questions this year as we
integrate some of her suggestions.

4. We spent $2450 on the audit. Our total expenses in 2016 were
$76,217.33 so about 3% of our budget was spent on the audit. Another way
to look at it is 2450/37 units = $66.22 per household.

5. The current checks and balances we have in place are this: One person
does the deposits (Kathy Bobblit), one does the check writing and reports
(me), and one does the reconciling and sending out of statements (Susan at
Len’s office) The other checks/balances that we have is this: every
year, we as an entire community go through the budget line by line. That
is rare for a condo association to do. Usually it is only a small subset
that acts as the board.

6. There are different levels of audits out there, but the higher level
ones are geared towards businesses that have payroll and/or inventory. And
those have a much higher price tag.

7. Time involved. This first audit took a great deal of my time, probably
upwards of 40 hours. A third of that was simply the tedious work of
gathering all the data requested and putting it into places where she could
access easily. Now that we know what to expect, I’ve started moving that
information regularly into electronic folders so it will go faster next
time. Another third was managing all of the back and forth questions we
had for her about how we are and should be doing things, and then follow up
questions on the draft of the audit itself. The last third of that time
was spent working on the CH special assessment - creating a revised
spreadsheet and then breaking out the tracking of them in Quickbooks. But
that part is now done, and shouldn’t be a factor the next time we do an
audit.

And be assured, F&L will be presenting a full report very soon to the
community, and both bound and electronic copies will be available. The
delay in getting this out already is simple: we got the final report right
before the end of 2016, and my time had to be spent setting up everything
for 2017.
Thanks,
Becky
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