Tuesday, May 24, 2005

What is an "outside accounting firm"?

Our home association bylaws mandate that an "outside accounting firm" be employed to do our accounting. Members of the Board maintain that that would not preclude a resident of the home association being contracted as our accountant so long as he or she is not an employee; being paid a salary, payroll deductions; etc.h, but not an employee of the association. Those on our newly formed ethics committee maintain that the intention of the authors of the bylaws was to preclude the use of a resident as accountant in that he or she would have a personal interest as a member of the homes association, and therefore, would be considered as an "inside accounting firm," not an "outside accounting firm." That "outside accounting firm" is meant that the firm is outside the physical residences of the Homes Association. We need to have an opinion from an ethics organization to support our position to ask for the release of this one-person resident accountant and hire the services of a firm outside the premises of our homes association. Please help.


Blogger dcurrie said...

More questions:

1. Is the accountant a CPA or a professional with a different designation like CMA?

2. Is the accountant a member of the board of directors or just a resident of the community?

3. Is this the day to day accounting of the organization or an audit?

4. Would day to day accounting involve making management decisions on behalf of the home association?

In general, the holy grail for CPAs is to maintain independence and to avoid both actual conflicts of interest and the appearance of them.

A CPA whose "client" was the home association could not also be a board member without impairing their independence.

If the person is not a CPA or similar professional subject to a code of ethics, then the decision rests on the interpretation of the term "outside accounting firm" not an ethical issue at all.



1:28 AM  
Blogger David Perkins-Mayville said...

1. The accountant carries the title of "CMA"

2. She is not a member of the Board of Directors. She is, however, a resident with a fiduciary interest in the community. She is also the daughter of the Association's Office Coordinator.

3. This is the day-to-day accounting for the Association. I am working on finding an outside audit firm to perform an audit.

4. She does make management decisions. In a way, particularly when it comes to payroll, she is totally in charge and makes all decisions. She works virtually without supervision.

Here are the two pertinent citations from our bylaws regarding the accountant and the basis for my motion to replace her with an accounting firm that is not located within the community and has no interest in the Association:

1. Powers: The Board of Directors shall have the power to: "...Hire an outside (my emphasis) accounting firm to handle all accounts receivable and payable, take care of all delinquent accounts, and after a sixty (60) day notice has been given, at the 90th day turn over all delinquent accounts to a collection attorney. Report to the Board each month on budget activity, delinquent accounts, make sure that all required taxes are paid in a timely manner and the required forms are also submitted on time."

e8) "Any and all fees for the purpose of billing, accounts payable and receivable, balance statements, and operating statements provided by an outside (again, my emphasis) accounting firm. At not time shall the Board use "in house" employment for these purposes."

I would really appreciate any information I can get on this. I am the newly elected vice-president and am bucking three of the old Board members on this issue. There is a meeting next week where this motion will be presented for a second time. So far the Board is tied two-two. The President will cast the tie breaking vote at this meeting. I am trying to put together pertinent information for him to consider in making his decision.

I might add that I have concerns, shared by a preponderance of residents, that money may have been handled improperly since this accountant took over. I don't suspect misappropriation, however, I am concerned that the previous Board of Directors President had apparently instructed the accountant to not release any financial information to residents without checking with him. I'm not speaking of personal financial information, but such items as monthly statements and other information that is perfectly proper for release to residents. In fact, out bylaws specifically include a requirement to do this.

Thanks so much,

David Perkins-Mayville
Tanglewood Estates Homes Association

9:05 PM  
Blogger dcurrie said...

From the CMA code of ethics, found at: http://www.imanet.org/ima/sec.asp?TRACKID=&CID=191&DID=323


Members have a responsibility to:

* Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict.

Since she is a CMA she can take advantage of their ethics hotline -- seems a pretty simple step to clarify an important point. My conclusion from your description is that there is at the least an "apparent" conflict of interest.

If the CMA practice is similar to CPA's, their approach would be to identify threats that would lead to compromising the professional integrity and judgment of the CMA. Then, they would determine whether appropriate safeguards (systems/education/oversight etc.) have been put in place to eliminate or mitigate the threat. I can't tell that from your fact, but given the nature of these organizations, I doubt much has been done.

I'm not sure that I can give you unequivocally what you want, but it doesn't seem like you're off-base. I would think the board members would want to eliminate any question about the management of the association's affairs. Maintaining the status quo doesn't seem the way to do that.


2:09 AM  

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