Would the auditor hide information?


Some won't; many will. There is a lot of dealing going on between the board, the management company and the outside auditor that the owners are never made aware of.

Here is one example that recently came to my attention.
(This condo, situated north of Toronto, has its identity altered.)

Letter to the condo president
Dear Ms. President,
I have been engaged to audit the financial statements of Brain-Dead Standard Condominium Corporation No. 007 for the year ending 30 June 2014.

Canadian generally accepted standards for audit engagements require that I communicate the following with you in relation to my audit.

During the course of my audit, I encountered the following specific internal control matters that I wish to bring to your attention:
•
 Reserve Fund Expenses—there is no budget approved annually for the Reserve Fund expenditures; this does not meet the requirements of the Condominium Act.
• Bank transfers—transfers between the general fund and the reserve and investment accounts are done electronically or by fax, under the sole direction of the management company's controller. Once approved by the Board, I recommend that all transfers, investment requests and redemption requests be authorized by two signing officers.
• General fund cheques—currently the property management company signs the cheques. I recommended that at least one Board member sign cheques.

In the even that this is not possible, I would recommend that the Treasurer continue to review the bank statements, reconciliations and cancelled cheques every month.
I shall be pleased to discuss with you further any matters mentioned above, at your convenience.
 
This communication is prepared solely for the information of the audit committee/board of directors and is not intended for any other purpose. I accept no responsibility to a third party who uses this communication.

To ensure there is a clear understanding and record of the matters discussed, I ask that the members of the audit committee/board of directors sign their acknowledgment in the spaces provided below.

If there are any questions or concerns please do not hesitate to contact me.

Thank you,
auditor CP & CA

Acknowledgment of Audit Committee/Board of Directors:
We have read and reviewed the above disclosures and understand and agree with the comments therein, on behalf of Brain-Dead Standard Condominium Corporation No. 007.

Signed
 _____________________________


_____________________________
(print name)
Date
_____________________________

My take on this
Well, now isn't this interesting.

The management company has full control of the condo corporation's money. They sign all the cheques and move money around between the general, investment and reserve funds without any direction from the board.

The manager and—for any cheques over a given amount—the district manager signs all the condo corporation's cheques.

Discussion with a director
I discussed this with one of the directors. He is treated as an outsider by the other four directors because he is new to the board and he asks too many questions. They will not tell him anything. (Perhaps that is because they don't know much, are happy being ignorant and they trust their manager to do everything for them.

As far as he is aware of, no one on the board signs any of the cheques. It is also possible that none of the directors have signing authority, knows the corporation's bank account numbers or knows what bank bank branch their money is kept in.

Hiding info from owners
Take notice of this paragraph from the auditor's letter.

"This communication is prepared solely for the information of the audit committee/board of directors and is not intended for any other purpose. I accept no responsibility to a third party who uses this communication."

I take it that this letter is not intended to be shared with the owners. Yet, the auditor works for them; doesn't he? Wouldn't this information be important to the owners so they can understand the level of diligence and care, or lack of, that the directors are taking with their money?

Accepting the president's assurances
The president signed a three-page letter drafted by the auditor that basically states that the board is responsible for the financial statements, limits the auditor's responsibilities towards the financial statements and goes on to state:

"We confirm that we-are responsible for the fair presentation of the financial statements in accordance with Canadian generally accepted accounting principles. We acknowledge that we are also responsible for the implementation and operation of internal controls that are designed to prevent and detect fraud and error."

How can the auditor accept the president's assurances that the corporation has implemented and is using internal controls to prevent and detect fraud when the directors don't sign the cheques, do not authorize transfers of money between their accounts and may not even know what bank account numbers or bank branch that the corporation uses?

It appears that this letter is intended to protect the auditor rather than protect the owners.

Financial statements are silent
The auditor did not mention any of the above stated concerns in the notes he added to his audited financial statements that were released to the owners.

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