A small highrise tower
—unqualified report

Here is a set of books for the fiscal years 2011 & 2012 for a condo tower in the west end of Toronto that are so outrageous they suspend belief and yet the owners can't see—or are choosing to ignore—these glaring defects in the audited statements.

 Balance sheet
Assets
 2012
 2011
 2010
Cash-Reserve Fund
$22,920
(Note 5)
 $25,784
(Note 3)
$151,067
Accounts receivable
 55,181
 82,990
 42,258

Note that Accounts receivable is $55,181. This is usually unpaid monthly maintenance fees.
Question: Ask the auditor if any of the unpaid fees were written off as bad debts.

We see that the cash in the reserve fund dropped like a rock.
2011 Note 3 (in-part) says:
"The corporation has borrowed funds $231,641 (2011)  (2010 – $131,641) from the reserve bank account to meet the operating needs.”

2012 Note 5 (in-part) says:
The Corporation has borrowed funds totalling $287,582 (2011- $231,641) from the reserve bank account to meet the operating needs."
Question: Ask the auditor if the Cash-Reserve Fund is the only "real" money in the Reserves.

The board "borrowed" the following sums from the Reserves:
Year
 Contributions
 Net
"borrowed"
 Cumulative
"borrowing"
2010

$131,641
2011
 $100,000 $100,000
 231,641
2012
 100,000 55,941
 287,582

The auditor does not say that this is a violation of Section 95 (1) of the Act.
Questions: Ask the auditor why did did not state this in his notes.

Ask the auditor why he has not calculated the reserves fund's lost income due to this borrowing". (missing interest)

Has the auditor asked the board if they have an action plan, including time lines, for it to return the "loans", with interest, to the reserves.

Liabilities
 2012
 2011
 2010
Bank indebtedness & outstanding cheques
 41,808
 21,815
 15,967
Amounts payable
 211,708
 112,042
 62,009
Due to Shared facilities
 8,977


Definition
Bank indebtedness—This amount is owed to the bank in the short term, such as a bank line of credit or bank overdraft.

The amounts payable have tripled in two years. What caught my eye is the bank indebtedness. This occurs only when the condo is broke.

I suspect that outstanding cheques means that the contractors haven't been paid.
Questions:
Ask the auditor to give details on the bank indebtedness and the outstanding cheques.

 This condo is as broke as the City of Detroit and we all know that Detroit was placed under emergency financial supervision.

Operations & Deficit
This makes interesting reading:

 2012
 2011
 2010
Revenue
 $629,645
 $628,380
 625,107
To Reserves
 100,000
 100,000
 100,000
Sub-total
 529,645 528,380 525,107
The corporation is awash in debt yet the board has not increased the fees.

Expenditures
Utilities
 360,403
 315,757
 284,841
Administration
 187,420
 66,449
 72,650
In 2012, the utilities chewed up 68% of the total operating budget and Administration sucked up a further 35%. (A total of 103% on just these two items.)
Questions: Ask the auditor what percentage of the utility costs include penalties for late payment and loss of discounts for failing to pay the bills on time.

Ask the auditor if he can explain why there was a 300% increase in Administration costs in 2012.

Total expenditures 874,533
 578,766
 537,040




Cumulative deficit
 (490,246) (145,358) (94,972)
The brackets indicate a negative number.

Reserves
Balance End of Year:
2012
 2011
 2010
 2009
$310,502
(Note 5)
 251,153
(Note 3)
 276,494 246,476

Looks like the reserves are in order until we read the sentence:
"See accompanying notes to the financial statements."

Notes from the 2011 statements
Note 3 (in part) says:
"The corporation has borrowed funds $231,641 (2011)  (2010 – $131,641) from the reserve bank account to meet the operating needs.

A study on the adequacy of the reserve for major expenditures was performed by The Building Services Inc. in January 2004. The study indicated that a minimum annual contribution of $250,000 should be made for the year ending 2011 (2010 - $200,000). The actual reserve contributions during 2011 was $100,000 (2010– $100,000). Based on the latest study in 2004, the reserve balance at the end of the current year should be $506,267 (2010 - $286,675)."

So we have a seven year old Reserve Fund Study when a study has to be updated every three years. The contributions made to the reserves are less than half of what the Reserve Fund Study recommends and then the board diverts almost all the money from the reserves to pay the day-to-day bills.

Reality Check:
A Status Certificate issued in 2013 states that there is less than $39,000 in the Reserves.
Question: Ask the auditor if it is likely that the $39,000 stated on the status certificate is the real amount that sits in the reserves.

The Reserves are in even worst shape that these figures show because although the year end balances are given, what is not mentioned is that next to nothing has been spent repairing and replacing major components.

Notes in the back
The notes in the back of the report spells out how bad things are.

Emphasis of matter
The bottom paragraph of the first page states:
"We draw attention to Notes 3 and 4 which describe the uncertainty related to the outcome of the collection of the shared facilities receivable and the deficiency in the funding of the reserve for major expenditures. Our opinion is not qualified in respect of these matters."

Notes from the 2012 statements
1. Going concern
"The Corporation has incurred a significant operating deficit and has failed to properly maintain assets in the Corporation's reserve fund. As a result, without a significant increase in revenues for common elements and reserve fund the Corporation will be unable to continue normal operations."
(emphasis added—editor)

Emphasis of matter
The bottom paragraph of the first page gives an even stronger message that the corporation is in trouble:
"Without qualifying our opinion, we draw attention to Notes 1 and 4 in the financial statements which indicate that the Corporation has a significant operating deficit as at December 31, 2012 and has been deficient in funding its reserve for major expenditures. These conditions indicate the existence of a material uncertainty that may cast significant doubt upon the Corporation's ability to continue as a going concern." (emphasis added—editor)

Questioning the auditor
It was not possible as the auditor did not attend the AGM. Also, the audited financial statements for 2011 & 2012 were not signed by two directors as required by Section 66. (3) & (4) of the condominium Act.

What gives?
The condo corporation is a financial basket case, the board is blatantly violating the Act and yet the accounting firm, who is charged with representing the owners, not the board, hiding behind their notes, did not qualify their audits.


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