With all of the negative headlines involving multi-national corporations over the past few years, fraud has been elevated to the forefront of financial topics. This is the theme of a new accounting pronouncement that becomes effective this year. As a result, you can expect to see some fairly substantial changes in the way your accountant performs your building's audit.
In the interest of helping to simplify compliance by your board and managing agent with the required changes, I would like to offer insight into some of the procedures that you will be encountering this year. There are some important, easy-to-adapt procedures the board should consider to protect against fraud.
Entitled Statement on Auditing Services #99 (SAS#99), this standard goes well beyond any accounting pronouncement that came before. It's commonly said that, "when the pendulum swings, it generally swings too far," and so it is here. Instead of allowing the accountant to determine what needs to be done in order to comply with this standard, the pronouncement spells out specific procedures that must be performed. These procedures include focused questions to the many different people involved in your building. The entire engagement team (which consists of a junior or senior accountant who does the actual investigation and paperwork, a quality control professional not directly involved with the client who oversees the accountant's work, and the engagement partner, who is generally a senior partner with the firm and who acts as point-man between client and team) is required to meet and determine ways you, your building staff and managing agent could possibly commit fraud. Then, they are required to design audit procedures that would uncover the types of fraud they could envision.
As I mentioned before, in my opinion, this seems to have gone too far. Accountants representing cooperatives and condominiums have already adapted to several publicized frauds involving cooperative and condominiums in the last two decades. These frauds came to light as a result of investigations by the New York State Attorney General into collusion with contractors. Illegal activity generally originated in the form of kickbacks to employees or managing agents. Even before SAS#99, accountants developed procedures to help uncover potential fraud.
My opinion notwithstanding, let's look at what you can expect in the near future and consider what you can do to prepare your building's team.