Sound financial management of corporation assets is among the most important of condo board responsibilities. Failing to provide financial reports to condo owners, in the form of audited financial statements, in a timely manner is a breach of trust which can lead to further problems.
Audited financial statements are to be provided no later than six months after the fiscal year is finished. They accompany the annual general meeting notice sent to owners. Statements include the auditors’ report, statement of financial position, statement of operations, reserve fund and cash flow reports. There is also a notes section providing additional details.
Many corporations find this annual reporting insufficient to convey a true picture of results. They may provide additional documents and explanations, and more frequent reporting with or without the aid of auditors or accountants. Typical is a short summary highlighting deviation from budget and major expenditures. Changes in budget projections, when conveyed in advance of year end, project a higher degree of awareness and competence.
Timeliness is essential. It fulfills legal obligations and instills trust. Six months should be more than adequate for a condo corporation to provide audited financial statements. Later delivery limits their usefulness, suggests internal problems and is a cause for concern. Rumours of financial difficulty or shenanigans, true or not, begin to circulate.
Once trust is damaged other problems follow.
Condo owners may seek to sell their property before perceived financial difficulties become more widely known and home values decline. Any increase in condo fees, or special assessment, is likely to be more closely investigated. Board decisions receive greater scrutiny. Owner meetings and comments become more contentious.
The condo board is no longer trusted if they fail in the fundamental task of financial transparency. There is an ongoing expectation that financial matters will be disclosed in accordance with past practice and regulations. A lack of credibility ensues when this same board seeks to enforce condo rules among residents or implement other initiatives. No level of communication is sufficient to make up for failure to inform owners how their money is being utilized in an open and timely manner.
Financial transparency creates trust. Maintaining this trust should be a priority for all condo boards.