December 2024
Receiving notice of an audit can mean something in your tax records is suspicious. For condominium corporations, an audit should be part of healthy financial practices.
The Condo Act requires that condominium corporations undertake an annual audit. This condo audit is required to ensure compliance with the Condo Act, particularly with regard to finances. It has nothing to do with ensuring proper financial practices are maintained or to identify fraud.
Periodically, a more comprehensive audit is a good practice. The intent of this audit is to identify improper or questionable practices, and help to identify fraud.
An audit is a multi-step process that involves obtaining records, looking at operational processes, reviewing financial records including all financial transactions, reviewing meeting minutes and conducting fraud interviews.
Certain red flags should prompt a comprehensive financial and fraud audit although this is not legally required. Red flags include unexplained bank account balances or unexpected financial losses. Internal controls may be weak, lacking in checks and balances. Perhaps there have been allegations of fraud or mismanagement.
Once an audit is complete, the best possible result is a clean bill of health. An audit could identify areas of waste or insufficient internal controls which can be improved on. Incidents of mismanagement or fraud are rare but not uncommon. If mismanagement or fraud is identified during an audit, this will be reported to the board and should prompt them to contact their legal counsel.
Condo owners concerned about their corporation’s finances do not have authority to compel a comprehensive financial and fraud audit. If there is a legitimate reason to suspect fraud or negligence by the board or management, condo owners may choose to retain a lawyer, file a lawsuit, and possibly employ a forensic accountant.
Most condo boards do a respectable job at managing the financial activities of their corporation. Owners should remain vigilant for indications that the condo board is acting in a professional and responsible manner, and be prepared to act when this is not the case.
