Very rarely, the Agency becomes aware of fraud in a housing co-op. Red flags can be missed by the board, the members or even the property manager. One way to avoid this is to pay close attention to what your auditor has to tell you.
The auditor’s role is to help ensure that readers of your co-op’s annual financial statements, including the members, can count on them to tell a true story. You might think of your auditor as a kind of financial judge whose task is to ensure that the statements report fairly the co-op’s financial position and the results of its operations and cash flows during the year. In carrying out an audit, the auditor will look at the co‑op’s financial procedures and controls. Do they work as needed and are they followed consistently? This is done by performing various tests on some of the transactions recorded in the books. It does not mean looking at every single cheque.
The aim of a normal financial audit is not to find out whether or not anyone has committed fraud. However, if your auditor finds weaknesses in the co-op’s controls, it is their job to let the board know. This is normally done through a letter issued to the board when the audit is done.
When your board meets with the auditor, directors should be prepared to discuss both the letter and the results set out in the financial statements in as much detail as needed. The meeting to review the statements is the natural time to ask this expert how well the business of the co-operative is doing and whether they have concerns. It is also the time to ask if the board or your manager should be doing anything differently. If the auditor suggests new or improved policies or procedures, the board should adopt them, referring them to the membership for confirmation only if the rules or by-laws require this. If the auditor tells you that controls are weak or could be improved, pay attention to that advice.
The meeting of the auditor with the general membership is often, but not always, a formality. In successful co-operatives, the members trust their board to oversee the co-op’s finances and administration.
However, because the members are the highest authority in the co-op—electing directors, approving by-laws or rules and appointing the auditor—they are well within their rights to ask the auditor questions about the statements, such as these:
- Did we have a good year?
- Are our statements reliable or did you have to make a lot of changes?
- How good are our internal controls?
- Did you have any trouble deciding if our financial statements are accurate?
- Did you meet with the Board? Did they agree to follow any suggestions you made?
- One of the Agency’s reports says our risk level is above average compared with other co‑ops. Would you agree?
- Are we facing any possible lawsuits that could put our co-op at risk?
The answers may encourage members to ask their board of directors a few questions.