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2011 CIRA Update
- 1. CIRA Audit and Accounting
Update 2011
Michael Kosinski, CPA
LarsonAllen
Mkosinski@larsonallen.com
©2011 LarsonAllen LLP
©2011 LarsonAllen LLP
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- 2. Objectives
• At the end of this session you will be able to
– Identify potential audit and accounting issues related
to CIRA’s
– Apply the proper accounting treatment these issues
– Identify potential issues that may require outside
counsel
– Apply Florida State Statutes to the financial statement
audit
©2011 LarsonAllen LLP
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- 3. What is a CIRA?
Common Interest Realty Association
Is a non taxable corporation… not tax exempt
Forms of CIRAs
Governed in large part by Florida Statutes
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- 4. Brief History
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Cutoff
Reserves
Hurricanes
Developer
Foreclosures
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- 5. Operating Environment
Foreclosures Local Economy
Audit Risk
National Housing
Economy Slowdown
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- 6. Statutes - 2011 Changes
• Changes to provisions to liabilities to master
associations during foreclosure
• Changes to bulk purchaser requirements
• Assignment of rents to the association
Consult an attorney…
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- 7. 7
Wiki for CIRA
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- 8. Statutes - Important Thresholds
• $100,000
Compiled • $199,999
• $200,000
Reviewed • $399,999
• $400,000
Audited • And Over
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- 9. Bad Debt
“Management considers all assessments
receivable to be fully collectible; therefore, no
allowance for uncollectible amounts is deemed
necessary.”
Intent
Ability
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Collectible
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- 10. Common Property
Other
Type Ownership
Factors
Cash Flows
Association
CIRA Retains
Real Proceeds
Property
No
Members
Capitalization
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- 11. Reserves
“We can evade reality, but we cannot evade
the consequences of evading reality”
-Ayn Rand
Reserve Study
Requirements Methods
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- 12. Income Taxes - 1120H
Exempt Function Non Exempt Function
Capital Contributions
Developer Subsidy
Fines Late Fees Member Services
Special Assessments Non Member Fees
Member Dues Interest
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- 13. Income Taxes - 1120
Member Income Non Member Income
Capital Contributions
Member Services
Developer Subsidy
Fines Late Fees Non Member Fees
Special Assessments Interest
Member Dues
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- 14. Income Taxes - Apportioned Expenses
• Interest – accounting, audit, tax prep, fidelity
bond, management
• Guest Suite Income – property insurance,
management, utilities, repairs, security, janitorial,
housekeeping
• Apportionment methods
• Keep in mind the 90% test
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- 15. Developer Subsidy - Condominiums
• Examine subsidy requirements
– Non-assessment Revenues and Expenses
– Interest Earned
– Bad debt and Depreciation
“only regular periodic assessments for common expenses as provided
for in the declaration and prospectus and disclosed in the estimated
operating budget shall be used for payment of common expenses
during any period in which the developer is excused”
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- 16. Developer Subsidy – HOA
• Developer Subsidy – HOA – Post October
1, 1995
• Must be in the documents
• Examine for expirations and maximums
• Non assessment revenue expenses
“the guarantor shall pay any deficits that exceed the guaranteed
amount, less the total regular periodic assessments earned by the
association from the members other than the guarantor during the
guarantee period regardless of whether the actual level charged was
less than the maximum guaranteed amount.” 708.308
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- 17. Developer Subsidy - Reserves
• Do not use reserve funds in place of deficit
subsidy
• 61B-20.006 Enforcement Resolution and Civil
Penalties – Major Violations
-Not providing sufficient cash/resources to provide payment on
a timely basis of all common expenses including full funding
of reserves.
-Comingling reserve funds with operating
funds
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- 18. Successor Developer Issues
Was Turnover Triggered?
Will you be the
successor developer?
What liability are you
assuming?
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- 19. Other Associations
Timeshares
Commercial
Cooperatives
Associations
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- 20. Timeshares
• Capitalization of Interior Furniture
• Property Taxes
• Foreclosed Unit Weeks
• Tax Considerations
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- 21. Cooperatives
• Have title to the property
• Owners are stockholders
• Transfer of interest requires approval of the
board
• Real property is capitalized more frequently
• Must file 1120-C
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- 22. Commercial Associations
• Can Not File 1120H
• Much of the same requirements
• Question as to whether Rev Ruling 70-604
applies
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- 23. Fraud Risks
• Incentives – Changes in management
companies, auditors, reserve study
preparers, pressures to keep assessments
low, employees underpaid, economic conditions
• Attitudes – adverse relationships between CIRA
and employees, personal difficulties of
employees
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- 24. Fraud Risks
• Opportunities – Lack of board oversight,
management has access to several associations
bank accounts, lack of financial knowledge,
weak management company internal controls,
little segregation of duties at the management
company, board members may not closely
review expenditures
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- 25. Some Responses
• Confirm cash
• Journal entry testing
• Data extraction software
• Expenditure vouching
• Scanning the general ledger detail
• Review of vendor lists
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- 26. Conclusion
• Dealing with issues early prevents unwanted
surprises
• Know when to obtain an outside opinion
• Be aware of unique developer issues
• And
of
course
Thank you for your time!!!
©2011 LarsonAllen LLP
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- 27. 27
Questions???
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