Joe Thomas and the board make a big deal out of the fact that we have audited financial statements for GGRC and RML – and that, because of this, owners don’t have any need for copies of the books and records.
They make out that this “comprehensive oversight by an outside accounting firm” should give all owners complete confidence that all the books and records of our homeowner’s association are being done correctly.
This is a fallacy — and many owners are being lulled into false complacency just because they are being told the books and records are “audited.”
Hickman and Company A.K.A. Hickman and Associates
These folks have been our auditors at least for the past 8 years since I know they did the audits for 2002.
Is this some large regional, certified public accounting firm that has the proper, internal controls and procedures to thoroughly audit an organization and uncover any misdeeds or malfeasance that may be present in our homeowner’s association?
Judge for yourself.
Their website can be found at http://www.hickmanaccounting.com/about/
As you can see from their website, “Hickman and Associates is a tax and bookkeeping firm located in historic downtown Sevierville, Tennessee. A family firm, we have proudly served the community with three generations of for over fifty years. Hickman and Associates currently has four employees (all family members.)”
While these folks may very well be good bookkeepers and accountants, it is not clear from their website that any of the four of them is currently a CPA. It also is not clear whether this firm has ever had any recent peer review by the American Institute of Certified Public Accountants. The AICPA requires most CPA firms which claim to do audits have this periodic peer review to help ensure that audits are done correctly.
Again, I know of absolutely nothing negative whatsoever about this company, it owners or employees or its bookkeeping and accounting services. I will take on face value that they must have at least one certified public accountant who participates in the annual GGRC and RML audits they do for Deer Ridge.
Accounting Company Concerns
Even if Hickman are the best accountants and bookkeepers in the world, another major concern is that such a small firm may be overly dependent upon the business handed out by Joe Thomas. For such a small company, two audits and the bookkeeping services for Deer Ridge could make up a significant of their annual revenue.
During the Special Meeting that was held on February 6, 2010, Joe Thomas stated that we pay Hickman and Associates, et al the following each year:
- $1,300 for the GGRC audit and $1,800 for the RML audit.
- $5,400 for the GGRC bookkeeping and $21,000 for the RML bookkeeping.
- Total annual payments to Hickman from GGRC and RML: $28,600
What percentage of Hickman’s four person accounting company’s annual revenues does the above $28,600 represent?
If, hypothetically speaking of course, Joe Thomas threaten to take “his” GGRC and RML accounting business elsewhere unless the books were “cooked”, would such a small firm feel compelled to bend the rules or “look the other way?”
Consider that much larger CPA firms have been influenced by similar circumstances. (Example: Bernie Madoff’s auditor, David Friehling, CPA of Friehling & Horowitz, a tiny CPA firm that operated from a 13-by-18-foot office. Or, consider the 89 year old, 28,000 employee firm, Arthur Andersen CPA, that went out of business as a result of their federal criminal conviction for manipulation of the books for a company called Enron.)
Again, Hickman is most probably a very reputable firm with great people — but the above should be major red flags to all Deer Ridge owners that just because financials are audited does NOT mean that they are right – or that owners are protected from fraud.
What Exactly Is Audited?
Even if the CPA firm is doing a reasonably competent job, there are major opportunities for potential malfeasance at Deer Ridge.
Could something like that be happening at Deer Ridge using the small accounting firm that depends so much on Deer Ridge business? Again, it may or may not be an issue here with Hickman and Associates — but how can we know for certain?
The first thing to know about most audits is that all transactions are NOT checked. Most audits would only include “spot checking” sporadic accounts – and in many cases the CPA firm is directed by the client company to only check specific accounts that they know are pristine.
Let’s look at Hickman’s own cover letter for the audits they do for Deer Ridge:
“These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
“We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.”
So, what does this mean? Continue reading Audits At Deer Ridge – The Fallacy and Joe Thomas – The Deer Ridge $10 Million Man
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