"As an auditor, how should I verify if the handling of arrears is appropriate?" | How should an auditor check the handling of arrears?

▼From the field

A newly appointed auditor,
after finishing their first board meeting since taking office,
spoke to the property manager.

"Honestly, I don't really know
what I should be doing as an auditor."

"Your main duties are preparing the audit report
and reporting it at the general meeting."

"What specifically should I be checking?
I'll look at the accounting figures, but...
I need to verify the handling of arrears as well, right?"

"Yes, that falls within the scope of an operational audit."

"But how can I tell
if it is being 'handled appropriately'?
I'm just an amateur, after all."

"Actually,
there are few associations that have organized that systematically.
Many auditors
are unsure of what or how to check."

The auditor is the internal check function of the management association.

However, in many condominiums,
the auditor has become a mere formality.

Especially regarding the 'less visible task' of handling arrears,
it is often unclear what or how to check.

Today, I would like to organize those 'auditor's eyes'.

▼1: The auditor's role is not 'post-facto confirmation' but a 'continuous watchdog'

Under the management bylaws, the auditor has the role of
auditing the management association's business execution
and financial status.

They verify whether the directors and the board chair
are properly fulfilling their duties,
and report any issues to the general meeting.

This is the fundamental role of an auditor.

However, in reality,
it often remains a
formal audit limited to 'checking the books at the end of the fiscal year and reporting no issues'.

From the perspective of handling arrears,
it is difficult to see what the problem is with this formal audit.

Even if it is recorded as "Accounts Receivable: XX yen" on the books,
whether the response toward its collection was appropriate
cannot be judged by the books alone.

No. 75From the perspective of the duty of care of a prudent manager organized in ,
verifying whether the board of directors is
" recognition, judgment, action, and recording"
appropriately regarding the handling of arrears
is the core of the auditor's role.

Also, No. 65in the third-party administrator method organized in ,
the auditor often becomes the only check function
on the side of the unit owners.

In that case, the auditor's responsibility becomes even heavier.

It is required to function not as "ex-post verification" but as a
"continuous watchdog".

▼2: "Three areas" that auditors should check in handling arrears

Area 1: Appropriateness of grasp | Does the board of directors accurately recognize the arrears situation?

Verify whether the number of arrears, amount, period, and response status
are regularly reported and shared at the board of directors meetings.

No. 34whether the visualization mechanism organized in is functioning

No. 56whether the arrears rate organized in is accurately grasped
are the points of verification.

If the report is just one line saying "Collection rate XX%",
there is a possibility that the grasp of the actual situation is insufficient.

Area 2: Appropriateness of response | Is the board of directors taking necessary measures?

After arrears occur,

verify whether these are carried out at the appropriate timing.

No. 75organized in

Whether these can be confirmed from the minutes and demand records
is the axis of judgment.

Area 3: Appropriateness of records | Is the history of actions left in a provable form?

Verify that these are organized and stored.

No. 73Similar to the perspective on handing over demand records organized in
if there are no records, it cannot be proven that "action was taken."

As an auditor, verifying the existence and consistency of records
leads to lowering the legal risk for the entire association.

▼3: "4 patterns" where the auditor's function becomes a mere formality

Pattern 1: Stopping at confirming "if there are no abnormalities" | Not asking proactive questions

Pattern 2: Only checking the numbers in the books | Not looking at the actual state of operations

Pattern 3: Accepting the board's explanation as is | No independent verification

Pattern 4: Even if a problem is discovered, tacitly approving it to "avoid making waves" | Self-abandonment of the check function

▼4: "Four Designs" for auditors to conduct "effective audits"

① Make the "Arrears Response Checklist" a standard audit tool

② Develop the habit of regularly checking board meeting minutes

③ Conduct individual checks for long-term arrears cases

④ Do not end the audit report with "no issues" | Present improvement proposals at the general meeting

▼5: "Condominiums where the auditor functions" vs. "Condominiums where it ends in formality"

In one condominium, a newly appointed auditor created an "
Arrears Response Checklist" and utilized it from the first year of their tenure.

As a result of the check, it was found that there were no records of statute of limitations management.

In the audit report, they proposed "
We request the establishment of a mechanism for statute of limitations management," and from the following year, the scheduled date of statute of limitations completion began to be added to the arrears list.

"Because the auditor checks, we have also become conscious of keeping proper records," said the property manager.

The auditor's perspective
changed the board's actions.

Meanwhile, in another condominium,
for over 10 years, there were no particular issues"
audit reports continued to be issued.

One year,
the loss of over 800,000 yen in receivables due to the statute of limitations was discovered.

Residents raised voices saying, "Why didn't the auditor notice?"

"I didn't know how to verify it"
The auditor's words
revealed the reality of a non-functioning audit.

Whether an auditor functions
depends on whether they know "what to verify and how".

▼ Summary: The auditor is the "final internal check function." To fulfill that function, have an "eye for monitoring arrears."

By having an auditor who
verifies that the board is acting appropriately,
the management level of the entire association improves.

Especially in the "less visible task" of handling arrears,
the auditor's eye is a necessary area.

Continuously verify these three areas
using a checklist.

Use the general meeting report as a "place for improvement proposals"
These two things transform the auditor from a "nominal position" into a
"functioning internal check function."

The auditor is the final internal check function.

To fulfill that function,
I want you to start today with an "eye for monitoring arrears."

▼ Today's One Action

There is something I would like those serving as auditors,
or
those who are candidates for auditor, to confirm.

" In your current association, how many long-term arrears cases of 6 months or more are there?

Are you aware of the status of each case and the scheduled date for the statute of limitations to expire?
"

If you are not aware,
confirming that information at the next board meeting
will be your first step as an auditor.

Thank you for reading this far. If you felt, "So this is what the role of an auditor is," it would encourage me if you could like or share this. I would be happy if you could deliver it to someone else who has the same concerns.

I will continue to share useful perspectives from a field-level viewpoint. Please follow me if you would like to stay updated.

If you don't mind, please take a look at these as well👀

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