Condominium Management Association Governance Theory from the Perspective of an Internal Auditor, Part 2: The Value of an Auditor Lies in 'Independence' and 'Objectivity'

Condominium Management Association Governance Theory from the Perspective of a Publicly Traded Company Internal Auditor, Part 2: The Value of an Auditor Lies in 'Independence' and 'Objectivity'



What is the most necessary quality for an auditor?

Is it accounting knowledge?

Is it legal knowledge?

Or is it extensive experience?

Of course, these are important.

However, as a Certified Internal Auditor (CIA), what I consider most important is

independence and objectivity

.

If these two are lost, no matter how much knowledge or experience one has, the audit will not be trusted.

This is because auditing is an activity to gain trust from an organization.

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An auditor is an 'officer,' but not a 'member of the board of directors'

This is one of the most misunderstood points in condominium management associations.

An auditor is an officer of the management association.

However,

they are not a member of the board of directors.

Directors constitute the board, hold voting rights, and participate in decision-making.

On the other hand, an auditor can attend board meetings, ask questions as necessary, and express opinions.

However,

they do not hold voting rights.

In other words, they do not participate in decision-making.

This is not because the auditor's authority is weak.

It is to protect their independence.

—

Why do they not participate in decision-making?

What would happen if an auditor participated in the board's voting?

They would end up auditing a proposal

that they themselves had voted in favor of.

Objective auditing cannot be established this way.

Therefore, the auditor

observes the board from the outside.

This is the fundamental concept of the audit system.

An auditor is not an entity that opposes the board.

While maintaining a certain distance from the board,

they are an officer who supports the board from an independent position.

—

Because there is independence, the audit target is defined

Because independence is maintained, the auditor can determine the audit target from a clear position.

When I perform an audit,

I do not have the mindset that I am auditing the management company.

I am not evaluating the board chairperson as an individual either.

The audit target is

the execution of duties by the board of directors.

For example,

* Are general meeting resolutions being executed appropriately?

* Is the management company being supervised appropriately?

* Are the procedures for concluding contracts appropriate?
* Is decision-making done after sufficient materials and discussion?
* Are improvement items being continuously followed up?
Confirming these is the role of the auditor.
In other words,

the audit target is the execution of duties itself, and the entity executing those duties is the board of directors.

—

I do not audit the management company

This is also a point that is easily misunderstood.

The management company is an important partner for the management association.

On the other hand, they are also the other party to the management entrustment contract.

Therefore,

the responsibility to supervise the management company

lies with the board of directors.

And the auditor

audits whether the board of directors is appropriately supervising the management company.

In other words,

the audit target is not the management company, but

the board's supervision of the management company.

This perspective is extremely important when considering the governance of a condominium management association.

As mentioned last time, the board of directors generally changes every two years.

Therefore, it is difficult for the management association to accumulate knowledge and experience as an organization.

That is precisely why

management companies and condominium management consultants play an important role in supporting the continuity of the management association.

And the auditor

audits from an independent position whether that entire mechanism is functioning appropriately.

—

Objectivity means 'judging based on evidence'

Auditing is not a job of writing down impressions.

'I think this.'

It is a job of confirming

'What are the facts?'

Are the minutes remaining?

Was sufficient discussion held at the board meeting?

Were the materials sufficient for decision-making?

Were conflicts of interest resolved?

Is the content something that can be sufficiently explained to the unit owners?

One judges by accumulating such evidence.

This is objectivity in auditing.

—

What the auditor is looking at

I am not just looking at the accounting.

What I am looking at is

the board's decision-making process.

Furthermore,

is that decision-making

something that can be explained to the unit owners?

Is transparency ensured?

Were the procedures appropriate?

Is it in a state where accountability can be fulfilled?

I am confirming these things.

What I am looking at is not the individual director.

It is the single point of whether the organization called the board of directors is in a state where it can fulfill the responsibilities entrusted to it by the unit owners.

—

Conclusion

Auditing is

not a job of finding the board's failures.

It is not a job of troubling the board.

It is a job of supporting the mechanism by which the board continues to be trusted by the unit owners.

For that purpose,

the auditor is not a member of the board, but

observes the board from an independent position,

reviews it,

and audits it.

Because there is independence, objectivity is maintained.

Because there is objectivity, accountability can be supported.

And that accountability leads to trust in the management association.

I believe that this 'independence' and 'objectivity' are the very reason for the existence of the auditor system.

Next time,

I would like to further delve into the perspective that 'the biggest challenge for a management association is human resources,' and consider why experts such as management companies and condominium management consultants are necessary, and how we should utilize and check these experts to improve the quality of the board's decision-making.

—

HI (Human Intelligence)

Certified Internal Auditor (CIA) | Certified Fraud Examiner (CFE)

Translating the knowledge of governance, risk management, and internal control cultivated in corporations to the field of condominium management associations, and researching and disseminating 'governance suitable for small self-governing organizations.'

Series

'Condominium Management Association Governance Theory - Board Decision-Making as Seen by a Certified Internal Auditor -'

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