Association legal audit.

Guidelines on what to examine.

With all the new laws that have been passed in the last couple of years--and more likely to come with the new administration--now is a good time to do a legal audit of your association operations.

The most valuable result of an association legal audit is that it gives the organization a chance to look at the big picture, providing an opportunity to address issues that have emerged since the last audit (if there was one), discard policies and procedures that deal with dead or dormant issues, and harmonize forms of doing business so that the association does not trip over inconsistencies or contradictions.

A complete legal audit reviews not only the association's written documents--like personnel manuals and board resolutions--but also its unwritten policies and procedures. Oral traditions and custom, habit, or practice, even if not in writing, can create liability as certainly as written documents can.

Here is a brief summary of the major areas a legal audit should look at.

1. Corporate documents. Review the association's articles of incorporation, bylaws, board resolutions, board books, and minutes. Has the identity of the registered agent changed, for example? Has current practice been consistent with the bylaws? Have the association's bylaws been amended so many times that instead of presenting a logical, workable set of rules, they have become an unruly patchwork of ad hoc responses to the whims of boards long gone? Has the association moved? If so, does it still make sense to maintain as a legal domicile the place the association came from, or should it dissolve and reincorporate in its new home?

An audit of corporate documents will also certainly verify that the association has a notice of its tax-exempt determination letter on file from the Internal Revenue Service.

Don't overlook required state documents: for example, a copy of the state's certificate of incorporation; license to do business; registration as a foreign corporation (if incorporated in another jurisdiction); and tax-exemption letters and other documents.

2. Real estate papers. Every once in a while, pull up for review documents that have long time lines. For example, a 10-year lease may provide for painting every 3 years or may require notice of intent to quit or renew 18 months out or longer. Are you due for a paint job? Are any notices due from the association to the landlord or from the landlord to the association?