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Subject: HOA Financial Audits
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Author Messages
GildaT
(Nevada)

Posts:1


10/05/2019 9:13 AM  
Are HOA's required to do financial audits and how often? Also, if changing management company, would an audit need to be done?
MelissaP1
(Alabama)

Posts:8601


10/05/2019 10:14 AM  
It's not a "need" but a good suggestion. It depend on what your documents say. Some may say yearly some maybe every few years. I'd suggest atleast 2 years. That is because it is typically 2 - 3 years that a HOA changes over really take effect. It's not an overnight thing. Especially if you just changed boards.

Former HOA President
SheliaH
(Indiana)

Posts:2701


10/05/2019 3:09 PM  
I would definitely recommend an audit if you're changing management companies. When the transfer is completed, you don't want any loose ends. Don't forget about preparing a transition plan so the will be able to keep track of what needs to be done.
JohnC46
(South Carolina)

Posts:8730


10/05/2019 4:10 PM  
There are several levels of Audits costing different amounts of money. Would someone better understanding them, please amplify? For the sake of the conversation, 125 units and dues/budget of $125K per year as an example.

Also, if one is comfortable with figures presented by BOD/MC over the last few years, what level of audit would be appropriate?
SheliaH
(Indiana)

Posts:2701


10/06/2019 8:39 AM  
I did some googling on this topic and came away with these tips:

First, check your documents to see if they'd required, as Melissa noted - did you do that? If you can't find anything, you may want to consider talking to your neighbors about amending the documents to require it.

You should consider the size of the community (units), extent of common areas, and annual budget. Generally, the bigger the community, the more frequent your reviews - at least once a year.

Next, why do you want an audit? I said it's helpful if you're changing property managers, but they may be useful if your board has served for years and years (e.g. 10 years or more), and especially if fraud or embezzlement is suspected. Some audits aren't cheap, a little due diligence is necessary at first before you go with a full audit. If the homeowners are muttering about where the money's going, you need to be candid about the budget -good, bad and ugly. People may still be pissed, but will respect the transparency, including the board's honesty as to why decisions were made.

The Google-verse a!so noted the difference between an audit and financial review and you need to understand the difference before you proceed. A financial review checks the records to ensure they are correct. An audit reviews the records and verifies the information the association gave the auditor is complete and accurate. That would include reviewing meeting minutes, contacting the association's creditors and debtors to ensure the amounts owed and owed to the association are accurate, and checking the association's physical inventory, if relevant.

There's more, but you can and should do the research yourself. Talk to an accountant for more information and to help determine what works best for you community. Have fun!


DouglasK1
(Florida)

Posts:1453


10/06/2019 8:51 AM  
Your governing documents or state law might require an audit on some periodic basis.

Escaped former treasurer and director of a self managed association.
GenoS
(Florida)

Posts:3234


10/06/2019 5:02 PM  
In the 5 years I've been in my HOA it has gone through 4 Treasurers, 4 changes of outside bookkeepers, in and out of a management company's services, the opening of 4 additional bank accounts and the closure of 3 others, a major dispute with the management company's assigned bookkeeper, and we're on President #8 since arriving.

We're below the revenue threshhold that would trigger audited financial statements every year and having an audit is optional. Naturally, since audited financials cost more than reviewed financials, no one wants an audit. The prevailing notion is that "the monthly financials seem to be in order and no money has gone missing", so what do we need an audit for? When you put it like that, an audit might be not worth doing. But given the turnover of people and accounts and companies I listed up top, I'd recommend having one done just for peace of mind.
SheliaH
(Indiana)

Posts:2701


10/07/2019 11:45 AM  
The last audit I saw before leaving the board also included some tips the board should consider to further protect the Association's finances - don't remember what they were, but in light of all the changes your association has gone through, I think you're right in that an audit could be useful. Even if the records are in order, the auditor may be able to offer insight into what the board should do to put more efficient checks and balances in place, especially with determining how many bank accounts are necessary and how to monitor the property manager to ensure he/she doesn't have sticky fingers.
GenoS
(Florida)

Posts:3234


10/07/2019 12:36 PM  
Thanks, SheliaH, some good advice there. I'm all in on checks and balances. Our bank accounts will continue to fluctuate over the next 5 years. We spread out our reserves balances to stay under the FDIC limit. Starting in 2021 we will have 5 consecutive years of reserve expenditures of about $325,000 per year, so the number of bank accounts will be shrinking. The prospect of wacky homeowners with no experience in project management overseeing $1.5 million in spending over 5 years is enough to keep a person up at night.
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