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Subject: need an audit
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Author Messages
ValerieC
(North Carolina)

Posts:25


06/15/2006 10:05 AM  
My association has existed since 1992, and has had no significant financial problems ever. We have been lucky to date. Several residents have held the office of treasurer, the current on for the last 3 years. As new president, I am uncomfortable. I just required a second signature on all of our accounts. What worries me most is that we have never had an audit done on our books. I think that should be done every couple of years, or whenever a new person assumes the treasurer's position. Yes or no?
SwanB
(Washington)

Posts:199


06/15/2006 10:27 AM  
ValerieC: I believe the key words here are 'my association has existed since 1992 and has had no significant financial problems ever'. Regardless of the fact your association has had a number of treasurers, no problems have reared their ugly heads. Have you looked into the costs of an audit?
We have an annual inspection of our financial practices done and it is close to $1,500. I want to be clear this is not an audit, but an inspection of our books to indicate whether solid accounting principles and practices are being maintained.
As an accountant I already know this is occuring but our membership needs an outside source to give the stamp on this and I agree.
Audits of books can range from a couple thousand and higher.
AndreaW
(North Carolina)

Posts:57


06/15/2006 11:57 PM  
Valerie, Isn't there something written in your bylaws that stipulates an audit is to take place periodically? I would think the Board should reviewthe bylaws, otherwise you may find you aren't in compliance with your own bylaws. Before another homeowner calls the Board on that, you might want to plan that audit, just so all of your t's are crossed and i's are dotted. Even though you say that you haven't had problems, why put yourselves in the position to be called on it? Just a point of view from a homeowner
BradP
(Kansas)

Posts:2640


06/17/2006 10:59 AM  
To play devil's advocate to what Andrea said, as a homeonwer I wouldn't want my money wasted on an audit if there wasn't evidence of wrongdoing.

I think the important thing now is to have solid safeguards in place to prevent abuse. If there isn't anything in the past that looks to suspicious then I wouldn't worry about it. We are experiencing something similar, we have $210 that were questionably withdrawn from an account, but I don't think it requires an audit. Instead we are placing safeguards to prevent this in the future.
DonN
(Michigan)

Posts:357


06/17/2006 3:18 PM  
The members of the board of directors have a fiduciary duty (to act in trust for others). An important part of that duty is to have an independent verification. Such verification is part of the cost of doing business as a POA. If there is a problem in the future, most members will conclude that the POA should have had an audit.

My view is that the purpose of the audit is to "catch everyone doing everything right". A great value! Members should value the cost of the audit.

Don N

Don Nordeen
Governance of Property Owners Associations
AndreaW
(North Carolina)

Posts:57


06/17/2006 9:03 PM  
I know in our HOA's Bylaws there is a provision for an annual audit of the books. I must say from my own experience on any association whether it was an HOA or PTA, you should not ever discount the idea of having an audit. This allows for the books to be transitioned from year to year with old/new BOD members being able to have a clear installation or departure. i agree with Don it is part of the cost of doing business and one that can prove everything is on the up and up. Why ever give anyone a reason to question. I would certainly check your bylaws to see if there are audit procedures that should be in place.
RogerB
(Colorado)

Posts:5067


06/17/2006 9:34 PM  
Andrea, how many thousands of dollars do the HOA and the PTA spend on an annual audit? Are you sure these are audits or are they financial reviews?
AndreaW
(North Carolina)

Posts:57


06/17/2006 11:38 PM  
Roger - Our HOA bylaws state as follows:
"an annual report consisting of at least the following shall be made available upon request to all members within 120 calendar days after the close of the fiscal year: (1) a balance sheet; (2) an operating income statement; and (3) a statement of changes in financial position for the fiscal year. Such annual report may be prepared on an audited, reviewed or compiled basis,. as the Board determines by an independent public accountant; provided, upon written request of any holder, guarantor or insurer of any first mortgage on a unit, the Association shall provide an audited financial statement."
On PT Associations I have participated in, the bylaws generally allow for the formation of an audit committee annually to be made up of atleast 5 but no more than 7 members in good standing. This committee is responsible for scrutinizing every single expenditure of the association and will see to it that there is documentation for every expenditure. If the committee deems necessary for a fulll audit to take place they will hire an accountant to come in an perform an actual forensic audit. School Boards also follow the similar types of guidelines, so there are checks and balances in place.
As for the dual signatures I had mentioned earlier, i do not believe the concept was clearly understood. I will elaborate: If there a bank account, where 2 of 3 signatures are required at all times then that means there would always be more than one person aware of the expenditures. Banks will set up accounts to have dual signatures. Also for no reason should cash withdrawals be allowed by any other process but having to write a check and the memo should always indicate what the cash is to be used for, even if it is to replenish petty cash or to pay for a service that cannot be paid by a check. This way there is also always a paper trail. I hope this has given clarity to my earlier post.
BradP
(Kansas)

Posts:2640


06/18/2006 11:20 AM  
Our CC&R's don't require an audit or financial review. At every board meeting we go over expenditures and income. We have about $20,000 in annual income so I am not really seeing the need for an audit, just sound financial procedures. I guess if we were a higher income development it might be worth it, but I would rather put that money in a reserve fund.

Just my opinion.
DonnaS
(Tennessee)

Posts:5671


06/26/2006 6:06 AM  
Valerie C. What state are you in? Florida Statutes 720 (H.O.A.s) have either audit or financial review requirements, depending on the association's yearly income.
RogerB
(Colorado)

Posts:5067


06/26/2006 7:15 AM  
Andrea, based on what you posted all that is required is a compilation of bookkeeping by an independent public accountant (not a CPA). That is what many HOAs do and call a financial review or even an audit. Following is a copy of my post on another thread which explains some components of an audit.

----------------------------------------------------------
William, you are correct that an audit should be independent of the MC. I know of no MC which is qualified to do an audit. They are normally able to prepare budgets. Most so called accountants for HOAs are really only bookkeepers and that is all that most HOAs need (unless required by the Declaration or State Statute).

To be specific (and I am not an accountant, just a bookkeeper who has learned a little accounting from my wife who has a degree in accounting and finance and many years experience as a controller) here are a few items involved in an audit:

Inspection and evaluation of all capital assets - determine the assests exist, their value is accurately represented, depreciation schedules been done properly, and more.

Contact a statistically representative sample of financial institutions, vendors, and other parties which are listed as sources of income and expenses. Verify independently that each item of income and expense agrees with the current records. If a discrepency is found expand the sampling.

INTERNAL CONTROLS - review the procedures which have been set up; evaluate procedures used to determine degree of compliance; determine compliance with laws and regulations; and many other key items.

There are other important items plus details within each of the above which a CPA follows when doing an audit. Usually an HOA member or their accountant does a bookkeeping review not even a financial review. I am just starting to appreciate what an audit really entails. And to think that I used to laugh at accountants and call them bean counters. No more, not since I married one!

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