Get 6 months of free community web site hosting from Community123.com!
Sunday, April 20, 2014
HOA Websites by Community123.com (National Community Website Provider)
We built HOATalk and we'll build your community website for free!  Click here for information on a free trial website.
Community Associations Network (National HOA Reference Library)
News, articles and blogs about condos/HOA's
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: HOA Audit Committee
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
WilliamS1
(South Carolina)

Posts:113


06/24/2006 2:43 PM  
I have been placed on a two person committee to audit the HOA books.

We are to supervise the annual audit of the HOA books, approve the annual budget, statement of income and expense in preparation of the annual HOA meeting.

How should I go about this?
RogerB
(Colorado)

Posts:4835


06/24/2006 3:49 PM  
William, I presume you do not have a MC which prepares a draft of the annual budget and does the account which includes an Income Statement. If you don't know how to go about this you certainly are not qualified to do an audit. You may be able to do a limited financial review. Also, you can not approve the annual budget. You can prepare a draft for the Board to review, modify as desired, approve and present to the members at the annual meeting for ratification.

You can start by getting some education in bookkeeping and budgeting. Also hiring a MC or at least an experienced accountant would help. I'd bet you will have a better appreciation of bean counters when you complete this project
WilliamS1
(South Carolina)

Posts:113


06/25/2006 5:03 AM  

We do have an MC who prepares our monthly statements but our treasurer prepares the suggested annual budget. For the audit, our MC suggested that we go and visit our HOA accountant.

We have no budget guide lines. I wrote back a few weeks ago and said basically she take last two years, averages and increases for inflation.

I understand book keeping fairly well but I just have never done an formal audit, especially for a HOA and I was wondering if there anything special to watch for.

I also thought that the audit is to be fairly independant of MC.

I will appreciate your thoughts.

RogerB
(Colorado)

Posts:4835


06/25/2006 9:44 AM  
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 schules 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 and details within each of the above which a CPA follows when doing an audit. Usually an HOA only 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!
GeraldT1


Posts:0


06/26/2006 1:36 PM  

WOW!! A lot of responsibility for one committee!! Are there any provisions in your gov. docs. that outline the responsibilities and structure of a committee? Will two people on your audti committee be in compliance? Your committee should provide oversight and recommendations to the board, but not the actual audit, certainly NOT the approval of the budget. Only the boards should approve the budget or anything that comes before the association. Committees should never approve, they should only provide research and recommendations.

Do you have historical financial data to rely upon, past audits, past budgets, balances in accounts? For example, in my association every month the account balances for the previous month ending are reported by the treasurers at our open meetings. The account categories are as follows:

Operating
Working Capital
Deferred Maintenance
Reserves

As for your analysis of the reserves, this involves a lengthy process of a transition engineering and capital reserve study. This study analyzes the association’s elements, the cost of replacement, the lifetime of the elements, methodologies and funding goals for the association to afford the replacement of the elements when they need to be replaced. Perhaps this study has been done, if so when. It is often revisited every 3 years for updating.

Your gov. docs. may have the budgets that the developer provided in the prospectus. This will help you with the line items that are to be funded by the monthly and annual maintenance fees.

Best of luck in your endeavor!!
GeraldT1
SwanB
(Washington)

Posts:199


06/27/2006 9:31 AM  
Another simple part of an audit is to follow the paper trail of items listed on your financial statements. If you start doing this and find you are unable to track the paper documents relevant to the transactions, you know you have some problems with your systems.
WilliamT
(Arizona)

Posts:489


07/25/2006 2:12 PM  
I can't locate my original post on audit, but since this topic is about audits I'll post it here.

Our bylaws require an audit. Arizona laws require that if your bylaws require an audit, review or compilation, then you'll have what the bylaws require. In this case an audit.

Our MC said we don't need an audit, that their company certificate suffices. Later after discussion she said their certificate was Compilation. However, we have not received a letter Certificate of Compilation, and the laws and our bylaws are very clear about requiring an audit.

I plan on working to amend our bylaws to requiring a "Review" but that will take time. In order to help a CPA friend recommend to us what will be best for us I obtained the following information from the MC. (I've only been on the board for 8 months, with quarterly meetings, and obtaining information is like pulling teeth.

The MC writes the checks
The MC signs the checks
Only one signature required
The MC approves the invoices

There are no maintenance or budget committees. No one inspects any work that has been done. Another new board member and I are beginning to scrutinize everything and we find a lot of shoddy work being done.

We have some pretty high gate repair bills and extra landscape work invoices.

I'm concerned about the MC having so much control over our finances with no checks and balance system in place. I do not suspect the MC stealing any of our funds, and have seen no evidence of that in the income statements I've combed through. However, the practice of approving invoices without inspection is bad because we have found work we paid for was poorly done.

I would welcome some comments.

Bill



DonN
(Michigan)

Posts:357


07/25/2006 6:13 PM  
Start with your state's law and your POAs governing documents. Either or both may specify that "books and records shall be kept in accordance with generally accepted accounting practices (GAAP)."

If so, the accounting standard is the AICPA Audit and Accounting Guide for Common Interest Realty Associations (AICPA's name for POAs). If not, the board should be asked to approve accounting by this standard. This is also the standard to be used in an outside audit as a interpretive supplement to the usual audit standards.

My research in this area is "AICPA Audit and Accounting Guide for Property Owners Associations" at http://swagman.typepad.com/poa_governance/2005/08/aicpa_audit_and.html#more. More information on POA accounting is available at http://swagman.typepad.com/poa_governance/accounting_principles/index.html. Also search the internet for [audit and accounting guide for CIRAs] without quotes. You will get a wealth of references. Particularly read the one from Radford University at btp.radford.edu/ba/commoninterestfinanrept.pdf.

The CIRA Guide was first issued in 1991, but seems to be a best kept secret.

Don Nordeen

Don Nordeen
Governance of Property Owners Associations
DonN
(Michigan)

Posts:357


07/25/2006 6:13 PM  
Start with your state's law and your POAs governing documents. Either or both may specify that "books and records shall be kept in accordance with generally accepted accounting practices (GAAP)."

If so, the accounting standard is the AICPA Audit and Accounting Guide for Common Interest Realty Associations (AICPA's name for POAs). If not, the board should be asked to approve accounting by this standard. This is also the standard to be used in an outside audit as a interpretive supplement to the usual audit standards.

My research in this area is "AICPA Audit and Accounting Guide for Property Owners Associations" at http://swagman.typepad.com/poa_governance/2005/08/aicpa_audit_and.html#more. More information on POA accounting is available at http://swagman.typepad.com/poa_governance/accounting_principles/index.html. Also search the internet for [audit and accounting guide for CIRAs] without quotes. You will get a wealth of references. Particularly read the one from Radford University at btp.radford.edu/ba/commoninterestfinanrept.pdf.

The CIRA Guide was first issued in 1991, but seems to be a best kept secret.

Don Nordeen

Don Nordeen
Governance of Property Owners Associations
MistiH
(Texas)

Posts:52


07/25/2006 8:17 PM  
I've worked in accounting and finance for about 20 years. It is best to have an independant firm do an audit. They have no bias and nothing to gain or lose from their findings. It keeps everyone honest during the year when they know an audit looms after the books are closed on the fiscal year.

When we flip from builder to owner, I hope the receiving board will make an independant audit part of the transfer process.

Loving Life in Texas!
Misti
DonN
(Michigan)

Posts:357


08/05/2006 10:33 AM  
GeraldT1

Thanks for the kind remarks. The large increase in the D & O insurance premium illustrates the magnitude of what is at stake in a POA. The board members are not just your neighbors; they have a significant fiduciary duty.

Absent a good law concerning governance of POAs, each POA is on its own. The governing documents are dominated by the developer and/or developer's attorney. Often the rights of individual owners get left out.

The statement in your governing documents concerning audits is quite explicit and has good content. While not stated, the implicit requirement for the audit is GAAP. A CPA would appear foolish to argue otherwise.

But a board of directors might argue that books and records don't need to be kept in adherence to GAAP. Hopefully, the CPA doing the audit would note the deficiencies with "garbage" bookkeeping. How would members persuade the board to use GAAP if the board claimed it wasn't required in the governing documents? That is where an effective dispute resolution method, guaranteed by law and low cost to members, is needed. Unfortunately, no state has such a method.

Good, simple and clear statements in the POA law are appropriate and required to avoid problems within POAs with their volunteer boards.

Don Nordeen
Governance of Property Owners Associations
JimM10
(Arizona)

Posts:48


10/01/2007 8:35 AM  
Roger.. like your answer but what is a MC? I do wish I had a listing of acronyms of all HOA(Home Owner's Association) terminology.
RogerB
(Colorado)

Posts:4835


10/01/2007 8:44 AM  
Jim,
MC is an abbreviation for management company.
JimM10
(Arizona)

Posts:48


10/01/2007 9:09 AM  
If the committee conducted an audit.... what are the guidelines that they use.... or SHOULD use? I have never seen such guidelines
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > HOA Audit Committee



General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
HindmanSanchez Legal Notice:  (For messages posted by HindmanSanchez) This message has been prepared by HindmanSanchez for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Members of HOATalk.com should not act on this information without seeking professional counsel. Please do not send us confidential information unless you speak with one of our attorneys and get authorization to send that information to us. If you wish to initiate possible representation, please contact an attorney in our firm. Our attorneys are licensed to practice law in the state of Colorado only.

Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement