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Subject: How often should we have an auditor do an audit?
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Author Messages
GregM14
(South Carolina)

Posts:17


10/11/2020 12:46 PM  
How often should we do an audit of our association finances? We are an association of 274 single family homes with a total budget around $240,000.

Historically, our association has done an audit every other year, but I am leaning toward an audit every year might be beneficial.
JohnT38
(South Carolina)

Posts:391


10/11/2020 12:53 PM  
What do your Bylaws say? We do ours every year.
GeorgeS21
(Florida)

Posts:3279


10/11/2020 1:51 PM  
Yep - with John.

What is required by your Bylaws (and, even sometimes in the CCRs)?
ChrisE8
(New York)

Posts:134


10/11/2020 2:15 PM  
If your governing documents don't require an audit each year, perhaps just having an audit every other year is wise, just to save costs? Maybe having accountants review (or whatever a review is that is not as comprehensive as an audit) the financial records in alternate years would save costs?

Isn't the point of an audit to catch issues--so as long as issues could still be caught in an audit every 2 years, wouldn't every 2 years suffice?
JohnC46
(South Carolina)

Posts:10017


10/11/2020 2:28 PM  
Greg

Our SC docs do not require an audit:

Section 11. Financial Review. A review of the books and records of the Association shall be made annually in the manner as the Board of Directors may decide; provided, however, after having received the Board's financial statements at the annual meeting, by a majority of the Total Association Vote, the Owners may require that the accounts of the Association be audited as a common expense by a certified public accountant. Upon written request of any institutional holder of a first Mortgage and upon payment of all necessary costs, such holder shall be entitled to receive a copy of audited financial statements within ninety (90) days of the date of the request.

Our MC does prepare and present a Yearly Financial Review (Balance Sheet, Income Statement, Actual to Budget, etc) at our Annual Meeting. This report is 4 pages of our 30 page BOD Monthly Financial Reports from them. Any member can get the full financial report upon request. Usually within 24 hours.

There are various levels of Audits. Some costing several thousand dollars.
CathyA3
(Ohio)

Posts:1316


10/11/2020 2:52 PM  
Our attorney said that if the bylaws are silent, he recommended a full audit every five years with a review of the books during the off years (to save money). If the full audit turns up any issues, you may wish to do the full audit more frequently until the issues have been corrected.
KellyM3
(North Carolina)

Posts:1559


10/11/2020 3:05 PM  
Conduct an annual audit is my recommendation due to the size of your community. Opinions vary.
JohnC46
(South Carolina)

Posts:10017


10/12/2020 8:10 AM  
Posted By KellyM3 on 10/11/2020 3:05 PM
Conduct an annual audit is my recommendation due to the size of your community. Opinions vary.



There are levels of audits and the cost will vary. A full blown audit could easily cost several thousands of dollars.
GeorgeS21
(Florida)

Posts:3279


10/12/2020 8:46 AM  
Some states may require various types of reports/audits as a function of total revenue. Here's what FS 720 says:

"(a) An association that meets the criteria of this paragraph shall prepare or cause to be prepared a complete set of financial statements in accordance with generally accepted accounting principles as adopted by the Board of Accountancy. The financial statements shall be based upon the association’s total annual revenues, as follows:
1. An association with total annual revenues of $150,000 or more, but less than $300,000, shall prepare compiled financial statements.
2. An association with total annual revenues of at least $300,000, but less than $500,000, shall prepare reviewed financial statements.
3. An association with total annual revenues of $500,000 or more shall prepare audited financial statements.
(b)1. An association with total annual revenues of less than $150,000 shall prepare a report of cash receipts and expenditures."

I am involved in three neighborhoods:
- one is below 150K so simply requires report of cash receipt and expenditures
- one is over 150K, but below 300K so requires complied financial statements (but, we audit very five years), and
- one requires audited financial statements

Check state requirements, JIC.
GenoS
(Florida)

Posts:4133


10/12/2020 1:00 PM  
Posted By GeorgeS21 on 10/12/2020 8:46 AM
Some states may require various types of reports/audits as a function of total revenue. Here's what FS 720 says:

We're at the level just below needing an audit. We haven't had an audit since 2007 and some owners think it's way past time that we have another. It has been 13 years, 9 Treasurers, and 5 bookkeepers since that last audit. Several of us have suggested to the board that it's high time we had another. The board has said it doesn't want to have an audit because FS 720 doesn't require us to have one, our bylaws don't even contain the word "audit", and the cost would be higher than what we generally pay for the outside accountant's annual Reviewed Financial Statements.

As a 6-year member of our Finance Committee and someone who eyeballs the financials every month, I don't think there's anything seriously wrong here. None of the "red flags" you hear about are present. Nevertheless, 13 years seems like a long time and we're about to embark on 5 years of spending $300k a year out of reserves for scheduled projects. I'd like to start that 5-year spending plan with an audit just so we can rest easy at the start of that plan, and point back to the audit as a milestone of sorts in future years.

There's nothing the homeowners can do to force an audit and it appears as though we'll need a new board to commission one. Of course, the current board railroaded through an annual budget for next year already and there's no money in it for an audit.
TimB4
(Virginia)

Posts:17008


10/13/2020 8:35 AM  
If your governing documents are silent, I think it depends on the board.
If there is trust and the board is doing it's checks and balances on the treasurer, it can be done every two or three years.

At the very least, it should be done every time a new treasurer is appointed.
TimB4
(Virginia)

Posts:17008


10/13/2020 8:37 AM  
Posted By GregM14 on 10/11/2020 12:46 PM

Historically, our association has done an audit every other year, but I am leaning toward an audit every year might be beneficial.




Audits cost money.

If there haven't been issues identified in the audits, I would keep it every other year AND when a new treasurer is appointed.

If the audits have identified issues, then every year might be prudent.
RebeccaA7
(Texas)

Posts:4


10/26/2020 7:04 PM  
Yes! I’ve known Several CPAs who recommend every three years for 500+ homes and 5 for <500, unless an issue is identified or you switch management companies. Then a full audit should be performed.
GeorgeS21
(Florida)

Posts:3279


10/26/2020 7:27 PM  
Some states have laws mandating - Florida requires audited financials if HOA takes in more than 500K.
MarshallT
(New York)

Posts:108


10/28/2020 6:02 AM  
Many HOAs opt for an annual audit, unless governing documents explicitly state otherwise. It's just better for the community to know where they stand when it comes to their finances. Small issues can be addressed more quickly (before they become larger issues), and you can plan/budget more confidently.
SheliaH
(Indiana)

Posts:3512


10/28/2020 8:57 AM  
You've gotten some great advice, although you still haven't said why you feel an audit every year would be helpful. Were problems discovered by previous audits? If so, have they been resolved? If not, why not? It was also said there are different levels of audits - if there haven't been any problems, why not go with a lower level audit, then a full audit every 3-5 years or so?

Whatever you decide, don't let the cost be your own reason. It's ok to be mindful of the cost (this is why you should do some comparison shopping), but not doing things simply because "it's too expensive" has come back to bite many HOAs in the rear.
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