Conduct an Audit of HOA Assets

By saying there's formal structure, are you saying you don't have a board of directors? If not, how did this person come to oversee the budget? Has he or she provided monthly or quarterly reports on what's been collected and spent? If not, why not? That's something that definitely needs to change.

You say you want to audit the books - what are your qualifications and why should you be the one to do it as opposed to someone else? Do you know there are different types of audits? What type would you like to conduct and why? You may very well be qualified, but I suspect this person and perhaps a few others might ask these questions, so you'd better be able to answer them.

If there's a board, start by going to the next meeting and asking them to have the books audited. This needs to happen to ensure the money's being spent appropriately and a reserve fund is being funded (that's what pays for the major projects like repaving). The person handling the money will likely squawk but remind him/her politely, but firmly this is ASSOCIATION money. All homeowners have a right to know where the money's coming from and how it's being spent, and if he/she has been doing everything properly, an audit will show that. And if not...well, he/she has some explaining to do.

If you have no formal board, you'll need to call all the homeowners together and suggest an audit be done. If they vote to do this, get an accountant to do the first one. You can work with the accountant to see what's going on so you'll know how they work. You'll also be able to determine if you even want to do the job. Meanwhile, you and your neighbors need to have some sort of oversight procedures over this person - he/she needs to answer to some sort of committee or...a board of directors.

Setting up a board will also mean coming up with some bylaws and CCRs. If road maintenance is the only thing the HOA (such as it is) is reponsible for, it shouldn't take long to set this up. You could read the latest edition of Robert's Rules of Orders and check out its section on bylaws for guidance on how to set them up, but you may want to have an attorney review the drafts to ensure they're in order (preferably someone specializing in HOA law or corporate law, at least). The documents will have to be filed with the state (probably the secretary of state), so you'll need to set up some articles of incorporations.

This sounds like a lot and it is, but even if your audit doesn't find anything wrong, this person will step down at some point, and if you don't have policies and procedures in place for a transition or even to store records, you'll have a hard time trying to figure out where the money went or even how to access what's left. Getting an audit is a start and you really can't do this alone - get some people to help you. Good luck!

SheliaH,

Thank you for the fast reply and questions.

There are a set of basic covenants, one page, that have been filed with Union County GA

The HOA is not registered with the state

A BOD does not exist

The responsibility of managing the checking account has informally been passed down as decided by the previous person usually upon the person moving out of the community — no election

No monthly or quarterly statements are provided.

An annual newsletter does get sent only sharing the balance in the checking account. No financial statement is provided

I want to see all details of inflows and outflows of the account

I have my MBA and am a financial manager for over a n annual $100mm budget and answer to questions on income and spending at a minimum of monthly by executives of a multi billion dollar corporation

My objective after the audit it to establish a formal / mandatory HOA for many reasons

My goal with this question is merely to understand if there is typically a formal process to follow when requesting an audit or view into how money is being spent.

Given the Wild West nature of the situation, I would suggest a simple three person Community Management construct.

Informal financials, single person pass down, no transparency? Yeesh ...

Yes, liability. If The One Guy squawks about letting go, you should ask pointed questions about the kinds of liability insurance he's carrying.

(Many/most HOAs are incorporated and carry insurance, including something called Directors and Officers insurance. The governing documents usually require it. This protects board members in the event a homeowner sues them over something. I have a sneaking suspicion that your HOA does not have this insurance, meaning The One Guy is putting his personal assets at risk. This should get his attention.)

I suspect there is no D&O or generic liability insurance - Hugh?

Your HOA sounds like the first condo association I bought into (in the 1980s) and where I served as Treasurer/Secretary. Mercy, we were idiots, even though we were responsible and tried to do things correctly. There was no internet, the founding partners of my current association's law firm were still in school, we learned by making mistakes and cleaning up messes. Fortunately the state legislature got sick of community associations getting themselves into all sorts of trouble and they passed the fairly strict laws we operate under today.

("Reserves? We don' need no steekin' reserves.")

Good points, Augustin.

I was assuming none of the normal docs existed ... otherwise Hugh would have noted?

This is why I really think there should be state legislation requiring developers to do a little more work in preparing the HOA to take over instead of saying "ok, we're out after X date - goodbye and good luck!" People barely know what a HOA is, let alone how to run one, and for a developer to set one up and not provide any guidance whatsoever is completely inappropriate in my view. This developer would have been better off asking the city or county to take over road maintenance and be done with it. In some areas, I've heard HOAs are placed in some sort of special property tax category or something to cover costs of street repair, light replacement and whatever common area maintenance the city or county would normally cover. Instead, the cities and counties require HOAs so they don't have to care for the streets, but the developers aren't required to at least put the initial board in a position where they can do the job (including training).

Personally, I wouldn't have bought in this type of community at all, but as we all know, people often find out about the lack of HOA management after the closing documents have been signed (and then it's too late). As others have said, Hugo really, really needs to bring together his neighbors and I hope they listen, because if they don't start organizing themselves after all these years, they may be putting themselves at risk for a lawsuit if someone gets seriously injured or killed due to the lack of street maintenance (because no one kept up with how the money was spent and the one person did whatever he/she wanted).

Wow, great responses and questions by all, thank you.

The “THING”, I’ll call it from now, is not a registered entity with the Georgia SOS.

The THING has a set of covenants on file with Union County GA. See attached.

The covenants are not enforced and thus some are abandoned and now unenforceable.

There are no articles of incorporation.

The developer went out of business.

Bingo 😁 Augustin

Hugh

Befriend the now "Treasurer" and offer some help. Worm your way in like that.

No - tried a bunch of things.

An attachment can’t exceed 200kb. 🤯

AUGH! Convert to WORD, not Windows. (My kingdom for an edit function.)

Size and complexity matter -

1. How much do you pay each month?

2. Does the thing pay for anything other than road maintenance?

20 houses paying $100 per year each = $2,000. Only expense is road maintenance.

Talk to a couple contractors. Find out what they would charge for maintaining your roads. If their estimates are close to $2,000 - thank the guy who's taking care of things for the thing.

If they would charge $1,000, then ask your administrator guy why you're paying so much.

I say - you know what the income is - see if the costs make sense - But - starting by asking for an audit seems to me a bit confrontational to me.

I just paid a guy $100 an hour to do backhoe work and you have someone willing to do it for free. And the HOA still owns the backhoe after. I didnt get to keep the backhoe after I paid my guy.

The HOA is in charge of road work and he purchased an item for roadwork. How exactly do you plan on filing charges for fraud? LOL.

Sounds like you really have no idea how good you have it.

If you have to go to a contractor, there will be limited amount of them with the correct heavy equipment in your area to do the job. They will price it high because of this. Your dues could easily go from $100 year to $2,000 per year.

A contractor will want to get it all done quickly in a day or week and get on to the next job. But your guy who lives in your HOA likely does the work all year long bit by bit.

Not insulting you. If you start mentioning things like felony charges to him, not matter the context, he is going to behave the same way and quit.

I don't want to put words in SteveM9's mouth but I think the question should be re framed to simply ask, "How can I provide education to this person so that he understands the potential legal consequences of his actions?"

What legal consequences are you talking about?

There's a legal concept called "course of conduct". It's been around for a very long time. It says that - if the organization has been doing things a certain way for a long time, and most of the people are ok with what's going on, then that "course of conduct" is the accepted standard of behavior for the group.

IMO, the person who could use an education is the OP. See my prior post.

I was referring to a point that was raised earlier especially the third sentence about what is legally binding:

I am thinking this is nothing more than covenants on file with the county clerk. Maybe Hugh is not sure what to call the group of neighbors, but he landed here at hoatalk to (understandably) see if we had any insight? Hopefully Hugh will clarify, though he may need a touch of steering to identify exactly what is legally binding upon all of these some 20 neighbors. At most, and if not already present, maybe all that is legally advisable is a "road maintenance agreement "signed by all neighbors?

I am reading the instructions for form 1120-H at https://www.irs.gov/instructions/i1120h. So far I do not think a group of folks with some version or another of a road maintenance agreement qualifies as a HOA for the purposes of Form 1120-H.

Can you email me the covenants you tried to attach earlier, at [email protected]? Subsequently I can post the pages that appear to be pertinent to road maintenance.

I will. Thank you in advance for looking at them.

I’m stuck on the fact that a few people strongly believe it’s an HOA. I don’t but am hoping taking them through 1120-H will show them it is not. For one thing, there’s no EIN to enter on the form thus how can it be a true HOA — rhetorical question.

I think Hugh persuading every single one of his neighbors to agree to form a legal HOA, and then all of them happily (yeah right) chipping in to hire an attorney to draw up the papers to the tune of I imagine around $10,000 or (about $500 per neighbor), would be the proverbial sledgehammer driving a nail.

Why is it road maintenance agreements are common nationwide and there is no requirement to have a HOA to implement same?

As far as insurance is concerned, every member of Hugh's group of neighbors can have it or not. I tend to think not having insurance actually reduces the chances of one being sued. "Victims" go looking for deep pockets. Attorneys know insurers have the deep pockets.

Many of the regulars here at hoatalk are disgusted with HOAs. Forcing one on this rural community, when a road maintenance agreement is a proven instrument and more than suffices, does not make sense to me.

Yes They are restricted to single family residences.