need an audit

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?

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

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

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?

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.

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!