How much does an HOA audit cost? As board directors go over their HOA audit fees, they often wonder if the cost of HOA audit is money well spent. An homeowners association audit does not come cheap. Given the average cost of an audit, paying for a specialized one for an HOA can get costly. We know for a fact, however, that HOA audits are too valuable to ignore. That’s true even if not all state laws require them. Here’s why.
Why HOA Audit Costs Are Well Worth It
Your HOA could be located in a state that mandates regular HOA audits. If so, your HOA audit cost is well worth the price to comply with state requirements. Not all state laws require HOAs to go through an annual audit. Even so, many HOA boards will insist on doing one every year. Why are HOA audits so important for a managed community?
To Comply With The HOA Bylaws
Some associations have bylaws that require them to conduct yearly audits. It’s just prudent for a HOA to follow their own bylaws, even if state laws don’t require them to do an annual audit.
To Provide A Reasonable Assurance of Financial Stability
An HOA produces a lot of financial statements every year. Even so, only a complete audit from a CPA can provide a high level of assurance that these statements are correct. A regular financial audit may also help assure homeowners that the HOA management is on the right track to financial stability. There’s nothing like a complete audit, however, to instill confidence in homeowners that their HOA finances are in safe hands.
As Part of Internal Controls To Regulate The Board
There’s nothing like a complete audit when it comes to preventing financial irregularities within an HOA board. Without enough oversight, fraud and embezzlement can become serious issues for an HOA. A regular yearly audit helps promote transparency among board members. It also helps encourage accountability when it comes to spending and appropriation.
How Much Do HOA Audit Cost?
If your HOA produce financials on a regular basis, then you will need a complete audit from time to time. For associations, an audit usually refers to a complete audit. That’s a comprehensive investigation of the association financial statements. A full audit, complete with site visits as needed, can cost an association between $4,000 to $6,000.
Aside from full audits, an HOA can also request for a financial review instead. A review is one step down from an audit. They are usually limited to a review of documents and interviews. The cost for a review varies widely, but a HOA can expect to pay $1,500 to $2,000 for one.
Associations can also ask for a compilation instead. They are another level down from a financial review, and they are mostly done to help an HOA organize.
How Much an HOA Audit Costs Can Determine It’s Quality
More time equals more expense. That’s a general rule of thumb that many accounting firm follow as they estimate the fee for an association audit. The main factor they consider is the time they must commit to complete the service requested by the association. Their hourly rate and the amount of time they will have to dedicate to the audit dictates the final price.
When evaluating bids, the lowest bid should not always be the deciding factor your community association should base it’s decision on. Lower fees generally mean less experienced individuals will be performing the audit. It may also mean that the firm will be allocating less time to the engagement.
Really large discrepancies often raise red flags when it comes to comparing HOA audit bids. A bid is too high, or way too low? That’s usually not a good sign.
No Matter The HOA Audit Cost, It Must Be Up To Standard
When accounting professionals perform an audit, they need to follow a certain set of standards and procedures. The same holds for accounting firms. Their work are also held to a standard set of rules, which they must abide by when performing an audit.
They must have a healthy grasp of the association for which they are performing the audit, as well. They need to be familiar with the HOA’s internal control system, so they can evaluate the risk of material misstatement. The risk of material misstatement leads to financial statements that have a significant misstatement either by error or by fraud.
In turn, the accounting firm will use their determined risk, amid other factors, to dictate how it will perform a successful audit.
Board Members Have A Role In HOA Audits
Determining the HOA audit cost is ultimately in the hands of the Board of Directors ,who are the elected officials that represent the community or association. That doesn’t mean the members have no way to determine the cost of the HOA audit. They need to be inquisitive when it comes to the audit process. Here are some questions you can ask about the HOA audit, as a board member:
- Did the auditor request any supporting documentation or reports?
- Will the auditor review and analyze the invoices ?
- Will the auditor test the internal controls? In what way?
- Will the audit involve an interview with the Board of Directors?
If the answered to one or more of these questions is a “no”, then chances are you are not getting a complete audit. On the other hand, you as a board member can expect this audit to cost less, as well.
HOA Audit Costs Are Worth It For Financial Stability
HOA Audits are not just lengthy and tedious. They cost thousands of dollars as well, in professional fees and salaries. Even so, HOA audits are simply too important to ignore. A timely audit can help your board identify potential financial issues before they do damage. It also gives you and your board members a financial risk profile of your HOA. This way, you give your homeowners an assurance that your HOA board is handling its finances well. If there are areas for improvement, let our association management experts help. Give us a call, and let’s work together to bring financial stability to your community association.
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