Should Your HOA Have An Audit?
At the end of the year, homeowners associations (HOAs) have to start considering whether they need to get a financial audit. Usually, it is a toss-up between getting a financial review and for some HOAs, there is a need to get both done. What about your community association, should your HOA have an audit?
Financial Review vs Audit
These two sound similar to one another, but they’re very different tools. An HOA financial review is a review of the financial records or reports of the HOA. The HOA will seek the help of a certified public accountant (CPA) to do the checking and make sure all records are accurate.
The financial audit requires more work from the CPA to analyze the HOA’s current financial situation. It’s not just about checking the reports, but the CPA has to verify all the information on those reports. This includes calling debtors to see how much people owe the community association. The CPA will also call creditors to confirm how much the association owes.
Physical Checking Of Inventories
Further, a financial audit requires a physical checking of inventories. The CPA goes through the minutes of the meeting between the HOA and a contractor to make sure all the details are correct. Here’s a quick breakdown of what a CPA checks in the auditing process:
Bank statements (including deposit slips, canceled checks, etc.)
Board meeting minutes
Budget (current and next year)
Cost Of An HOA Audit
As you can see, a financial audit is a lengthy and thorough analysis. It is beneficial in assessing the possible issues and risks at present or in the future so that the HOA can prepare accordingly.
What is the cost of an HOA audit? With the amount of work needed for an audit, HOAs should prepare at least $4000 to $6000 for getting it done. It should be one of the priorities when the HOA board starts planning a budget.
Should Your HOA Have an Audit?
The needs of each homeowner’s association vary. There are communities in certain states that require audit every year. But for those who are not mandated by the law, how can you tell if you need one? It’s not cheap, after all.
Before getting an audit, the HOA board can first refer to the association’s bylaws and check which one is required, the review or audit, and when should they be done. The minimum requirement is a financial review done yearly.
The next thing to consider is the size of the community. Larger communities are better off getting both a financial audit and review. Meanwhile, smaller associations will most likely have fewer assets, so an audit may not be needed.
Apart from the bylaws and size of the community, getting an audit can be under the HOA board’s or the homeowner’s discretion. For instance, if anyone feels like the funds are mismanaged and mishandled, then homeowners can urge for a financial audit.
A change in the HOA management can also be a precursor to getting an audit done. The new manager or management company can have a good idea of the previous handling of finances, current inventory of assets, and the current financial situation of the community association. This will help the new HOA manager make plans and decisions based on the results of the audit. At the same time, if there are any mishandling of finances or inaccuracies in the reports, this is a good time to learn about them before the management changes hands.
Aim for Financial Stability and Transparency
Getting an audit is for the benefit of the HOA board and homeowners. The community will be made aware of the financial situation of their association. This will promote financial transparency and prevent problems between the homeowners and the management. Additionally, the financial audit will show everyone the association’s financial health so they can better prepare and make necessary adjustments for the next financial year.
Clark Simson Miller Can Help You Manage Your HOA Finances
If you’re unsure what your HOA needs, it is best to talk to a professional to make sure you’re spending your money right. If you’ve been having trouble with your financial documents and need assistance in making sure the reports are accurate, Clark Simson Miller can help with financial management. You can ask more about our financial management solutions at firstname.lastname@example.org. For a free quote, give us a call at (865) 315-7505 or contact us online!