Audit. The word alone is cringeworthy for a lot of people. Similar to an audit from the IRS, a homeowner’s association audit is a lengthy process. An audit can take three to five weeks. So, investing in the best HOA management software can make it easier to move through any financial review processes required of your association, including audits.
What You Need to Know About a Homeowner’s Association Audit
An audit of your HOA is an in-depth review of an association’s financial data.
Here are the top three things every board member should know about an HOA audit:
1. The association should budget for an HOA audit.
An HOA audit is an expense that every association should include in their annual budget to avoid a “surprise” cost. The need for an audit in a homeowner’s association is determined by the governing documents and state regulations. It’s known well in advance when one is necessary.
There are a few levels of financial reviews and audits that your HOA may be required to conduct, such as a forensic or reconstruction audit. An accountant without a connection to the HOA should handle any audits to mitigate risks.
2. An HOA audit is about more than your financials.
A homeowner’s association audit is more than an annual financial review by the association members and the board. It’s when a third-party CPA is hired to dig into financial data in search of mistakes, evidence of fraudulent activity, or other oddities.
The audit is used to determine the state of the association’s finances, not only whether or not the bookkeeper or individual in charge of finances is correctly managing them.
The independent accountant will communicate with creditors, vendors, and debtors for confirmation of the amounts owed to and from the association. They’ll also review the bank accounts, minutes from meetings, contracts, insurance policies, budgets, and more in search of discrepancies or errors.
3. Homeowners can demand an association audit (in some states).
Depending on your state, homeowners may have a right to demand an audit. Audit laws for associations vary from state to state. In some cases, like Florida, condos and HOAs follow different regulations. Be sure to have a clear understanding of your state’s laws.
Most states require at least one financial review or audit per year contingent to the association’s size. Using Florida as an example again, if 20 percent of an HOA’s owners petition for additional financial reporting than what is required by law, the association must vote on the request within 30 days. Revisit number one in this article about budgeting if your homeowners have a right to demand an audit. Even if it’s unplanned, it’s important to be prepared.
Homeowner’s Association Audits Build Credibility
Financial reviews and audits are a necessary fiduciary duty for condos and HOAs, whether self-managed or using a property management company.
It’s a best practice that ensures everything is clean and reliable. Even if your state doesn’t require one annually, you should be proactive.
Here are a few examples of issues that an HOA audit could uncover:
- Improper use of petty cash
- Running over budget on projects
- Improper insurance due to growth
- Embezzlement from property managers or board members
Though no one wants to deal with these problems, it’s better to identify and address them sooner rather than later. Even minor accounting mistakes can lead to bigger problems if left unchecked.
Audited financials add to the association’s credibility and are an easy handoff when board members change. New board members tend to question financial details, but with a recent audit, they’ll feel more secure that the information is accurate and correct.
Invest in the Best HOA Management Software to Prepare for Your Next Audit
Homeowner’s association audits are inevitable.
Interactive reporting allows users to quickly find answers to questions and supports greater transparency with homeowners. If you want the best HOA management software for your organization, watch a demo of TOPS [ONE] today.
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