Responsibly managing finances is a big part of a community association board’s job. Homeowners trust board members to use assessment funds to preserve the value of their homes and the neighborhood overall. Completing financial audits as needed or required by your association goes a long way in fulfilling this board duty.
In this article, we’ll cover some basics on HOA audits: what they are, their purpose, HOA audit requirements, how often audits should be completed, and the cost of HOA financial audits.
What Is an Audit?
An audit is an examination of the association’s finances for errors that is completed by a certified public accountant (CPA). Because of the unique nature of HOAs, the CPA chosen to complete the audit should have experience and knowledge of how community associations work.
More in-depth than a financial review, an audit checks association financials to determine whether there are any errors or misstatements and to determine whether the association’s financial records are being kept appropriately according to accounting standards.
What Is the Purpose of an Audit?
A financial audit helps an association determine whether its finances are being used responsibly, or whether changes to spending and the association’s budget need to be made to improve the association’s financial standing. Additionally, an audit may help the association detect embezzlement or other misuse of the association’s funds.
Is My Association Required to Complete an Audit?
Your association may be required by state law and its governing documents to perform financial audits, typically an annual financial audit. However, even if financial audits are not a requirement for your association, performing regular financial audits can help the board fulfill its duty to protect the association’s assets and help ensure that finances are being managed responsibly. Additionally, the board can earn trust from the membership through this objective evidence of how the finances are being used.
How Often Should My Association’s Finances Be Audited?
Typically, associations are either required or recommended to complete a financial audit yearly. However, smaller associations with simple finances may be able to complete audits less frequently.
Additionally, if the association is suspicious of mishandled funds, if there has recently been turnover in the board of directors, or if the association is having financial troubles, a financial audit would help bring the clarity and assurance to resolve such issues.
How Much Do Audits Cost?
A complete financial audit will not come cheaply. While the cost will vary by the size of the association and the complexities of its finances, a financial audit for an association costs around $5,000, and it can cost several thousand more. Especially for associations required to complete audits on a yearly basis, it is important to budget for this expense.
If you have any further questions about HOA audits, please see this article from Spectrum Association Management! They can help ensure that your association follows auditing requirements and best practices. Also, visit Boardline Academy Blogs for weekly board member tips and updates.