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Audit

Started by MaryannH • 9 replies • 2322 views

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MaryannH (Illinois)
Posts: 3
Posted:
I am in an HOA and we are talking about having an audit. How would that cost us? In started in 1992, with 14 owners we grew to 33 in 1998 when all the units were sold. Some are saying it is too costly, what can we expect to pay?

Thank you.
MaryAnn Haiman
[email protected]
TimB4 (Tennessee)
Posts: 21,059
Posted:
Maryann,

A CPA can provide many levels of service. Each level providing a more thorough review and each level costing more then the previous one. When we asked for bids to perform an audit, most of the firms we contacted refused to bid and the minimum bid was $5,000. In speaking with CPA's, the cost is mainly due to various requirements imposed when performing an audit as a result of the ENRON bankruptcy.

I was advised that our Association probably only needed a financial review (costs $600-$800) vs. a financial audit (costing $5,000 plus).

Here are the differences as I understand them:

A Financial Compilation is when a CPA takes financial data provided by the nonprofit and puts them in a financial statement format that complies with generally accepted accounting principles. There are no testing or analytical procedures performed

A Financial Review is basically a “does it make sense” type of analysis. The CPA reviews the financial data, does inquiries to the Board and uses analytical procedures to determine if a reasonable basis that no material modifications to the financial statements are necessary and that they are in conformity with generally accepted accounting principles.

A Financial Audit is when a CPA reviews the financial data, policies and procedures. They also confirm with outside parties that services paid for were provided. They test selected transactions by examining supporting documents and they perform physical inspections and observations of processes, procedures and the internal control system of the organization. There are also very strict documentation requirements and checks that the CPA must perform in order to comply with Federal laws and regulations.

Tim
DavidW5 (North Carolina)
Posts: 565
Posted:
Our HOA is much larger than yours (801 homes). We have a annual audit done. The 2010 audit cost was $6,700. This sounds like a pretty high price but it is small relative to our $2.3M annual operating budget and our $2.2M of replacement reserve funds.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Forgot to add, for comparison purposes, we have 130 lots and an annual budget of under $100,000
TimB4 (Tennessee)
Posts: 21,059
Posted:
Obviously, the larger the budget/financial accounts the more it might make sense to spend money for an audit. The larger the membership the easier it is to pay for it.

As an example (using Steve's price of $6700 for an audit):

Steve has 801 lots or a cost of $8.36 per lot to pay for an audit
My Association has 130 lots or a cost of $51.53 per lot
Maryann has 33 lots for a cost of $203.03 per lot

If there is reason to suspect foul play or financial discrepancies, then an audit is probably warranted no matter the cost. However, if you want to have an audit every year, the question will become - does the membership want to increase assessments by that amount?

For us, a financial review makes better sense then a full audit. The cost is around $6.15 per lot and the results satisfy the membership. If I was in Steve's association, since the cost per lot is minimal and the financial accounts very large, I would prefer having and paying for an audit.

Tim
DavidW5 (North Carolina)
Posts: 565
Posted:
The original post implied that an association which began operation in 1998 had never had an audit. If that truly is the case, if I were an owner in that association I would insist that an audit be performed. Once that audit confirms that the financial statement fairly presents the financial status of the association, then subsequent years could have a less expensive review, as Tim suggested.

BTW, Tim it was Dave, not Steve your post referred to.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Quote:
Posted By DavidW5 on 09/25/2011 4:39 PM

BTW, Tim it was Dave, not Steve your post referred to.

My apologizes, I guess I need to clean my reading glasses.
SteveG4 (Texas)
Posts: 6
Posted:
our HOA is 27 yrs old and was audited for the first time last year, at my insistence. we had 2007 and 22009 audited by a cpa/ea for the cost of $750/yr.
TimB4 (Tennessee)
Posts: 21,059
Posted:
Steve,

Did you truly get an audit or just a financial review?

An audit would have required the Association to answer many many question in how things are done. As a trusted CPA once told me, an Audit is as much work for an Association as it is for the accounting firm.

TimB4 (Tennessee)
Posts: 21,059
Posted:
If you truly did get an audit, I'd love the name of your CPA.

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