HOA Financial Audits

Are HOA's required to do financial audits and how often? Also, if changing management company, would an audit need to be done?

I would definitely recommend an audit if you're changing management companies. When the transfer is completed, you don't want any loose ends. Don't forget about preparing a transition plan so the will be able to keep track of what needs to be done.

I did some googling on this topic and came away with these tips:

First, check your documents to see if they'd required, as Melissa noted - did you do that? If you can't find anything, you may want to consider talking to your neighbors about amending the documents to require it.

You should consider the size of the community (units), extent of common areas, and annual budget. Generally, the bigger the community, the more frequent your reviews - at least once a year.

Next, why do you want an audit? I said it's helpful if you're changing property managers, but they may be useful if your board has served for years and years (e.g. 10 years or more), and especially if fraud or embezzlement is suspected. Some audits aren't cheap, a little due diligence is necessary at first before you go with a full audit. If the homeowners are muttering about where the money's going, you need to be candid about the budget -good, bad and ugly. People may still be pissed, but will respect the transparency, including the board's honesty as to why decisions were made.

The Google-verse a!so noted the difference between an audit and financial review and you need to understand the difference before you proceed. A financial review checks the records to ensure they are correct. An audit reviews the records and verifies the information the association gave the auditor is complete and accurate. That would include reviewing meeting minutes, contacting the association's creditors and debtors to ensure the amounts owed and owed to the association are accurate, and checking the association's physical inventory, if relevant.

There's more, but you can and should do the research yourself. Talk to an accountant for more information and to help determine what works best for you community. Have fun!

In the 5 years I've been in my HOA it has gone through 4 Treasurers, 4 changes of outside bookkeepers, in and out of a management company's services, the opening of 4 additional bank accounts and the closure of 3 others, a major dispute with the management company's assigned bookkeeper, and we're on President #8 since arriving.

We're below the revenue threshhold that would trigger audited financial statements every year and having an audit is optional. Naturally, since audited financials cost more than reviewed financials, no one wants an audit. The prevailing notion is that "the monthly financials seem to be in order and no money has gone missing", so what do we need an audit for? When you put it like that, an audit might be not worth doing. But given the turnover of people and accounts and companies I listed up top, I'd recommend having one done just for peace of mind.

Thanks, SheliaH, some good advice there. I'm all in on checks and balances. Our bank accounts will continue to fluctuate over the next 5 years. We spread out our reserves balances to stay under the FDIC limit. Starting in 2021 we will have 5 consecutive years of reserve expenditures of about $325,000 per year, so the number of bank accounts will be shrinking. The prospect of wacky homeowners with no experience in project management overseeing $1.5 million in spending over 5 years is enough to keep a person up at night.