Annual Audit Required

Mike,

Do your bylaws specifically call for a CPA conducted audit or just an audit? There is a big difference between the two. However, in either case, an audit must be performed - not a review or a compilation. Generally the audit is performed at year-end. If a CPA conducted audit is not required, you can ask for several members to volunteer to conduct the "audit". Hopefully you can find people who at least have some bookkeeping knowledge! Also, depending upon the size of your assn, if a CPA conducted audit is not specified in the bylaws you could have a CPA conduct a review instead of an audit.

For more info in the various types of financial reports, please see the info I posted just recently under the thread entitled "Member audit committee - is it legal?".

If you do not have a full year then I would not pay for an audit. Wait until 2008 closes and then do an audit.

Here are 2 CPA firm's that do HOA's in NJ; Warren Beede 732-493-8334 or Dave Furlow 732-747-0500. I used to use both of them when I managed in NJ. Good luck.

Thanks for your help. Our corporate records prior to 2008 seem to be lost or misplaced. At last night's BOT meeting, I was asked to find answers to the following questions:

1) What records would be needed(if we can find them) to perform a CPA review of previous years?
2) How many previous years (if any) do we need to have reviewed?
3) What is the risk to the corporation if we don't review previous years

Thanks in advance, Mike

Thanks Mary. We can certainly buy copies of old bank statements from the bank. That done, is there any point in having an accountant review the 12 bank statements without any other supporting documents? Thanks, Mike

My thoughts exactly. Reviewing the bank's statements really doesn't accomplish much. The President is set on my reaching out to a couple CPAs and presenting this scenario to them for their comment. I'm guessing we'll all agree. Thanks, Mike

I'd be more concerned about not having the past minutes of the meetings (where the financial report is attached each month, along with any other reports)

Make sure that your annual report is filed with the State, at least. (In Michigan, it's called the Annual Report and keeps your corporation on active status)

Mike,

Roger stated: "You can't even do a financial complilation." A compilation could very easily be done with only a few months worth of records, although, IMO this type report is meaningless. A compilation is merely a presentation of managements assertions in a financial statement. In other words the CPA doesn't prepare the f/s, he merely looks at one prepared by the assn treasurer or the mgmt co. There are no inquiries, assurances or even an opinion expressed. If any obvious errors are detected he will ask that they be corrected, but that's about it. Traditionally speaking, an audit or a review should be conducted after year-end. Considering the cost I wouldn't recommend otherwise. However, a compilation doesn't require very much effort and could very easily be conducted quarterly or semi-annually.

Mike,
Setup internal accounting procedures which the Board can monitor by monthly financial reports and comparison to financial institution independent reports. I suggest you start by establishing Rules and Regulations on Delinquent accounts (example for an HOA with very few delinquent account is attached) and provide these to all owners.

Internal controls include:
1. Require all incoming checks to be payable to the HOA.
2. Pay all bills from an HOA checking account. To protect agains a mechanic's lien we stamp the back of a contractor's check (see attachment).
3. Have theft insurance sufficient to cover funds. Requiring 2 signatures is required by some HOAs, but it is not required by banks in Colorado. Therefore, this provides little or no protection.
4. Setup all owner, vendor, and other financial transactions in a digital accounting package (we use peachtree). This allows ease of creation of necessary financial reports.
5. Provide monthly financial reports, which are understandable to a layman, to all Board members with an email address every month. This should include a Balance Sheet, Income Statement, Accounts Receivable, checks issued, and other desired financial reports. We also create a cash flow/budget chart. It is a break down the annual operating budget into monthly income and expenses on an spread sheet. This spread sheet allows each Board member to monitor all financials on one piece of paper. It is an effective financial management tool. The Treasurer should always ask questions on any items not understood.
6. Receive statements directly from financial institutions and compare these against the Balance Sheet and when necessary compare to the checks issued.
7. Conduct an annual financial review by HOA's finance committee or by an independent accountant.
8. Maintain files on all financials and taxes for at least 7 years.

Mike, issue a check for out of pocket expenses, including coffee expenses. We use a 3 part check with the bottom portion maintained in the files. Receipts, invoices, etc are attached to that portion of the check which describes the expense(s). These are attached to the monthly check register and filed by month in a folder labeled Accounts Payable. All folders are saved by year. Thus it is relatively easy to find historical data in the folders which are filed in boxes each year (or two).

Mike,

I don't know what the size of your assn is, but when I was treas. of a small 49-member HOA I set up a petty cash fund for small expenditures. It worked quite well. But, for a large assn that employs a management co, I don't think it would be a good idea.

Mike,

I fully understand not wanting to handle a petty cash fund. There's certainly nothing wrong with you requiring anyone asking for a reimb. of expenses to prepare a signed statement noting the date, amount and purpose of the expenditure. You could draft a form to be used for this purpose. At the bottom add a line for their signature and the date & check number of the reimbursement.
You could also note on the form the amount to be posted to each applicable expense account. All the receipts would be attached to this form. The rule I had was if you didn't have a receipt you weren't reimbursed!