A homeowners association (HOA) audit can be expensive. Depending on your client’s needs, HOA audits cost between $4000 and $6000. This is because an HOA audit is a very thorough, time-consuming process that must be performed by a certified public accountant (CPA). However, the cost of an HOA audit is a valuable investment for any association, big or small.
By understanding the true value of an HOA audit, you can help your clients through the audit process and ensure the long-term financial success of their association. Although HOA audits are expensive, they’ll end up saving your clients more money overtime. This is because a financial audit provides priceless information that the HOA can use to inform its decisions.
If you’re helping your HOA clients create an annual budget, remind them to include the cost of an audit. Audits for HOAs are a priority and shouldn’t be skipped, even if the audit isn’t required by state law or association’s Covenants, Conditions & Restrictions (CC&Rs).
Learning more about HOA audits will also help you become a better HOA manager. As an HOA manager, it’s unlikely that you’ll be directly involved in an HOA audit. Typically, audits are organized by the HOA’s board. However, by increasing your knowledge of all topics that are relevant to HOAs, you’ll be able to offer expert advice to your clients and act as a third-party counsel.
Here’s why the cost of HOA audits is well worth it, for any size HOA.
The Audit Process
First, let’s examine the audit process for HOAs. The process is the reason why HOA audits tend to be expensive, as they are very time-consuming and may take days or weeks to be completed.
During an HOA audit, a certified personal accountant who specializes in association financing will work with your client’s board members. This needs to be an independent professional who has no existing ties to the HOA. Once the board makes arrangements to work with a CPA, he or she will conduct a highly detailed, forensic examination of all financial documents.
The documents used in an HOA audit may include:
- Past, present, and future budgets
- Bank statements
- Deposit slips and canceled checks
- Insurance premiums
- Contracts from service providers, both short-term and long-term
- Financial reports about HOA funds (general operating fund and reserve fund)
- Copies of board minutes and committee minutes
- Paid invoices
- Delinquency lists for member fees
- Fee structures
- HOA governing documents, such as bylaws and CC&Rs
- Tax documents
After carefully reviewing these documents, the association’s CPA will use them to verify the information available in the HOA’s online accounts. Then, he or she may also contact third-parties to confirm outstanding balances and debts.
Finally, the CPA will draft conclusions regarding the HOA’s financial health. The CPA may also make recommendations to help the board members ensure continuing financial success, or offer constructive feedback if he or she has identified any problems.
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Why HOAs Do Audits
There are several reasons why HOAs need to do financial audits. In a nutshell, an HOA audit gives your clients a complete “bill of health” that can be used to inform future decisions. HOA finances can become messy overtime and audits help clean them up.
Whether you’re managing a large HOA with hundreds of members or a smaller association with a few dozen, it’s important to encourage your clients to perform annual audits. In some cases, HOAs are required to conduct a regularly scheduled audit. For example, certain states have specific HOA laws that make a yearly audit mandatory for all associations. Audits may also be required by the HOA’s bylaws, or demanded via a majority vote by members.
Often, HOAs also perform audits to assist new board members and management companies. Since an audit provides a complete financial picture of the HOA, this information is highly beneficial to anyone who becomes involved in the association’s leadership. (As an HOA manager, you should ask to see the most recent audit whenever you acquire a new client.)
Additionally, HOA audits offer valuable assurance for the association’s financial future. Because audits are so in-depth and verified by a CPA, the data presented is very accurate. In other words, an audit is the most reliable type of financial review that can be performed for an HOA.
With an HOA audit, associations are also able to set budgets with greater confidence. They can adjust fees, levy assessments, or renegotiate contracts to help the HOA’s financial future. You’ll play a role in this by assisting your clients in the implementation of new fiscal strategies inspired by the audit.
Finally, conducting an audit will help an HOA prevent financial mismanagement and fraud. As an HOA manager, you can assist with this process by reviewing the results of the audit for any suspicious activity. An HOA audit also gives you and your clients a “baseline” for normal financial transactions. This will make potential fraud or mistakes easier to catch.
How You Can Help
As previously mentioned, audits are usually instigated by board members. However, as an HOA manager, you can advise your clients and assist in the auditing process. You can help them gather physical documents and use your association accounting software to generate financial reports.
With cloud-based accounting software for HOAs, such as CINC Systems, you’ll be able to streamline the audit process by gathering data quickly and efficiently. CINC Systems uses banking integration to host all your client’s financial data in one place.
Then, it gives you the tools you need to easily generate a customized financial report. Reports can be sent via email to your clients and their CPA, as well as attorneys or anyone else who may be involved in the audit process. By going paperless with digital financial reports, you’ll help make auditing faster and easier.
Try CINC Systems Today
When it comes to HOAs, it’s important to invest wisely. For your clients, this means the cost of HOA audits is a price that needs to be paid. For you, it’s vital to invest in the best association management accounting software. To improve your HOA management company and provide better service for your clients, click here to try a free CINC Systems demo.