A homeowners association (HOA) can be a complex organization with many moving parts. HOAs represent the best interests of the homeowners in their community while providing various services and amenities. To do this, HOAs collect fees from residents and control various financial funds to pay for them. As an HOA manager, you’ll assist your clients by managing their finances. One of the best ways to do this is by assisting with financial audits.
HOA audits provide board members and residents with valuable insight about their association’s financial health. An audit can also highlight areas of financial risk, such as budgetary problems or even financial fraud. Performing an audit is essential for an HOA’s ongoing financial health and its future success. However, when done correctly, the audit process can be long and expensive. This may make board members reluctant to perform audits on an annual basis, especially if it’s a smaller HOA comprised of part-time volunteers.
However, HOA audits are very important. Regularly scheduled audits can catch small issues before they blow up into huge problems that impact the entire HOA. They also provide board members and managers with information that can be used for future budgeting, setting fees and assessments, and other financial decisions. So how often should an association be audited?
In general, experts recommend doing an HOA audit once a year. Many HOAs do their audit at the beginning of the year in January or at the end of the fourth quarter in December. Often, a schedule for auditing is defined by the board members in the HOA’s bylaws and governing protocols.
However, there are certain situations that affect how often an HOA should be audited. Here’s some information to help you answer the question of how often an HOA should be audited so you can assist your clients.
Certain states have stricter laws about HOA finances and regulations. These laws can dictate the circumstances surrounding HOA audits, such as how frequently they need to occur. HOA state laws may also outline the protocol for members asking for an audit of their association.
If you manage an association in one of the following states, do your homework and make sure you fully understand the state laws regarding HOA audits.
Texas: In Texas, it matters whether you’re managing an HOA or a condominium association (COA). COAs are legally required to perform an annual audit, however, HOAs are not. Still, experts recommend performing an annual audit regardless of whether it’s required by law.
California: According to California’s state HOA laws, audits must be done once a year. However, it’s up to the HOA’s board to decide when the audit actually occurs; there is no specific deadline, as long as it’s performed within the fiscal year. Additionally, HOAs in California must provide its members with an audit report within 120 calendar days of finishing the audit.
Colorado: Similar to California, Colorado allows HOA board members to decide when and how often it performs a financial audit. However, if the HOA’s expenditures or revenue for the year exceed $250,000, then the HOA’s members can formally demand an audit by gathering votes from one-third or more of the total membership. Smaller Colorado associations, or Colorado associations that make less than $250,000 in revenues or expenditures, can still be petitioned — however, the members in this situation can only petition for a financial review, not a full audit.
Michigan: In Michigan, HOA members can petition to have an audit at any time. However, a majority of owners can also vote to opt-out of auditing.
Florida: For associations based in Florida, HOAs with more than $500,000 in revenue are required to conduct yearly financial reporting if 20% of the members vote for it. With a majority vote, members can also demand a higher level of financial audit to be finished within 90 days of the vote or before the end of the fiscal year.
Other States: The HOA laws in other states vary with regard to auditing. To assist your clients in these states, consult the HOA’s bylaws as well as local legislation. If you need further help, consult a local attorney.
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Regardless of the legal requirements for HOA audits, you should encourage your clients to audit their association finances at least once a year. Audits provide you and your clients with powerful information that can help with decision-making, budgeting, and other financial planning. Taking the time to do an audit once a year will help the HOA avoid greater mistakes further down the line.
To make auditing easier for your clients’ HOAs, you can assist the board by providing clear financial reports with all the necessary data. One of the best ways to provide financial reports is with association accounting software like CINC Systems.
With CINC Systems’ cloud-based accounting software for HOA managers, you’ll receive powerful financial tools to help you streamline your clients’ auditing process. CINC Systems gives you the ability to generate electronic financial reports for your clients with the click of a button. Reports can be customized for specific data sets, such as expenditure categories or specific dates. These reports can then be emailed to board members, CPAs, or anyone else involved in the HOA’s audit.
To see how CINC Systems accounting software can help you with your HOA management business, click here to request a free demo.