Is an HOA Financial Audit on the Horizon?
Most small and medium sized businesses enlist the services of a third-party Certified Public Accountant (CPA) to provide a financial review or financial audit of their business. This kind of review can provide peace of mind and confidence that finances are in order. This business best practice is one that should also be followed by an HOA.
Is It Time for an HOA Financial Audit?
When a board needs to decide whether or not to seek a financial review, it is important to recognize that a financial audit or review may be dictated by state law or the governing documents of an HOA. The performance of a financial review or audit may also be legally required if the HOA has a bank or mortgage loan. Even if it is not required, a financial audit or review is recommended annually or at a minimum every other year for an HOA.
What does a Financial Audit Entail?
An HOA financial audit entails a thorough review of the financials of the association for a certain period of time, typically one fiscal year. An auditor reviews financial activity for accuracy of payments and financial transactions, confirms what is owed to the association by debtors and what the association owes its creditors, and verifies the assets of the association. The audit will also review the meeting minutes of an HOA to determine the validity of large monetary decisions.
What are the Benefits?
An audit is like a financial check-up. Most HOA bylaws stipulate a review once a year, with the process customarily done at the end of the year. Such financial check-ups are beneficial to Homeowner Association management in building trust with the members of the HOA community. Other benefits of performing an HOA financial audit or financial review include:
- Enabling protection from fraud or mismanagement of funds.
- Identifying financial risks sooner, rather than later.
- Providing for the transparency of the HOA to potential new buyers to the community.
While enlisting a CPA to perform an audit is not cheap, the benefits of an audit – including peace of mind that financials are being handled properly – typically greatly outweigh the cost.
Contact AR Management for the professional expertise in financial planning, analysis, investment opportunities of association funds, as well as assisting with the accomplishment of an orderly fiscal profile.