8 Secrets to a Successful Audit
A homeowners' association (HOA) board of directors is responsible for maintaining the financial health and wellness of its community. From creating budgets to collecting dues, the board has many fiscal duties. Among these duties is guaranteeing that a regular audit is conducted. Read on to learn more about financial audits and unlock eight secrets for conducting a successful HOA audit.
What is an Audit?
An annual audit is the highest level of review of an association’s financial books and records. It serves as a formal method of checking financial methods and procedures.
What's the Main Goal of An Audit?
Overall, audits are used to identify accounting weaknesses and correct financial problems. An audit can also be used to:
- Ensure accuracy
- Verify compliance with standards, such as Generally Accepted Accounting Principles (GAAP)
- Address risks
- Boost credibility
- Promote transparency
- Facilitate decision-making
How to Conduct an Audit for HOAs
Ready to get started on your HOA audit? Here are eight tips for conducting a successful financial audit for your HOA:
1. Ensure compliance.
Not all associations and states are the same. Before beginning the auditing process, it’s essential to check your association’s governing documents and state statutes to ensure you’re complying with the stated audit and review requirements. If you have questions or need clarification, connect with your community manager or an HOA lawyer.
2. Develop an audit schedule.
If your governing documents don’t specify a frequency for your community’s audits, adopt a schedule to maintain consistency with a rotating board. For example, you could conduct an annual review followed by an audit every third year.
3. Use a third party to conduct the audit.
Never have your management team or affiliated companies prepare an audit or review on behalf of your association. Always utilize a third-party financial agency or Certified Public Accountant (CPA) to avoid any conflict and offer additional transparency to your homeowners.
RELATED: Why Your HOA Needs a CPA
4. Ask questions.
After the audit is finished, thoroughly read it and any notes provided by the preparer of your association’s audit or review. Before finalizing anything, everyone should have a sound understanding of the audit and be on the same page about next steps. If you're unsure about something, ask for clarification.
5. Inform homeowners about the audit.
Remember: involved homeowners are happier homeowners. Keep your members in the loop by sharing your association’s audit or review with them. While it varies by your community's needs and demographics, consider sharing your audit through:
- U.S. mail
- A secure community association platform, like TownSq
Your governing documents should include more information about how to distribute your audit.
6. Keep records of your audit.
In short: if it isn't recorded, it didn't happen. Your HOA secretary or board must note the completion of your association’s audit or review in your HOA meeting minutes. Document any recommended actions and when and how you intend to satisfy those recommendations. Make timely updates as necessary.
RELATED: HOA Meeting Minutes: Dos & Don'ts
7. Give an audit deadline.
Communication is key. Auditors are busy, so it's critical to provide the preparer with a deadline for when you’ll need the drafted audit or review. Some people will offer discounts for avoiding “tax season" and conducting an audit in a slower time; however, before agreeing to this, confirm your documents comply with the delayed timeline.
8. Include auditing costs in your annual budget.
To prevent delays and maintain consistency, include all audit or review costs in your annual association operating budget. This will allow you to schedule and order the audit or review in conjunction with adopting the budget.
Beyond the Audit: More HOA Financial Support
By following these eight auditing tips, your board will be on its way to conducting a thorough annual audit or review. However, ensuring a regular financial audit gets completed isn't the board's only financial responsibility. The HOA board is also responsible for creating and presenting an annual budget. Want to learn more about HOA budgets? Check out our article, "Common HOA Budgeting Mistakes and How to Avoid Them," and use the provided information to help your board stay on the right financial track.