homeowners association audit guide

These documents basically dictate what rights the HOA has and what actions they are legally allowed to take. They also state the rules and regulations that every member of the HOA must abide by. They can also be used to assure the property owners and managers that the HOA is actually doing its job. If you are a member of a homeowners association, or are one of the HOA board members, there are many things that you need to make sure you are keeping up with. There’s no shame in asking for help, especially when it comes to a subject as difficult and confusing as accounting.

The results of an external audit can give  HOA members confidence in the association’s financial management, fostering trust within the community. External audits are conducted by independent CPAs or professional auditors. These experts bring a fresh, unbiased perspective to the financial review process, and overlook the HOA’s records for any signs of mismanagement, fraud, or non-compliance. It is not enough to make a monthly review of your records, since there may be some not evident problems that only an experienced specialist would be able to distinguish.

When Bylaws Require an HOA Annual Audit

To get the CPA credential, accountants acquire the education and practical experience required by state rules, as well as pass special exams, confirming their competences. A CPA will not only pinpoint problems in these areas but also offer you a comprehensive improvement plan, greatly simplifying your managerial routine. However, if you follow all of the guidelines outlined in this article, you will surely be ready to prepare for your next audit and have no problem at all. Since there are so many factors to these meetings, it is crucial to keep an updated record of all of them and make sure that the whole association is aware of what is going on. Apart from examining bank statements, the annual HOA budget, vendor contracts, etc., the CPA is also responsible for examining the taxes that have been filed by the organization.

homeowners association audit guide

Don’t use “Events Income” one year and then “Income from Events” two years later. Finally, the Modified Accrual hoa accounting Basis of Accounting follows the Accrual Basis for reporting revenue and the Cash Basis for reporting expenses.

Step 2: Reviewing Financial Statements and Records

Most HOAs are classified as non-profit companies, with bylaws and declarations that require a board of directors. Board members are community volunteers who likely don’t have the 20-plus hours needed every week to oversee the HOA’s daily operations. Following this, calculate your assessment fees and income from other sources, including late fees and additional fines. Once your HOA budget is formed, distribute it to your community members according to your state’s guidelines. With CINC, creating a budget, and maintaining financial transparency is a breeze. Although HOAs aren’t responsible for individual homeowner property, it would help to provide members with a checklist for home cleaning.

  • From there, you can investigate further or ask your HOA management company what went wrong.
  • Audits can be expensive, usually costing between $4,000 to $6,000, which is why many HOAs prefer to conduct yearly financial reviews instead.
  • This report will include the CPA’s findings, such as any discrepancies in your document and whether or not your HOA is compliant with GAAP.
  • The HOA board has a responsibility to protect the association’s assets and manage its finances.
  • It is better to pinpoint and fix mistakes and inaccuracies today so that they do not disturb you down the road.

Once all of the financial records are in place, you can move on to the next set of documents that you will need for your HOA audit checklist. One of the things that the CPA must review within the taxes is whether or not all of the accounting reflects accurate records of the HOA’s spending, annual budget, revenue, and tax return. They must also review and ensure that all appropriate documents and forms, like form H, have been filled out and submitted correctly.

An Easier Time All-Around

As I mentioned in the description of the checklist above, this too will almost certainly require external assistance from a CPA, lawyer, and others. It is highly recommended to bring in a neutral third party to review the books, validate your community’s financial health, train the new treasurer, and even help resolve potential conflicts during the turnover. While financial reports and regular financial reviews are also highly useful tools, the HOA audit is more than just a report. HOA management companies that run annual checks using CINC Systems’ accounting software can be confident they have the required procedures and information to stay in compliance and operate efficiently. Maintain healthy HOA vendor relationships to keep your management company and the communities you serve at the top of their client list. An HOA management company is responsible for managing the HOA’s day-to-day operations.

Audits also protect against potential fraud or mismanagement, promoting trust and confidence among homeowners. While on the topic of financial transparency, audits provide reassurance to HOA members that their dues and assessments are being handled with the utmost care and accountability. Regular audits will help your HOA achieve transparency and stability that are crucial for upscale financial performance and the well-being of your community. To enlist the support of a CPA who really cares, you will have to find out about candidates’ personal qualities. Ask whether their financial turnover improved after an audit from a specialist you are going to hire, as well as whether this expert listened to their views and cared about HOA’s well-being.

Each CIRA-related citation includes the specific topics addressed, cross-references to other related citations for those topics, and a summary of the citation. In addition, the Library includes a comprehensive cross-reference table, indicating whether each Library citation is applicable to IRC §528; IRC §277; Subchapter T; 501(c)(4); and/or 501(c)(7). With approvals, it’s not just a case of flat-out acceptance or rejection; comments can be sent to the submitter to provide the feedback necessary for the task’s completion. At the start of every year, the HOA board needs to get together and make sure they are ready and well-organized for the year ahead.

  • Simply put, an effective AMS and its database allow association management companies to grow faster and accomplish more with less.
  • Therefore, you may not be able to push through with any pending legal cases with the homeowner or collect past due balances.
  • Maintain a positive relationship with homeowners by providing a flexible system for accepting payments.
  • Community association management companies should consult insurance and legal professionals to ensure that each organization is managed with adequate and legally compliant fidelity bond coverage.
  • At the start of every year, the HOA board needs to get together and make sure they are ready and well-organized for the year ahead.