HOA Audits Are Essential To Keeping Neighborhoods in Check
Now that 2018 has come to an end, many businesses and organizations including homeowners associations (HOA) are finalizing the year-end accounting records. An important component of managing a transparent HOA is to conduct an annual audit. While an audit may sound intimidating to some, HOA audits are a great resource to assure that all financial records are in good standing.
What is an HOA Audit?
An audit is an intense review of accounts, cash flow, and other financial activity conducted by an HOA throughout the year. It is a verification of all financial statements of legal entity to provide reasonable assurances that they statements are represented in accordance with the reporting framework.
A board of directors appoints a third-party, usually a certified public accountant to conduct the audit. The auditor reviews the financial statements, bank statements, annual budget, reserve account, and any contracts with vendors that outline payment terms.
Why is an HOA Audit Valuable?
Even though a board has adequate checks and balances in place to assure all transactions are accounted for, an HOA audit is a powerful way to confirm the right processes have been followed throughout the year.
1. Identifying Any Weaknesses
Conducting an HOA audit helps to identify information that could impact future finances. An annual HOA audit will disclose any insufficient funds, non-compliant statues, or liabilities that could affect the community well-being.
2. Keeps major projects on budget.
Larger construction projects start with a budget, but can quickly take a turn for the worse if tasks don’t go as planned. An auditor will review all expenditures comparing it to the original budget to make sure the HOA isn’t overpaying for something it can’t afford.
3. Checks to make sure insurance is adequate.
An HOA policy is based on the number of homes in the community. As the community grows, it is easy to forget to notify the insurance company. An HOA audit will assure the number of homes covered matches the number of homes in the neighborhood
4. Add Value to Homeowner.
Prospective homeowners seeking out a condominium community will often inquire about the recency of an HOA audit. With this information, the homeowner can clearly see if the community is financially sound as an added peace of mind.
AR Management helps homeowners associations as well condo associations with the many tasks of managing an efficient community. Reach out and schedule an appointment today to see how we can assist your organization.