Focus your efforts, time, and expense on four key areas.

Bach, James, Mansour & Company conducts a number of community association and HOA audits (and audit alternatives) each year. I’ve written about the audit alternatives before, including the popular agreed-upon procedures engagement. During these financial reviews we uncover a variety of discrepancies, from honest mistakes to dishonest actions that could be considered theft.

Focus your attention on these key areas

Regardless of the scope of your financial audit or engagement, there are a few areas that, when scrutinized, tend to uncover the most potential issues. A full financial audit covers all of these and more, or you can specifically target them in an agreed-upon procedures engagement. Here are the areas that you want to highlight, and what we look for:

  • Petty cash/debit cards – disbursements should all have matching receipts. Written policy for use of petty cash funds, including maximum outlay.
  • Expenses – should match the budget, or include a documented reason for variance. Backup documentation (like check images) for all payments.
  • Bank accounts – reconciled balances match the numbers reported in the general ledger.
  • Contracts – written agreements are in place for more expensive projects and ongoing support, Contracts reviewed every year for updates and price adjustments.
  • Response to our requests – while technically not an “area” of review, refusal to provide information (from any party) is normally a red flag.

Don’t blame your property management company

We are not just hired by community associations. Sometimes, a property management company may engage us to review a community’s financial information. In either case, we can usually tell whether or not an association Board of Directors is actively participating in the financial management process. As a Board member, it is your responsibility to ensure that your property management company:

  • Has a current contract reflecting all fixed and variable fees.
  • Is following your documented management procedures, including financial reporting and recordkeeping.
  • Financial reports are accurate, based on monthly Treasurer review at a minimum.

Is it time to review your HOA financials?

Unless your Covenants say otherwise, I recommend that community associations conduct some type of formal financial review at least once every 2-3 years, as well as during major changes like developer turnover or new management company

A CPA is required for any audit or agreed-upon procedures engagement. Make sure you choose an independent CPA with HOA and community association experience, like Bach, James, Mansour & Company. If you would like to learn more about audits (and alternatives) for your association, please give us a call.

Neal Bach, CPA