2015 has definitely been a busy year at Bach, James, Mansour & Company. One of the main business changes that we’ve noticed has been a big increase in the number of HOAs and Community Associations requesting audits and audit alternatives like agreed-upon procedures engagements. Whether to address a specific need or just to give the board an enhanced level of comfort, associations are adding these financial procedures to their budgets and making the call to CPAs like BJM with this unique type of experience.
We wanted to get some rationale behind the increase in requests for audits and other financial procedures, so we asked our clients. Here’s what they said:
- The association is a business. With annual revenue from $50,000 to over $5 million, boards want independent verification of sound business and financial procedures.
- Concerns about the property developer at turnover. There are often questions about the amount, location, and use of assessments and reserve funds.
- Backup for inexperienced board members. While it helps to elect board members (especially the treasurer) with some financial background, that’s not always possible.
- “Trust but verify” approach with property management companies. Management companies seem to like getting this third party verification of their service quality.
- We’re in a litigious society. With a neutral third-party involved, the board can minimize the chance of allegations from unhappy neighbors. You can probably think of one…
We live for this stuff – and have experience to share
While this concept may be new to you as a community association or HOA board member, for CPAs like Bach, James, Mansour & Company, these financial procedures are a no-brainer. We work with each association to assess the specific need, choose the most targeted and cost-effective approach, and then use our industry experience to focus on the areas where there’s the greatest chance of errors or issues. We’re not afraid to ask the tough questions of vendors and property managers.
In addition to reviewing the books, we can also compare your operations with industry best practices. Is your delinquency rate above or below average? Does the board have adequate liability insurance? Is your reserve fund adequately funded? How much should you be paying for landscaping? Since we work with so many other associations, we can help answer these questions as well.
Build an HOA audit into your annual budget
Many homeowner associations are starting to conduct audits or other financial procedures every year. It’s easier to budget, easier to execute (potentially at a lower cost), looks impressive at your annual HOA meeting, and allows for quick budget and procedural adjustments before any issue gets out of control. If you don’t have the budget or the desire for an annual audit, consider conducting a procedure at least every couple of years to build some continuity and confirm the financial health of your community.
Neal Bach, CPA