HOA Audit Requirements

Audits play a crucial role in maintaining financial transparency and accountability within Homeowners Associations (HOAs). They provide an in-depth review of the HOA's financial records, ensuring compliance with state laws and community governance standards.

What Is an HOA Audit?

An HOA audit is a formal examination of the association’s financial statements and records conducted by an independent Certified Public Accountant (CPA). The goal is to verify the accuracy of financial reports, uncover discrepancies, and provide assurance to homeowners that funds are being managed responsibly.

Why Are HOA Audits Important?

1. Financial Transparency: Provides homeowners with confidence that their dues are being used appropriately.
2. Fraud Prevention: Detects and deters potential misuse of funds or accounting errors.
3. Compliance: Many states and governing documents require periodic audits to ensure adherence to laws and regulations.
4. Budget Accuracy: Helps ensure the HOA’s financial planning aligns with actual expenses and reserves.

Legal Requirements for HOA Audits

General Guidelines

• State Laws: Audit requirements vary by state. Some states mandate annual audits for larger HOAs, while others require them only under specific conditions.
• Bylaws: Many HOA governing documents outline when audits must occur (e.g., annually, bi-annually, or upon member request).

State-Specific Examples

California

• Davis-Stirling Act: Requires HOAs with annual gross income exceeding $75,000 to conduct a financial review by a CPA every year. Full audits are not mandatory unless specified by the HOA's governing documents.

Florida

• Florida Statutes 720.303(7): Requires HOAs with revenues over $500,000 to conduct an annual audit. Smaller HOAs may be required to perform a financial review or compilation instead.

Texas

• Texas law requires financial audits if requested by 20% or more of the HOA's members. Otherwise, audits are at the discretion of the board or governing documents.

Types of HOA Financial Reviews

1. Compilation: A basic summary of financial records with no assurance of accuracy.
2. Review: A more detailed assessment that identifies inconsistencies but doesn’t include a full audit.
3. Audit: The most comprehensive option, providing a formal opinion on the accuracy of the financial statements.

How Often Should HOAs Conduct Audits?

While state laws and governing documents dictate specific frequencies, best practices suggest:

• Annually for larger HOAs with significant budgets or complex financial structures.
• Every 2-3 years for smaller HOAs unless otherwise required.

Homeowners’ Rights

Homeowners often have the right to:

• Request an audit if supported by the required percentage of member votes.
• Review audit reports during annual meetings or through official HOA communications.

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Regular audits not only protect the financial integrity of the HOA but also build trust and confidence among homeowners.