14 Steps to Prepare your Homeowners Association or Condo Community for an Audit
Preparing for a year-end audit for a homeowners association involves careful organization, documentation, and attention to detail. Here are some steps you can follow to ensure a smooth audit process:
Organize Financial Records
Gather all financial records for the year, including receipts, invoices, bank statements, and ledgers. Ensure all transactions are accurately recorded in the accounting system.
Reconcile Bank Statements
Reconcile the association’s bank statements to ensure there are no discrepancies between the recorded transactions and the actual bank transactions.
Review Budget and Expenses
Compare the actual expenses with the budgeted amounts. Identify and explain any significant variances.
Ensure that all expenses are properly documented and supported with invoices and receipts.
Prepare Supporting Documents
Gather supporting documents for significant transactions, such as contracts, agreements, and invoices.
Prepare a list of outstanding dues and accounts receivable.
Review Internal Controls
Evaluate the effectiveness of internal controls in place for financial processes.
Document any changes or improvements made to internal controls during the year.
Documentation of Reserves
Ensure that reserves are appropriately accounted for and documented.
Provide details on how reserve funds were utilized during the year, if applicable.
Compliance Check
Ensure compliance with applicable laws, regulations, and the association’s bylaws.
Verify that tax filings, if applicable, are up-to-date.
Prepare Financial Statements
Prepare the financial statements, including the balance sheet, income statement, and cash flow statement, in accordance with the generally accepted accounting standards applicable to homeowner’s associations.
Communicate with Auditors
Communicate with the auditors and provide them with all necessary documentation and information.
(Year End Financial, next month’s bank statements and financial, when available, prior year complete General Ledger or Trial Balance, YTD GL or TB, an annual budget for the year of audit and current year).
Address any questions or requests for additional information from the auditors promptly.
Board and Member Communication
Keep the HOA board and association members informed about the audit process and its progress.
Share the audit findings and recommendations with the board and members after the audit is completed.
Follow Up on Audit Recommendations
Implement any recommendations provided by the auditors to improve financial processes and internal controls.
Prepare Audit Report and Disclosures
Work with the auditors to prepare the audit report and financial disclosures.
Ensure that the audit report accurately represents the association’s financial position and operations.
Store Records
Maintain a secure and organized record of all audit-related documents and reports for future reference.
Continuous Improvement
Use the audit findings as an opportunity for continuous improvement. Address any weaknesses or issues identified during the audit process to enhance the association’s financial management practices.
By following these steps and maintaining a high level of transparency and accuracy in your financial processes, you can help ensure a successful year-end audit for your homeowners association. Lastly, who you work with to do your monthly accounting will impact the steps above.
Lending a Hand with the HOA Audit Process
At Community Financials we provide your auditor online access to PDFs of all vendor invoices as well as our accounting software. Plus, your auditor will receive the same responsive communication as our customers. We have experienced that this typically reduces the time the auditor takes to complete your audit which may save the association money plus your audit is finalized sooner.
This speed also ensures you are not waiting three, four, or five months to have the auditor’s entries made and reflected in correct financial reports for the new year. Remember the final numbers for the ending year will be the starting figures for the new year. Without these, the financial reports are subject to revision and you may not have an accurate picture of your community’s financial standing.
