Your HOA’s annual audit provides valuable information to assess and improve the financial health and longevity of your organization. HOA accounting software maintains a thorough record of your HOA’s finances, providing you with a clear portrait of its financial past and projections for its future.
Some states require an annual audit for HOAs (for example, in Florida), or they can be mandated by your HOA’s bylaws. If you are not legally obligated to conduct an annual audit, you should still seriously consider administering one. The benefits far outweigh the cost and time concerns your HOA or the board may have.
Annual audits keep your HOA accountable and facilitate transparency for all income, expenses, and investment activity from the past year. They expose any developing issues that can become bigger problems if left ignored.
An audit not only reveals areas for improvement, but also where you are succeeding in neighborhood management. Conducting an official audit will create trust between the HOA, the board, and homeowners and inspire confidence in all that the neighborhood is being well managed.
Going through an audit is a big task, and laying the proper groundwork is essential for the most accurate and fruitful report. Using appropriate software is a good place to start efficiently preparing for the audit. Below, we explain the three ways HOA accounting software can help prepare you when it’s time for your audit.
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Be proactive and prepared with HOA accounting software.
Even though your HOA most likely has a treasurer, you must hire a licensed accountant unaffiliated with your organization to conduct the audit. This third-party will provide an objective and unemotional view of your finances. Your HOA should have an accountant on retainer for this purpose, as well as to facilitate additional financial reviews throughout the year.
Bringing in someone unfamiliar with your financial processes can be challenging if you maintain haphazard systems of financial management. HOA accounting software provides an easy-to-navigate system of record for any newcomers because it is designed specifically for HOAs and their needs.
Unfortunately, some accountants encounter HOAs that manage their accounts with disorganization or even negligence. Improper and unattributed expenses can be indicative of sloppy bookkeeping, or something more nefarious like embezzlement.
By maintaining careful records throughout the year, you’ll be able to see and manage minor issues before they become big problems.
Preparation for the audit should take place throughout the year. Your treasurer should regularly reference and analyze various financial reports generated by your HOA accounting software. Expenses should be carefully categorized and labeled as they occur so that your information is in order when it’s time for the audit.
At that point, your accountant will need up to date copies of your HOA’s:
– Income statement
– Balance sheet
– General ledger
– Bank statements and reconciliations
If you’re not managing your finances with appropriate systems, these records can be a lot to generate in a timely manner. HOA accounting software has built-in, ready made report templates for your organization to quickly provide to your accountant. You can also create any custom reports you would like to analyze.
Since the reports are easily created and accessible, you’ll already have a good idea of your HOA’s financial situation before the audit, preventing any major shocks or disruptions.
Anticipate expenses with HOA accounting software.
Effective budgeting is crucial to the success of your HOA. Ensuring that your income and reserves cover regular, occasional, and unexpected expenses means your HOA can provide for itself financially.
Your accountant will compare your regular expenses and income with your annual budget. This ensures you’re staying on track, forecasting your financial situation accurately, and managing any unanticipated events appropriately.
To accurately provide this analysis, your auditor will also require your HOA’s:
– Budget statement for current year
– Budget statement for next year
– Payroll records
– Vendor contracts
– Invoice expenses
HOA accounting software acts as a digital repository for your important documents. You can easily save your budget statements, invoices, and contracts in one convenient cloud-based location accessible by all necessary parties.
You can create and save vendor profiles within the software, allowing your auditor to access each vendor and carefully evaluate its contract with the HOA. They may find extraneous vendors that provide similar services or see where the HOA has been overcharged for certain services.
Having your detailed contracts saved and ready to view will help your auditor thoroughly analyze your vendors and let you know in detail what you are really paying for.
Your auditor will ensure your budget takes inflation into account, that you maintain a robust reserve fund, and that every known expense is accounted for. No one can predict the future but using accurate and detailed information from the past provides better estimations.
Minimize risk with HOA accounting software.
Part of the purpose of the annual audit is to ensure you are using the funds and information your HOA receives responsibly. From your previous year’s financial history to any tax documents, all historical information you have on file helps reduce risk for next year’s operating budget.
For this part of the audit your accountant will need your HOA’s:
– Previous audit
– IRS tax return filings
– Annual budget
– Board minutes
Filing taxes for your HOA could be required depending on your state’s laws or HOA’s status. HOAs can file this specific form as its income return for certain tax benefits. Your accountant will know your area’s specific laws, and your HOA should be familiar with what is required as well.
Analyzing board minutes will give your auditor a better idea of your HOA’s history and behaviors. They will learn about community concerns and major occurrences from the past year. These things help fill in details that financial reports can’t provide.
The audit will also check on your investments and the viability of your reserve fund, both of which provide a safety net for your HOA. A reserve fund that has been accessed too frequently or constantly adjusted investments could raise a red flag for your auditor. Having clear plans to prevent this in the future will help your HOA in the long-term.
HOA accounting software serves as a central location to house and organize all of these important documents: tax returns, investment statements, and board minutes. Should you require a deeper analysis of anything, your accountant can easily review maintenance requests, homeowners’ profiles, and other routine activities housed in your system.
Getting ready for your annual audit is a daily venture. With HOA accounting software, you’ll stay prepared for your audit year-round.