Both Board members and homeowners have an interest in the money end of an HOA's business. After all, it's the owners who have to pay higher fees when the homeowners association goes over budget. And it's the Board who is responsible for hiring the right people to run the HOA's financial business. The good news is that when it comes to understanding the role of an HOA CPA, you don't have to go it alone. Read on for tips for handling it.
The Board is Ultimately Responsible for everything to do with the HOA. The Board hires service providers and vendors to help with various tasks, but if things go wrong, it's the Board who is responsible. When it comes to financial matters, most board members do not have financial experience or expertise, so it makes sense for them to hire experts to handle the financial end of things.
The HOA Management Company Handles Record Keeping Financial Matters. The HOA's management company handles everything to do with the physical property. It also handles the hoa accounting end of the following financial matters:
- Invoices to homeowners
- Collecting HOA fees
- Paying bills
- Keeping the HOA's books
- Preparing the HOA's annual budget
- Presenting the HOA annual budget to the Board for approval
If an HOA is self-managed, then the financial records keeping is the Board's Treasurer's responsibility, and they should record everything. In either case, the record keeper should use financial software.
Certified Public Accounts Serve an Important Function. HOA Boards often hire a Certified Public Accountant (CPA) who conducts audits of the property manager's financial bookkeeping. The CPA also prepares the HOA's tax filings and financial statements. Some CPA firms specialize in HOAs and other non-profit community organizations which mean they have the expertise the Board needs in this area.
The Letter of Representation. The American Institute of Certified Public Accountants (AICPA) is the governing body for CPAs. The AICPA requires CPAs to issue a Letter of Representation with respect to each audit they prepare. The Representation confirms that the HOA has given all the necessary information to the CPA to conduct the audit. If the Board is unable to sign a Letter of Representation, then the CPA will issue a "qualified" report with respect to a report that has limited representations. The CPA will "disclaim" his audit or withdraw from the audit engagement if he is unable to get any representations from the HOA.
The HOA Annual Audit. Governing documents often require an annual audit for the HOA. If the documents do not require an annual audit, the Board should require one if they have a large cash flow.
There are three types of CPA reports.
- A compilation. This is the most basic report in which the CPA reviews the HOAs financials checking for obvious errors. Such a basic report comes with "no assurances" which means the CPA makes no guarantee that the financials are accurate.
- A review. A review includes everything that the compilation covers but has more analysis of the financial records. The report comes with "limited assurances" which means the records are missing nothing material.
- A full audit. This report covers everything, including verification and substantiation processes. The auditor personally verifies all amounts with the HOA debtors and creditors and physically inspects the HOA's inventories. The CPA reviews all Board minutes and contracts looking for errors. Such a report comes with "positive assurances." which means the CPA guarantees the accuracy of the report and the financial health of the HOA.