I’m on a property owner’s association board. I’ve suggested an external audit. Not because I suspect a problem, but because I think a periodic outside audit is good for a public organization. POA President says we don’t need to spend the money because we have a professional CPA firm doing the books.

Any accounting or business folks have any thoughts on this? Does having an accounting firm doing your books negate the need for a periodic audit? Do the two look for the same things?

No, it doesn't negate the need. Its nice that you have the money to afford a CPA firm for bookkeeping. But if they take a shortcut or miss something, they'd just keep on. The purpose of an audit is to assure procedures are followed,and that they're correct. You can't expect them to point out their own errors. Or not pass on them.

One can do a full blown audit, or one can do a review. You may get much of the benefit of an audit at considerably lower cost with a review. It might be worth discussing the differences with local auditing firms.

More directly to your question, it is absolutely worth having an outside firm look over your accountant’s work. If your accountant has a problem with this you need a new accountant.

If the bigger issue is the expense, consider a review.

Having a CPA firm do the bookkeeping is much better than the property management company doing them. but probably a CPA at the firm is not doing the bookkeeping. For costs, as an example a simple $5 million dollar company has an external CPA (that is me) doing monthly financials for about $6000 a year. A review by another CPA firm (required by his banker) is an additional $3000. An audit was quoted to be an additional $15000 to $18000. The problems in many HOA's are operational which will not be uncovered even by an audit.

quote:

Originally posted by maxdog:
POA President says we don’t need to spend the money because we have a professional CPA firm doing the books.

That's funny on the face of it. Like a CPA's never made a mistake.

The statement is absurd.

I don’t know exactly what the responsibilities of this board are and what your duties are, but typically board members have a fiduciary duty and can have personal exposure.

I will not sit on a board without the proper insurance for my personal liability and audited financials. Way too much personal risk imo.

I sit on one “advisory committee” and the duty there is completely different.

I think its money well spent just to CYA. Our POA does periodic reviews by outside firms. While it doesn't stop the idiots that believe that the head of the POA is literally stuffing her pockets with their dues, it does keep most people satisfied that everything is on the up & up.

The reports are posted on the POA website that any member can access.

As pointed out earlier, the word "audit" is thrown around loosely as a general term. In the accounting world "audit" is very specific term dictating the scope of an engagement and more thorough and likely far, far beyond what you need. Get with a firm you trust and discuss what you're trying to get some insight to and discuss either a review or even lesser agreed-upon-procedures.

Also keep in mind no matter what you have done in that range, it's not a 100% assurance of 100% accuracy and the ultimate responsibility for accuracy of statements and keeping up with transactions lies on the management of any organization.

Audit absolutely essential. Auditors will review not just cash flow and that the books balance but also and equally as important the accounting practices and management policies and how much oversight there is over spending and is every vendor submitting and invoice and are invoices approved and what is that process...

When I lived in VA I was on the neighborhood HOA board for two years before I moved and the president of the HOA never allowed an audit. Found out several years later that the treasurer (friend of and recruited by president) was embezzling money (to the tune of about $25k over several years). The president repaid the funds so that the treasurer avoided jail time.

So when your president says "we don't need an audit" I would insist on it.

quote:

Originally posted by braillediver:

quote:

Originally posted by maxdog:
POA President says we don’t need to spend the money because we have a professional CPA firm doing the books.

That's funny on the face of it. Like a CPA's never made a mistake.

The statement is absurd.

The president’s argument is weak as already noted. But, your original request is also concerning.

Despite my 35 years in accounting, I still don’t know what “doing the books” means. I don’t mean to be an ass, but the immediate concern has to do with the board’s understanding of accounting matters and the involved risks.

At the end of the day, an organization engages a CPA firm to audit, review or compile (in order of decreasing diligence & assurance) its financial statements for the purpose of mitigating risks to the external users that rely on those statements.

The board represents a group of users (owners) and must first understand the overall risks associated with the POA’s financial reporting, before it can reasonably decide on the need for an audit, etc. So far, it sounds like that understanding is lacking. Though not unusual for a small organization, that missing level of expertise is still critical for any board to make an appropriate decision.

At the other extreme, public companies are required to have financial / accounting expertise on the board (typically in an audit committee as described for Microsoft in the below excerpt) so that it can oversee the company’s accounting function and the external auditor. You need a “mini” version of this.

I suggest you first strive to add a board member that has the relevant background to provide the oversight function. That person can then exert some due diligence to understand the nature of the POA’s financial transactions & reporting and the CPA’s current scope of work & responsibility. He / she can then guide the other board members to a reasonable approach, which will likely not be an audit.

One last tip for when seeking your accounting expert for the board, make sure he / she understands that the role is truly that of oversight and not of substitute bookkeeper. Many a CPA has learned to run for the hills when his HOA, country club, or church has asked him to join a board. If the role is instead truly oversight, then it’s an easy ask.


“The Board has determined that each Audit Committee member has sufficient knowledge in financial and auditing matters to serve on the Audit Committee. All current members of the Audit Committee meet the NASDAQ listing standard of financial sophistication and are ‘audit committee financial experts’ under SEC rules.”

https://www.sec.gov/Archives/e...f14a.htm#toc791036_3

quote:

Originally posted by Georgeair:
As pointed out earlier, the word "audit" is thrown around loosely as a general term. In the accounting world "audit" is very specific term dictating the scope of an engagement and more thorough and likely far, far beyond what you need. Get with a firm you trust and discuss what you're trying to get some insight to and discuss either a review or even lesser agreed-upon-procedures.

Also keep in mind no matter what you have done in that range, it's not a 100% assurance of 100% accuracy and the ultimate responsibility for accuracy of statements and keeping up with transactions lies on the management of any organization.

Well said. At most, some form of agreed-upon procedures might be warranted. I suspect assets are mostly limited to cash, receivables and some common-area property. But, again, one needs some level of expertise on the board to intelligently represent the owners.

What do the by-laws and covenants say, do they mention any type of review/audit and a time table, say annually, bi-annually, etc.

Speak with the other board members to see if they feel its necessary, be sure you know who's connected to the Presidents hip aka the post above about a Treasurer taking funds and the President covering them...

See if you have the votes, then make a motion that the association have a separate accounting firm review the previous years books.

I doubt your President has veto powers lol.

An analogy:

Question: “Hey SF members, I’m thinking about having a large safe installed in my home. A vendor has quoted me $10,000 for the purchase & installation. My wife thinks it’s an unnecessary expenditure. What should I do?”

Response: “Spend the money and get the safe. Bad people exist and want to take your stuff.”


The above response is decisive and concise. But is it really helpful and was the question really that simple?

quote:

Response: “Spend the money and get the safe. Bad people exist and want to take your stuff.”

Of course you have to consider if it's the tipping point for your wife and then she leaves with half your money and guns

Ha! Analogies do have their limits don’t they?!

quote:

Originally posted by FHHM213:
Ha! Analogies do have their limits don’t they?!

All depends on who you are married to LOL

Thanks for the replies. It confirms my instinct to get an audit review! Thanks also for pointing out the difference between review and full audit.

When handling other people’s money, I feel a periodic audit is best practice.

I once worked for a Texas county. There was once an incident of a book keeper who pilfered some funds. I’ll never forget what our DA remarked: “It’s always the sweet little ole ladies!” The DA, a sweet lady herself but known for winning cases was very direct. Had a good sense of humor too.

Any experienced accountant has encountered bookkeepers who were incompetent, at best. But we’ve also encountered audit engagements of similar quality. Such occur for both large and small organizations unfortunately.

Try to understand your POA’s true risks and whether an audit or review provides sufficient mitigation of those risks. Good luck.

I thought POA was power of attorney.

Home owners association going to the expense of an audit? That seems like overkill to me. If you’re concerned about something, get a copy of the cash disbursements and follow the cash. You shouldn’t see any cash disbursements that the Board doesn’t approve.

If you have a specific concern, I would ask a CPA to look at something specific. An HOA probably doesn’t have enough going on to make the value of an audit exceed the cost.

If the president won’t share the information, look harder. I don’t see a need to do an audit “just because.”