Financial Audit in Your Community Association
This is the time of year that Board of Directors should be planning for their Association\’s Annual Financial Audit . Many Association’s Governing Documents require an independent review of the Association\’s financial records by an independent Certified Public Accountant (CPA).
Even if the Association\’s governing documents do not specifically require an annual financial audit, a prudent Board should always consider a yearly financial audit for the peace of mind in knowing that its financial affairs are in order and being handled in a proper manner. An independent financial audit completed and given to the Association members annually by the Board shows that the Board takes their fiduciary obligations seriously.
When buyers are looking at purchasing a home in your Community, in many instances they want to review the prior year\’s audited financial report to give them an idea of the financial stability of the Community. Should your Community be interested in borrowing money in order to complete a large capital improvement project, such as roofing or asphalt replacements, the lending institutions you are working with will most likely require an audited financial records as part of their lending protocols. In many cases insurance companies will also require an audited financial record when providing their annual premium.
Some of the steps that the auditor will take when completing the yearly financial audit may include:
- Banking confirmation and review of all statements and records
- Communication with attorneys representing Association regarding pending litigation and collection status
- Review of Board minutes
- Inspection of contract documents, bid processes and scope & specifications on capital improvement projects
- Review of delinquent homeowner’s accounts and collection activities
- Review of reserve plan and determination as to compliance to an adequate funding plan
- Monitor balance sheets, profit & loss statements, and general ledger reports to determine proper budgeting policies and review of special assessments
- Comparison of last year and prior year’s financial statements and reports to locate any possible abnormalities, exceptions or trends and research as needed
- Review and inspection of all vendor invoices
Annual Audits help catch errors and possible fraudulent activities in order to protect Boards and homeowners in their Association. They determine if the financial statements are a true and correct reflection of the financial activities of the Association and are free of material misstatements. They are one of the best tools in showing prudent and responsible community management for the benefit of the Association, its Board, and your professional property management firm.
PENCO Management has the expertise to deal with various issues that your Homeowners or Condominium Association may encounter on a daily basis. Our company provides Property Management services to New Castle, Chester, Delaware, Montgomery, Berks, Bucks, and Lancaster Counties. Our management team would be happy to schedule a meeting with your Board of Directors to discuss your Communities\’ needs.
Submitted By: S. Erney