The chief responsibility of the HOA is to maintain the value of the community’s property, something that involves a pretty solid understanding of the community’s economic situation. Indeed, an HOA is not going to be able to properly plan for the community’s future if it does not grasp its own financial situation. Keeping a finger on the monetary pulse of the community and of the HOA board itself is absolutely pivotal for members of the board.
But keeping tabs on the finances of such a large and varied organization is easier said than done, so board members would do well to utilize as many tools and resources as they are able. For instance, a monthly finance report will go a long way toward creating a picture of where the HOA stands, financially speaking. For a truly accurate and detailed financial analysis, though, there is really no substitute for an annual HOA audit.
The very word “audit” can be daunting to some of us, but it is actually a relatively simple endeavor, in most instances. Besides, board members have an obligation to understand the financial status of the association, and the only way to ensure that those monthly reports reflect the real nature of the association’s finances is to conduct an HOA audit.
But what are the things you need to look for during an audit? Keep your eyes and ears open for these key indicators:
1. The auditor’s opinion. Your auditor should have an opinion of whether your organization is running smoothly or not; if he or she thinks the finances look good, you’ll get a “clean” opinion. If not, your auditor will spell our specific concerns in his or her notes.
2. The balance sheet. This may be the best, most thorough overview of your association’s financial situation you are likely to find. The balance sheet will list your assets, liabilities, and member equities. All of these indicators can help you take the temperature, so to speak, of how the community is doing.
3. The income statement. In particular, be on the lookout for large variances between what was budgeted and what was spent in the previous year.
4. The notes and letters from your auditor. These will be written in “plain English,” so they make a good summary for those who aren’t as good with numbers.
Hopefully, the results of your HOA audit will be positive. If they aren’t what you’d hoped, though, don’t lose heart. Simply knowing what the financial situation is will go a long way toward helping you make improvements.