A homeowners association is a legal entity that manages a community’s operations and resources. It comprises elected board members who are typically volunteers selected from the community. They play part-time roles and do not derive a salary for their work. That said, electing board members with limited experience and expertise in community development and financial management can be counterproductive. Errors and discrepancies are bound to happen during financial reporting, calling for an audit of the association’s accounts.
What Is a Forensic Audit in an HOA?
HOA audits are commonplace in most states. Most HOAs conduct audits annually to ascertain the HOA’s financial health. Audits help correct errors and discrepancies in an association’s financial records. A forensic audit comes into play if members notice criminal behavior such as fraud and misappropriation of funds. It involves examining an HOA’s financial accounts and statements to derive evidence used in legal proceedings.
What Are the Reasons for a Forensic Audit in an HOA?
Any HOA member can petition the board to have an audit. Depending on the HOA’s bylaws, the petition might have to go through a vote before approval. However, a forensic HOA audit is necessary if members suspect malicious activities. Here are the top reasons for a forensic audit in an HOA:
Fraud
Fraud is among the top reasons community members may request a forensic audit for HOAs. If the transactions and figures in a financial statement do not add up, it is sufficient reason for a forensic audit in an HOA.
Misappropriation of Resources
Payments to ghost suppliers, falsified invoices, and unsubstantiated use of cash are signs of asset misappropriation. HOA members can petition for a forensic audit if the board cannot account for specific transactions.
Untimely Financial Reporting
HOAs must provide monthly, quarterly, or yearly financial reports to community members, depending on the HOA’s governing bylaws. If the board does not avail financial reports as promptly as required, the culprits might have a case to answer.
Poor or Inadequate Maintenance of HOA Property
HOAs typically collect fees, dues, and assessments to help with operational and maintenance costs. A forensic audit in an HOA might be necessary if common areas remain dilapidated for extended periods.
Enlist Specialized HOA Audit Services
Outsourcing a forensic audit for HOAs can help unearth fraudulent financial activities and misappropriation of community assets. Contact Abel Accountants for expert specialized HOA audit services.
