That price is in line with the average costs of audits, at least in Michigan. The main factor in the audit is the amount of expected time for the audit. While a smaller condominium complex may not have as large a budget, my experience is that the number of bills paid is often the same for a traditional condominium. The board may desire to obtain bids, but that is an average price.
If the Association's Governing Documents require an annual audit, then it must be done regardless of cost.
Are you self managed or do you have a management company? Do your docs specify that you need a yearly audit? As a condo association you are non-profit. Is this something the state you reside in requires?
It seems excessive to me since you only have 40 units. Expenses must be fairly transparent and the same every month (except for landscape/snow seasons). I'm sure, if you HAVE to do this, that there are less expensive firms that can do this simple audit.
It will be interesting to see what other's think.
Our simple audit cost $150 for our 14 unit condo...
An what is the penalty for no audit?
Nothing... Our association never had one for 26 years until last year.
An Audit is more demanding than a Review or a Compilation. Costs and expectations are related. Depending on the nb. of units or the annual budget, your State and/or Docs may mandate one or the other, not necessarily every year. Cost wise, in Florida for a 200 units, $900,000 annual budget, the lowest bid was $4,500. If you need your audit by April 1, expect to pay a premium. (Taxes season for CPAs).
An audit may be a good idea:
- Before or after a change of Managing Co, or
- After a major change of board members/President or
- After a turnover from developer.
Otherwise every 3 to 4 years is a reasonable option.
We have 3 buildings with a total of 78 condos and vacant land for two more buildings which would give us 138.
We have a gross income budgeted for $206k but one condo is in bankruptcy and we don't get anything from that owner. May seem like a lot but we pay for condo water as well as to light and cool/heat common areas which is budgeted for an expense of $55k.
Our annual audit costs about $1,400.
The price of an audit depends on where you are in the country as well as the exact nature of the audit. I would recommend that the HOA shop for auditors, use the yellow pages. With multiple quotes you will get a better handle on whether or not your current cost is in line or out of wack.
Neither our gov docs or state law requires an annual audit but we choose to have one performed each year. In fact, both our treasurer and mgmt. co. prefer that we have a full audit each year. As a former treasurer, I always recommended an annual audit. An audit gives peace of mind in knowing that everything is on the up and up. Just think of the cost as just another expense of doing business. A full audit for my 1,700 member HOA is around $5,000, which also includes preparation of state and fed. income taxes. We generally get 3 bids each year.
It sounds like your docs REQUIRE an audit. So assuming that's the case I think RS-FL is spot on. $2,500 is very reasonable for an audit. At least in FL they typically cost more. If your docs require an audit and you think that's overkill make a pitch to get the docs amended, maybe ask that they be amended so that an audit only need to be done every three years, or that you simply have to follow whatever state requirements there are regarding getting a audit, compilation, or review.
Keep in mind though that with an audit you're getting more than a simply account reconciliation, you're getting an opinion from a CPA that your financial affairs are in order. Much of that cost is for the risk of certifying your financials, not so much the cost affiliated with calculating your receipts/expenses.
Some states REQUIRE an audit, so please check which your state office as well. Their enforcing the statute is another matter.
These statements that a 3000 per year audit is necessary or required are bull shit.
No one is going to enforce that and if there is access to the records for a 40 unit condo, there is no need for such an expense. The people calling for this are the lawyers and accountants churning for fees.
Bloodsuckers and self interested self (and like) Promoters of useless use of money.
Brandon is right Much of that cost is for the risk of certifying your financials
Other cost difference: an HOA with 1200 units requires less verifications than a 200 units Condo (in my opinion).
Usually an audit must be approved or waived by the membership (the ultimate payers). Therefore, each year, the board can propose an audit to the members. It becomes a members' choice: "Approve" or "Waive".
However, the board must push hard for an audit every 3 to 4 years.
One example of why an audit can be helpful:
For the past two years, our President and Treasurer wanted to reduce maintenance fees (re-election?). One easy area was minimizing provisions for bad debts despite 6 condos at various steps of foreclosure since 2008. Just before the audit they accrued $30,000. Three months later, the auditor told the board that they needed an add'l $65,000 to be in line with general condo accounting principles. At first, they refused the increas because they would have to raise fees. Fortunately the auditor refused to certify the audit until they accepted the adjustment ($95,000=+216%).
In my opinion, the audit was money well spent.
Here are a few reasons why:
1. Wait until you have a board president pay a property manager over 200k in one year and have no invoices to show where the money went. This went on for over 5 years until a group of homeowners banded together and removed the board and fired the property manager.
2. Our auditor was quite helpful in accounting for bad debt due to foreclosures as a result of the housing collapse.
3. We have 170 units and minimal involvement from the homeowners. An audit is a perfect means for the board to show the homeowners that the board is looking out for the best interests of the community.
Funny how opinions change. When I was treasurer I pretty much did not care if an audit was voted or not (not required here). Now that I am no longer treasurer I feel a bit different. Not that I suspect any theft but rather because I do suspect that expenses may be being paid and "hidden" within a budget line item rather than be shown on a separate line on income/expense statements to keep payment secret. When I was treasurer my income/expense statements were provided in far greater depth than the current ones. In other words, I would like to see at least someone compare invoices/bills with line item numbers. Doesn't have to be an accountant or CPA but perhaps an owner who is no a board member. Easy job. Of course this might be OK for a small association but not a big one.
August 02, 2013 10:25 AM by Ear_wax Please do not pay attention to that comment posted by Ear Wax.
I would go for the full audit at only $500.00 more per year.
The money is well spent for the peace of mind that your associations' members will get out of knowing and understanding your financial records. It is just a good business move, and the correct one for all. Never forget that you are running a business.
In California, the law requires an HOA with annual revenues in excess of $75,000 to have a review performed by an independent CPA. Our review (28 unit building; $175,000 in annual revenue) costs about $1,100. Whether or not your HOA needs to have an audit or review may be governed by your state law or your CC&Rs.
The value of having a CPA review report, in my opinion, is that a seller has financial statements to provide to a buyer that are in compliance with state law.
In reading the previous responses, there is considerable confusion as to the "comfort" provided to owners by receiving either an audit report or a review report. In short, there is close to none. I say this because the CPA informs his client in writing (known as the engagement letter) as to the scope of the work he/she/they will perform during the audit or review. This letter specifically states that the CPA is not responsible for finding fraud and further, that the financial statements are the responsibility of management (your board and PM). Although the engagement is silent on the matter of operational efficiencies, the auditor is not required to determine if your HOA is paying a fair price for the various services that are contracted: landscaping, janitorial, etc. Here is a "real world" example of an event that occurred in our HOA: we had scaffolding erected for a major repair project which limited our landscaper's access to a number of flower beds. One day, one of our neighbors reported that our flowers were dying. The PM contacted the landscaper about the problem, and he said it was "too dangerous" for his crew to work around the scaffolding. So even though he did less work, he still billed us the same monthly fee. We paid the PM to check our property, and he never observed this problem. We fired the landscaper, and we had to pay the new one about $400 for new plantings. Altogether, we incurred costs of about $1,500 for this lack of service. However, the CPA is not required to find or report any of this, and if you look at our financial statements, you cannot find $1,500 worth of waste. In other words, it's not the responsibility of the CPA to decide if your vendors are performing as agreed.
If you are worried about fraud or waste in your HOA, you need assistance that is not in the area of expertise of an audit and tax expert. Your audit or review report provides a minimal amount of "comfort" that all is well financially in your HOA.
Use the tool required.
For a 40 unit condo a 3000 dollar audit is like using a bulldozer to dig a hole for a small garden.
Depending on your circumstances, an audit may be a complete waste of time and money. The last "audit" that was done for my condo association was so poorly done that I'm amazed the CPA who did it is still in business. It had the wrong address on the cover letter and was presented as the audited financial statements of a residential condominium even though this is a commercial condominium. There are enormous differences between the two for Federal tax purposes, which probably explains why it is 2013 and yet I still can't get a copy of the association's 2008
In Florida, state law requires all associations with more than 75 units to have a financial statement audit, review or compilation conducted by an independent, licensed CPA firm, and the level of service depends on the revenues of the association. If over $400k, an audit is required...$200k or more a review is required...over $100k a compilation is required. These are services that can ONLY be provided by CPA's, a d the board cannot opt out of this requirement.
As head of an association auditing CPA firm in FL, I can tell you that for $3k, I doubt you are getting an audit, at least not in compliance with the profession's standards, as this is on the EXTREMELY low end, nor are you required to have any level of CPA services at 40 units. Also, an audit is more than just verifying the numbers, but also providing full disclosure footnotes, testing internal controls, and fraud risk assessments, whereas reviews and compilations do not require these additinal procedures (nor verification through testing). I hope this helps answer your questions on the legal requirement. However, bylaws may require them as well, regardless of number of units or revenue. Check your condo docs to be sure.