To keep an HOA functioning and serving the community, regular fees are assessed for homeowners. It is a good idea for HOAs to regularly audit their finances to make sure there are sufficient funds and that nothing has been mismanaged.
Audits can help an HOA identify financial errors or problems before they get out of hand. By conducting regular audits, the HOA may verify its financial accounts and records, identify unpaid fees or fines, and avoid potential legal disputes about financial mismanagement. While a licensed CPA must conduct the audit, an attorney can help the HOA comply with the audit and fulfill any duties it may have throughout the process. If mismanagement or fraud is uncovered, the HOA’s lawyer can help take action to correct the problem.
Call our Arizona housing association governance lawyers at Halk, Oetinger, and Brown at (520) 229-3377 and ask for a free legal evaluation.
What is the Purpose of an HOA Audit in Arizona?
An attorney can assist an HOA during an audit and in future audits by helping it comply with applicable rules and laws. An attorney can also help the HOA address any financial issues that arise during the audit.
Verifying Financial Records and Accounts
First, regular audits do not necessarily mean anything bad. Conducting regular audits can help an HOA verify its financial records, review funds that may be sitting in any accounts, and understand its current financial situation.
Regular audits often help HOAs catch financial issues early and resolve them before they become problems. You might realize that the HOA is overspending, and you can adjust budgets so that the HOA remains in the black.
Identifying Unpaid Fees and Fines
Second, if the audit uncovers unpaid fees or fines from homeowners or others and the HOA is owed money, our Arizona housing association governance lawyers can help your HOA take steps to recover the money owed.
The first step may be to notify the homeowners or others who owe fees or fines to the HOA of their outstanding debts. If these people do not make payments, your attorney can send demand letters stating that payment is due and that legal action may be taken if fees or fines remain unpaid.
Avoiding Potential Legal Disputes
Finally, having a lawyer guide you through regular audits may actually help you avoid legal disputes in the future. Many disputes arise, and homeowners may file claims against an HOA because of financial mismanagement.
The HOA has a duty to use and manage funds for the benefit of the community. If money is mismanaged, community members could take legal action against the HOA. Regular audits may help catch financial mismanage mentor errors before they become a problem.
How a Lawyer Can Help with Regular HOA Audits
A licensed CPA should perform regular audits, but that does not mean a lawyer cannot help you throughout the audit process. If legal issues arise while you are audited, your lawyer should be ready to help.
Ensure Legal Compliance
An audit requires a certain degree of cooperation from the party being audited. You must provide the CPA conducting the audit with the necessary records and access to HOA information to complete the audit.
There are also various legal requirements about when audits should be conducted and what to do with the final audit report. In Arizona, an HOA may need to complete an audit no later than 180 days from the end of the HOA’s fiscal year. Final reports may also need to be made available to HOA members and homeowners within the community.
Investigating Fraud
Sometimes, HOAs are surprised to learn, during an audit, that someone among them has committed fraud. Another board member might have illegally dipped into HOA funds for personal use or has been embezzling funds for an extended period. This can be a very uncomfortable situation to deal with, and your lawyer can help.
First, your attorney should help identify where the fraud originated, how long it has been ongoing, and who is responsible. Once those facts are known, your lawyer can take steps to remove the person responsible for the fraud from the HOA board and enforce any necessary penalties, including contacting law enforcement and filing a criminal complaint.
Enforcing the Audit
If someone refuses to allow an audit, your attorney can enforce the HOA’s obligation to audit. Audits are a necessary aspect of operating an HOA, but some board members may be hesitant or resistant to the idea. Perhaps they say that hiring a CPA is too expensive, or the audit is simply not necessary.
If someone stands in the way of necessary, regular audits, your lawyer can step in and help legally enforce them. Refusing to audit may mean the HOA is not in compliance with applicable state laws, and a major part of your lawyer’s job is helping to ensure compliance.
FAQs About Regular Audits for Arizona Communities
What is an HOA Audit?
An HOA audit is when an HOA board has a certified CPA audit the HOA’s financial records and accounts. The purpose of the audit is often simply to verify financial records, look for financial mismanagement, and comply with state laws regarding the operating of HOAs.
How Often Should an HOA Conduct an Audit?
Under Arizona law, an HOA board must conduct an annual audit not later than 180 days after the end of the HOA’s fiscal year. This is the minimum imposed by state law, but your specific community may require more frequent audits, especially if the community is larger and has more significant finances.
Do You Need a Lawyer for an HOA Audit in Arizona?
A CPA must conduct the audit, but a lawyer can help ensure the HOA’s compliance. An attorney can help the HOA board make sure that they comply with all necessary state laws and handles any issues that may arise, like fraud or financial mismanagement. If something is very wrong with the HOA’s finances, an attorney can help the HOA take legal action if necessary.
What Happens if an HOA Audit Uncovers Fraud?
If an audit uncovers fraud, the HOA should immediately contact its lawyer for help. An attorney can help determine who is responsible for the fraud and what legal steps are necessary to correct it. They can also determine if the fraud warrants a criminal complaint.
Get Help Now from Our Arizona Housing Association Governance Attorneys
Call our Arizona housing association governance lawyers at Halk, Oetinger, and Brown at (520) 229-3377 and ask for a free legal evaluation.
