Being a board member for your HOA comes with the responsibility of managing the HOA’s finances. And it’s important to know when to hire an accountant. Furthermore, all of the services for the community depend on proper budgeting and financing. And an essential part of taking care of the finances includes making sure all of the association’s accounting is correct and verify the financial documents. But it has been reported by board members that the finances are often the least-understood aspect of an HOA. And not only understanding what the records are but having the knowledge to recognize any problems. Certainly, it can be challenging to know if you don’t have a finance-related background. And even accounting software may just make things more confusing.
Since the finances of the HOA are essential, the accounting can’t be overlooked. And if there are any problems, the board is solely responsible. Considering the weight of this responsibility, your board may feel more comfortable hiring a professional when needed. Some larger HOAs keep a CPA on staff. Although, you may not need to. Below we go over times when a professional accountant definitely should be hired.
When to Hire a Certified Public Accountant
For most financial and budgetary needs of an HOA, a certified public accountant (CPA) is the best bet. This type of accountant has a CPA license. They earned this license from meeting state education and work requirements. In addition, they also earn it by bypassing the tough CPA exam. It indicates they have a strong understanding of the most critical accounting skills.
They can verify the HOA’s accounting records, taxes, and financial strength. A CPA can also do a review of the finances, but also offer advice to improve the financial position of the organization.
Financial Assessments Done by a Certified Public Accountant
It’s recommended that every year the HOA board has some assessment of the year’s finances. Some state laws or HOA bylaws likely specify which type of assessment needs to occur and how often. The assessments can be any of the three. First, a compilation, which is the least complicated. Second, a review, which checks the books. And finally, an audit, which is much more complicated and thorough. Even if your state doesn’t require an audit, an HOA should have them regularly. Then, either a compilation or a review should be done annually. Exactly how often an audit should occur depends on the size of your community and the complexity of the finances. If there isn’t a mandate for it, a CPA can help you determine your schedule of financial evaluations.
All three assessments need to be done by a CPA. The audit should be conducted by an outside CPA to get the highest level of assurance on your finances. Even if you have one on staff. You might want your CPA to also help with the budget if you anticipate significant changes. Also, you might want them to help if there are other complicated issues.
A CPA should also be used for the association’s taxes. There can be many options for how an HOA files. A CPA can advise you on which of those options allow the HOA to pay the least in taxes. They can complete the paperwork for you. In addition, they can advise strategies for keeping taxes low in the coming years or other financial recommendations.
When hiring a CPA, you should get several bids and call references. In many HOA communities, the management company has a CPA. Do not use this same CPA. The board needs its own to ensure the best outcome of the analysis.
When to Hire a Forensic Accountant
For most HOA needs, a CPA is perfect. They analyze the organization’s finances and offer strategic advice, including complicated taxes. But there might be times a different kind of specialist is needed. When there’s suspicion of something dishonest happening with the finances, it’s time to hire a forensic accountant. Embezzlement is the most likely problem, for instance.
Forensic accountants specialize in investigating suspected financial crimes. They complete an in-depth analysis of all transactions. Also, they look for specific indicators of misuse of the budget. In addition, they know how to recognize doctored or fake accounting documents. They also thoroughly dissect bank accounts, revenue, cash, recreation revenue, assessments, and more. Their job is to uncover the fraud, embezzlement, or other financial crimes that have been occurring.
A CPA can do the same work, but it’s better to hire a forensic accountant if you can. A CPA has a mastery-level understanding of general accounting, but the forensic accountant is more of a financial investigator. It’s similar to seeking a medical specialist for a dangerous illness. Even if you have the best general practitioner in the world.
Hiring financial experts will cost money. Which is something to consider. But when you think about the importance of a financially-sound HOA and know that entirely falls on the board, hiring an expert may be worth it.