Audits Are Not A Witch Hunt

I'm amazed at the number of HOA boards that are scared to have a full audit.  Full audits are not a witch hunt nor are they intended to cause finger pointing within the community or management.  The intent behind them is to find errors. 
 

When the management company has literally thousands of invoices and payments flowing through multiple sets of hands things get lost, coded incorrectly, billed wrong, posted to the wrong account, paid to the wrong vendor, and account balances hanging out there that need to be zeroed out.  The board may never see all the accounts with past due balance.  Managers often will exclude accounts with balances for those owners who sold their homes.  Full audits can reveal these accounts, determine if the new owner is responsible, and provide instructions on how to zero the account out.  Reversing the transaction is the wrong way to correct it. 

Audits can and often do reveal when vendors are over charging for services.  The amount of labor is most often the line item on bids and invoices to be inflated.  If the association was charged for the labor of two people to plant a small tree on one invoice and the labor for one on another invoice.  Yet the hours billed for labor on the second invoice are lower than the first.  Or if a vendor is billing for more than the contracted amount. The association could be getting billed at the supervisors rate when the vendor doesn't have a lowered skilled laborer available.  Unless the board requested a higher skilled person complete the work, the association should not be billed at the higher rate.  The vendor should bill it as if the supervisor was a lower skilled laborer.  Contractors have books and software that give them the number of laborers, skill level of each, and number of hours for each that are needed to complete every job.  Using more laborers than needed to complete a job raises questions.  Sometimes over-charges are the result of a simple error and other times they are intentional and habitual.  If your vendors are over-charging it tells the board that the vendor has to go.   A Full audit will find if you are being over-billed, how it came to get paid, obtain refunds, and find out why they over-charged.  Audits have resulted in thousands of dollars being rrefunded because of vendors over-charging.  Over-charging is directly related to dues increases.

Audits can and often do result in changes to the amount of income collected and expenses.  Effectively, resulting in the need to file corrected tax returns.  This can often result in a refund or having to owe money to the IRS.  It's always better for the association to find the errors then for the IRS to discover them.  If the audit finds them the penalty and interest are much lower than if the IRS discovers them. 

Board members who are afraid of an audit have no reason to be afraid of them.  Audits are a great way to evaluate the management company and will get your books in perfect order.  What can be so scary about something every single or married person does everyday of our lives?   When you review your bills for correctness, it's an audit.  When you balance your checkbook, examine a receipt, have a price check done, etc. your doing an audit.  Doing all of these things result in spending less money or not buying something or a refund.  So, why would anyone not want to have a full audit.

Even it a full audit reveals nothing it's still worth every penny to get the books in perfect order.   It's rare, very rare for an audit to reveal absolutely nothing.  So, rare it's impossible.