A guide to HOA audits in Minnesota

What is an HOA audit?

An HOA audit is a detailed examination of an association’s financial records performed by a Certified Public Accountant (CPA). An audit can serve several purposes:

• Assessing the accuracy of financial statements
   
• Verifying compliance with accounting practices and bylaws
   
• Highlighting areas for potential cost savings
   
• Promoting overall transparency and accountability within the HOA

FirstService Residential has provided HOA boards in Minnesota with the financial expertise and resources to navigate the process with clarity and confidence. In this article, we’ll answer common questions about how to make HOA audits easier and more efficient.
 

Are HOA audits required in Minnesota?

Associations governed by the Minnesota Common Interest Ownership Act (MCIOA) are required to conduct a review of their financial statements at least once per year, though the law does not explicitly require a full audit.

Larger HOAs may need regular audits to meet legal or lender requirements. Some governing documents also mandate audits at set intervals. Even when audits aren't mandated, voluntary audits can enhance the board’s credibility and improve financial management.

Learn more about understanding HOA documents, rules, and regulations in our webinar for board members in Minnesota.
 

How much does an HOA audit cost?

Full audits typically cost a few thousand dollars, depending on the size of the HOA. Financial reviews, a less intensive alternative, are normally the cheaper option. Several factors influence the final price, including the HOA’s location, the volume of financial transactions, and whether the association has faced financial discrepancies in the past.

A thorough audit can be invaluable to maintaining the health of your HOA. Opting for the lowest-priced auditor available can backfire if the auditor lacks expertise, so boards should carefully vet CPA firms to determine they have experience with community associations.
 

What does an HOA audit include?

The CPA examines several key areas, including:

• Financial statements: Examines balance sheets, income statements, and cash flow reports to confirm revenue and expenses align with recorded transactions.
   
• Vendor contracts and payments: Verifies that services billed match the terms of the contracts and helps prevent overpayments or fraud.
   
• Reserve funds: Evaluates whether reserves are adequately funded for future repairs and capital improvements.
   
• Internal financial controls: Reviews processes for collecting assessments, approving expenses, and maintaining records to reduce the risk of financial mismanagement.
   
• Compliance checks: Confirms financial practices align with HOA bylaws and Minnesota state regulations.
   
• Board meeting minutes and bank statements: Verifies that all financial decisions are properly documented and consistent with recorded transactions.

The final report outlines findings and recommendations for improvements to financial practices. For boards that want ongoing financial oversight, FirstService Residential offers financial management services that help streamline record-keeping and improve financial reporting, reducing the risk of audit-related issues.
 

How to prepare for an HOA audit

Before the audit, boards should see that their financial records are organized and up to date:

• Gather financial documents: Bank statements, ledgers, invoices, and reserve fund records should be organized and accessible.
   
• Review internal controls: Assess processes for collecting dues, approving expenditures, and managing financial records to identify potential gaps.
   
• Document reserve funds: Reserve studies and funding plans should be up to date and aligned with future capital needs.
   
• Communicate with homeowners: Keeping residents informed builds trust and supports a smooth audit process.

If you’re looking for more ways to optimize your community’s financial health, FirstService Financial specializes in financial services designed exclusively for HOAs. From securing competitive loan options and guidance on budgets and reserves to providing insurance coverage expertise and more — they can help your board make decisions that benefit your association’s long-term financial health.
 

How often are audits conducted?

Audits are usually conducted every 1 to 3 years, often prompted by financial milestones like major capital improvements or insurance claims. Leadership transitions also create a natural opportunity for an audit, giving new board members a clear financial picture. If homeowners express concerns about financial management, an audit can help address those questions and provide reassurance.
 

HOA audits vs. financial reviews vs. compilations

An audit is the most thorough and formal financial examination. A CPA conducts in-depth testing, cross-checks records, verifies transactions with third parties, and assesses the association’s internal controls.

A review is less rigorous than an audit. The CPA analyzes financial statements, asks management questions, and checks for inconsistencies. However, unlike an audit, a review does not include transaction verification or in-depth testing. It’s best suited for HOAs that want more insight into their financials without the cost of an audit.

A compilation is essentially a financial summary prepared using the HOA’s records, organizing financial data into a structured report without independent verification or detailed testing of accuracy. This option works best for smaller associations with minimal financial activity that need basic reports rather than a deep dive.

Choosing the right option depends on the HOA’s financial complexity, state or bylaw requirements, and overall goals. If transparency and credibility are top priorities, a full audit is the best approach. If the board simply needs a general financial check-up, a review may suffice. For associations with very basic finances, a compilation might be enough, but its more limited assessment may not offer the insights that some boards are looking for.
 

Why HOA audits matter for Minnesota communities

Regular audits can help boards identify risks early and avoid financial mismanagement. With clear financial data, the board can plan budgets, manage reserves, and anticipate future costs more effectively. Financial accountability can also strengthen trust between the board and residents, reinforcing a sense of stability within the community by giving homeowners confidence that their dues are being managed responsibly. By keeping financial records in order and working with a qualified CPA, boards create a stronger foundation for long-term success.

FirstService Residential partners with HOA boards across Minnesota, providing financial expertise, management services, and technology that simplifies audits and financial oversight. If your board is preparing for an audit or looking for better financial management solutions, our team is here to help.

To learn more about how property management services can benefit your HOA, contact FirstService Residential today.