Re: Annual audit ? Bookkeeping? Reserve studies?
From: Sharon Villines (
Date: Thu, 22 Dec 2011 16:47:15 -0800 (PST)
On 22 Dec 2011, at 5:56 PM, Joani Blank wrote:

> does your homeowner's association have an 
> annual audit by a CPA? And if so, what is the 
> approximate cost of that audit?

We do and it is in the neighborhood of $2,000 for the tax return and the audit. 
I think we negotiate for two years at a time which may make it a little less. 
Very expensive in my view because we have a management company that handles our 
finances and internal people who review the accounts. But we have also changed 
management companies four times and each time the financial records have been 
less than clear. Thousands of dollars have been unaccounted for — not always 
missing, sometimes in our favor. So part of the reason for the audits is to be 
sure the books are straight. 

We now have a treasurer who works in the DC budget office and a new management 
company that seems to be much more on the ball in terms of accounting so maybe 
an audit won't be necessary every year. But we also have a member who used to 
work for the FDIC so he is pretty conservative.

> If you do not have an annual audit, your bookkeeper 
> undoubtedly reviews the year's financial affairs in 
> order to provide a report to all the homeowners. He or 
> she may also file a tax return for you and complete any 
> state reports required of homeowners' associations in 
> your state.

We do have a management company that handles condo fees, late payments, bill 
paying, etc. The current one has been producing excellent monthly reports. I'm 
hoping this will lead to a reduction in the cost of audits and tax returns.

> Does 
> your state require that your HOA have a [replacement] 
> reserve study every X years?  If so, how often are you 
> supposed to have one?  Do you have a reserve study as 
> often as required by law OR have you had reserve 
> studies, but less frequently (if less frequently, about 
> how often)?  Finally, again, how much do you typically 
> pay the person who does the reserve study.

DC does not require a reserve study but as I've said elsewhere there are two 
reasons to do a study — to be sure you have the savings to maintain your 
facility, and to help you plan and manage maintenance. The information in a 
good reserve study is invaluable in many ways. We use it, for example, as a 
double check on how much things should cost. We do both a replacement (capital) 
and a maintenance study. The maintenance study tells us how much the painting 
might cost.

I had an aunt who sold and invested in real estate in Hawaii — mostly condos. 
She also taught real estate law and wrote a textbook on it. She was adamant 
about reserve studies every three years with financial updates annually. There 
are times when you might go 5 years but you have to do the annual financial 
updates to be sure interest rates and construction rates haven't risen or 
fallen dramatically (as they have recently) or you have spent dramatically more 
or less than projected.

We paid $5,000 for the first reserve study with our current company because 
they had to come in and analyze everything carefully — all the HVACs, 
construction plans for pipes, etc., measure fencing and balconies — all that 
stuff. The annual financial update, I think is in the range of $300-500. They 
just run the numbers in their computer and print out a report. The subsequent 
site visits are $3,000. They do a visual examination of everything, but not 
look at the interior of the HVACs — stuff like that. They also look at the 
figures for what we have upgraded, added, replaced, etc. (I keep a spreadsheet 
of those that they work from).

Our numbers are run on a 100 year basis. If your study does not extend at least 
50 years, you will not have enough time to save for replacing your roof and 
major infrastructure features. They won't all go out at once and some may never 
go out but having the money in the bank is always the best choice if you want 
to maintain affordability and housing for low income households who cannot come 
up with large sums of money or lose their homes just because the association 
didn't budget well.

Sharon Villines
Takoma Village Cohousing, Washington DC

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