As a unit owner, you rely on your condominium association or your condominium’s board members to properly care for your community’s finances. From landscaping to utilities to garbage collection and more, it’s important to know where exactly your monthly and/or special assessment money is going each month. Typically, associations will have an audit or a review completed on an annual basis to ensure the association is fiscally healthy and is usually done by a Certified Public Accountant (CPA). But what if you still have questions? What if you’re having doubts that the money is being used as it should be? Do you have the right as a unit owner, or even an association member, to request an audit?
Wait…what’s the difference between a review and an audit?
While both reviews and audits are conducted by a CPA, their process and goals are a bit different. Overall, there is a difference in degree. A review is a much lighter look into the association’s finances. The goal of a condominium association review is to get a better understanding of the finances as they currently exist to ensure the finances are being managed properly. This involves a basic assessment of financial records and documents. This does not assess the state of the association’s finances, but rather to ensure that the finances are being handled correctly.
Audits, on the other hand, are much more detailed. Audits really go into the weeds of the finances and aim to assess the association’s financial state by taking a deep dive into financial records and consulting with creditors and debtors to reconcile amounts owed. This digs much, much deeper into the association’s financial records, law compliance, financial forecasts, and more.
Due to the level of effort that goes into each, an audit is much more expensive than conducting a review. If budget is a concern and you’d like a professional to look deeper into your association’s finances, you may want to opt for a review.
Is there anything I can do before requesting an audit?
Firstly, find out if your association is compliant with the Federal Housing Administration’s certification process (FHA). If it is, you can find comfort in knowing FHA compliant associations are required to carry fidelity insurance in case of theft or fraud, and for directors and officers liability in the event of gross mismanagement, leading to financial loss. As a side note, there are a number of other reasons why it’s important for your association to be FHA certified, including for estate planning purposes and first-time homebuyers, too!.
If your association is certified by the FHA but you are still questioning finances, there are a few different avenues you could take before officially requesting an audit:
- Request that your board provide you with all relevant financial information for your own review, and upon your own examination, decide if an audit is still necessary.
- Depending on the type of audit currently being conducted annually, you could ask permission for your accountant to perform a Level 2 or Level 3 audit. It’s important to note that these upper-level audits can be very expensive and up to $5,000. These audits are typically only used when there is reasonable suspicion of fraud, not when there are disagreements over how to spend the association’s money.
Whether you’re a member of the board of a unit owner, you have the right to access and view the financial records of the association. According to Section 34-36.1-3.18 of the Rhode Island Condominium Law, associations are required to keep financial records reasonably available for examination for any unit-owner or their agent upon request.
What should I do next?
If you’ve reviewed the finances yourself and would like to move forward with officially requesting an audit, it’s important to understand the process and know your rights. That’s where we can help. Give us a call today at (401) 726-1010 or schedule a consultation with us, and we’ll help sharpen the blurry lines around condominium law and your right to request an audit.