Audit commission, HOA auditor: powers, procedure for conducting activities

Last modified: October 2021

The purpose of organizing an HOA is to ensure effective management of an apartment building and carry out work to maintain the good condition of the equipment and property of the apartment building. The participants of the partnership elect members of the board and the chairman from among themselves, instructing them to carry out the necessary activities. Since the activities of the board need to be monitored, there is an HOA audit commission authorized to conduct regular audits of the organization’s reporting and evaluate the effectiveness of the chairman’s actions.

The audit committee plays an important role in the process of orderly management of the homeowners' association. She receives a wide range of powers regarding the assessment of the work of the board and assigns clear responsibilities to the inspectors.

Auditor or audit commission?

There are no requirements for choosing to elect one auditor or an audit commission in the legislation, therefore one should be guided by the HOA Charter, and if there is no detailed regulation of this issue in the Charter, these issues should be resolved at a general meeting.

You can order the development of the HOA Charter from me (done individually for each HOA and taking into account all changes in legislation, as well as my experience working with HOAs)

I recommend that questions about the activities of the Audit Commission be closed in detail at the stage of forming the Charter or amending it. If you don’t want to change the Charter, then a good option would be to develop a regulation on the audit commission.

Goals and objectives

What is the purpose of the inspection, and what tasks do the commission members set for themselves? The main objectives of the audit include:

• checking the financial and economic statements of the HOA;
• control over the expenditure of funds;
• consideration of complaints from owners (how to file a complaint against the HOA and where to file it, read here);
• checking the calculation and execution of estimates;
• checking the remuneration of personnel (which personnel are required on the HOA staff, and which employees can be recruited at will, is described in this article);
• control over the implementation of the charter of HOAs and housing complexes of the Russian Federation;
• checking the objectivity of the amount of contributions and other payments (you can read about payments in the HOA, payments for mandatory or not services, including contributions for repairs, in another article).

The purpose of the audit commission is, based on studying the documents, to make a conclusion about the work of the partnership, identify shortcomings in its activities (if any), give recommendations to the board and the chairman of the HOA on further financial planning, and make a final verdict: whether the organization’s activities are satisfactory.

Should the audit commission (auditor) be members of the HOA?

There are no requirements that members of the audit commission or the auditor must be members of the relevant HOA, so everything here is at the discretion of the HOA. There is a restriction according to which the commission cannot include members of the board of the HOA (Part 1 of Article 150 of the Housing Code of the Russian Federation).

Objectively, among the members of the HOA, as well as the owners of premises in apartment buildings, there are not always citizens who have the knowledge and experience to conduct an audit, so an acceptable option would be to elect and hire an auditor from the “outside” (for example, hire an accountant who was not in the labor and other relations with the HOA).

Rights and obligations

The work of the audit commission is connected not only with checking the reports and figures submitted by the board.

The rights and responsibilities of the HOA Audit Commission require the following actions:

• consider complaints from partnership participants;
• conduct audits of financial statements and other documents prepared by the board of directors;
• verify the legality of transactions concluded by the board;
• control financial transactions and amounts;
• study tax reporting;
• make decisions on the advisability of spending from the partnership’s accounts;
• monitor the stability of your financial situation;
• carry out audit procedures.

Fulfilling the duties of the HOA audit commission involves receiving material remuneration in accordance with the decision adopted by the meeting of homeowners.

In the course of fulfilling their obligations, auditors have the right to:

1. Gain access to the organization’s main documents, including accounting, tax reporting, and legally relevant documentation.
2. Check estimates and make decisions on the appropriateness of board actions.
3. Control the distribution of partnership resources.
4. Attract additional employees if required to increase the efficiency of HOA management.

Auditors are given the right to make requests to issue any documents of the partnership if this is related to the execution of audit actions. More details about what the audit commission checks are indicated in the Charter of the partnership.

Responsibilities of the audit commission (auditor)

• conducts audits of the financial activities of the partnership at least once a year
• presents to the general meeting of members of the partnership a conclusion based on the results of the audit of the annual accounting (financial) statements of the partnership
• presents to the general meeting of members of the partnership a conclusion on the estimate of income and expenses for the corresponding year of the partnership and a report on financial activities and the amount of mandatory payments and contributions
• reports to the general meeting of members of the partnership on its activities.

The article will be useful: The Supreme Court about parking cars in the courtyard of an apartment building

Normative base

Residents of a high-rise building inevitably have legal relations with the HOA itself, which are regulated by housing legislation in the Russian Federation. The main legislative act in this area is the Housing Code. Its Article 150 obliges the partnership to create an audit commission, appoint special members from among the homeowners in order to carry out control measures over the activities of the association, its board, and chairman. And the work of this supervisory structure itself is regulated by the Legal Status of Members of the Homeowners Association (Chapter 14). The Republic of Kazakhstan should have its own developed regulations.

If, from the point of view of residents, the actions of the HOA are irrational, which is often associated with material costs, they turn to a specially created and permanently operating audit body, whose staff they themselves elected by voting at a general meeting of residents. This body is the audit commission.

It is necessary to understand that the HOA auditor refers to the management bodies of the partnership, and, therefore, does not perform actions on its behalf that affect the financial obligations of the management or change them. The task of the commission is different - internal control over the legal, financial and economic work of the partnership, its board, and chairman. And the guidelines for action are:

• HOA charter;
• partnership status;
• Housing, Civil codes.

The activities of the commission, carried out in the interests of the owners who pay for utilities and maintain common property, make it possible to protect the responsible persons of the HOA from intentional abuses and unintentional mistakes. Without such a body, no HOA has the right to function. Otherwise, this is a violation of the law, which is fraught with quite severe consequences, even liquidation.

IMPORTANT! The Audit Commission reports exclusively to members of the organization. They are the ones responsible for its creation.

This supervisory body is elected, as a rule, for two years and may consist of three people, unless otherwise decided by the meeting of residents. He is required by law to conduct audits of financial activities at least annually. The meeting must be informed about all the results of the audit (auditor's conclusion, report). But such control can be organized at any other time, for example, at the request of residents or by decision of the general meeting.

What should audit committee reports contain?

There are no requirements for the report of the audit commission or the HOA auditor in the legislation. I repeat that the composition of the report can be enshrined in the Charter or the regulations on the audit commission.

You can order the development of the HOA Charter or regulations on the audit commission. Development is carried out individually for each HOA and taking into account all changes in legislation, as well as my experience working with HOAs).

Also, if questions arise during the activities of the HOA, you can order a consultation.

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How is the verification carried out?

An audit in a HOA can be of two types:

1. Planned.
2. Unscheduled.

An unscheduled audit is carried out by members of the audit body on the proposal of the prosecutor's office, the housing commission or statements from residents in case of suspicion of abuse of power by accounting employees or members of the board.

It is important to take into account that during unscheduled audit activities, only employees of the prosecutor’s office have the right to forcibly confiscate documentation.

A planned audit of a housing association must be carried out in accordance with the accounting policies adopted by the organization and the frequency determined by the charter. In general, audit activities have the following order:

1. Members of the commission request from the accounting department and the board the documentation necessary for the audit.
2. Financial documents are analyzed.
3. Inspection reports are drawn up and signed.
4. When inconsistencies are found, their causes are determined.
5. Recommendations for eliminating detected inconsistencies are formed.
6. A report on the inspection is generated for presentation to the general meeting of residents-owners of premises in the house.

The report can also be provided upon request to the tax inspectorate or prosecutor's office. The documents analyzed by the auditor at the beginning of the audit include:

• receipts and payment documents;
• agreements with resource supply companies (we talked about the types of services provided to HOAs here);
• contracts with contractors;
• extracts from tax reports;
• receipt and expense journals;
• material balance lists;
• statements of profit from business activities;
• bank statements about current account transactions;
• statements on the movement of funds from the reserve fund and the capital repair fund.

When conducting an analysis, members of the commission first calculate a financial plan based on projected indicators, then sum up actual income and expenses, and then compare the calculated indicators with the actual ones.

If there are discrepancies in fundamental indicators, members of the commission begin a financial analysis to find the reasons for such discrepancies.

The search begins with an analysis of the compliance of the accounting account assignments recorded in the balance sheets with the subaccount numbers accepted in most housing associations.

Next, there is an analysis of banking transactions and transactions with personal accounts assigned to payment counterparties by HOA accounting employees, if transactions do not occur through cash settlement centers. If at this stage the reasons for the discrepancies are not found, a list analysis and re-checking of all incoming and outgoing documentation occurs.

Now you know how to audit the HOA and what is needed for this.

Drawing up a conclusion

Upon completion of audits, the elected controlling body of the housing association generates the following documents for conclusion:

• Act;
• report.

REFERENCE! The commission’s act records the data when conducting an audit of various aspects of the financial and economic activities of the HOA, and the report is an analyzed result of the audits carried out.

Filling out acts

The information recorded in inspection reports serves as the basis for generating reports.

The act must contain the following information:

1. Date of preparation.
2. List of members of the commission present during the compilation.
3. Description of the financial object being inspected.
4. List of indicators used for checking.
5. Indicator values.

The verified indicators are formed in accordance with the accounting policies adopted in a particular partnership. The act is drawn up on A4 paper and begins with the name of the HOA, the address of the inspection and its date.

After listing the indicators and their values, at least two members of the commission must sign with their full name. If the supervisory body is represented by a single auditor, the second signature is given by the chairman.

Audit reports at the end of the year are drawn up in 2 copies , one of which is used during audit activities, and the other is to be stored for 3 years in the archives of the HOA.

Audit procedure

So how do you check your HOA? This is established in the regulations on the activities of the commission.

However, the legislator puts forward certain requirements regarding the subject of the auditor’s work, which include:

1. Checking the execution of the HOA budget.
2. Correct execution and maintenance of estimate documentation.
3. Checking the openness of HOA activities.
4. The fact that estimates and other documentation correspond to reality.

The general meeting of residents has the right to entrust the inspection organization with monitoring other areas of the HOA’s work.

The verification procedure is as follows:

1. Requesting the necessary documents on the work of the HOA.
2. Analysis of the specified documentation with the involvement of specialists.
3. Studying the issue of utilities, their accuracy.
4. Checking the partnership's bank account.

The check must be carried out in this order in order to obtain the most correct analysis of the activities of the HOA. At the end, a meeting is held, for which minutes must be taken. It is not necessary to have a basis to conduct an inspection.

Based on the results of the audit, an act is drawn up. The results of checking the feasibility of the HOA's expenses cannot be approved without presenting them to the general meeting.