Indiana HOA Audit Requirements: When Your Association Must Conduct a Financial Audit

Indiana HOA Audit Requirements: When Your Association Must Conduct a Financial Audit

Indiana has no state statute that requires homeowner associations to conduct annual financial audits, reviews, or compilations. Your association's bylaws and declaration control whether you must perform a financial examination and at what threshold. Because state law does not prescribe audit requirements, many Indiana boards rely on governing documents that were drafted decades ago without clear guidance on financial review standards.

The Indiana Attorney General's office oversees consumer protection and can investigate HOA mismanagement complaints, but it does not enforce specific audit frequency rules. Instead, your board's fiduciary duty to members and the terms in your governing documents determine what level of financial scrutiny you must provide each year.

What Your Governing Documents Typically Require

Most Indiana HOA declarations include a provision that requires the board to present an annual financial report to members. The document may specify an audit, a review, or a compilation, or it may leave the choice to the board's discretion. An audit is the most rigorous examination, in which a certified public accountant expresses an opinion on whether your financial statements are free from material misstatement. A review provides limited assurance that nothing came to the accountant's attention suggesting the statements are materially misstated. A compilation simply presents financial data in statement form without providing any assurance.

Your first step is to pull your declaration and bylaws and search for the word "audit" or "financial report." If your documents require an audit but do not specify a revenue threshold, the board must conduct an audit every year regardless of association size. If your documents require a financial report without specifying the type, you have flexibility to choose a review or compilation based on your budget and member expectations.

Many Indiana associations operate in suburban Indianapolis, where over 60 percent of the state's HOAs are concentrated in Marion, Hamilton, and Hendricks counties. These associations often adopt documents that mirror national templates, which may include audit thresholds tied to annual revenue. A common pattern is to require an audit when annual revenue exceeds 250,000 dollars, a review when revenue falls between 100,000 and 250,000 dollars, and a compilation below 100,000 dollars.

The Most Common Mistake Indiana Boards Make

The most frequent error is assuming that because Indiana law does not mandate an audit, your board can skip the financial examination entirely. This assumption ignores your governing documents and exposes the board to liability. If your bylaws require an annual audit and you fail to conduct one, members can challenge the board's fiduciary duty and demand the audit be completed at the association's expense.

A second common mistake is confusing a review with an audit. Some boards hire an accountant to perform a review and then tell members that an audit was completed. A review costs less than an audit and involves fewer procedures, but it does not provide the same level of assurance. Members who expect an audit opinion may file complaints when they discover the board substituted a review without authorization.

A third mistake is conducting an audit but failing to share the results with members within the timeline required by your bylaws. If your documents require distribution of the audit report within 30 days after completion and you miss that deadline, members may accuse the board of hiding unfavorable findings.

A concrete example: the Westfield Commons Homeowners Association in Westfield, Indiana operates 180 single family homes with annual revenue of approximately 220,000 dollars. The association's bylaws, adopted in 2008, require an annual audit without specifying a revenue threshold. In 2022, the board decided to save money by conducting a compilation instead of an audit. Several homeowners objected and requested copies of the bylaws. When they confirmed the audit requirement, they filed a complaint with the board and threatened legal action. The board ultimately hired a CPA to perform the required audit, which cost the association 8,500 dollars plus legal fees to address the complaint.

What You Should Do Now

Review your governing documents and identify the exact language about financial examinations. Determine whether your bylaws require an audit, review, or compilation, and whether any revenue threshold applies. If your documents are silent, consider your association's size and complexity. Associations with annual revenue above 200,000 dollars or with significant reserve balances should consider a review at minimum to provide transparency and protect board members from liability claims.

Create a written policy that defines when your board will conduct an audit, a review, or a compilation. Share this policy with members and include it in your annual meeting materials. If your governing documents require an audit but your association's budget cannot support the cost, consider proposing an amendment to the bylaws that establishes revenue thresholds for different levels of financial examination. You will need member approval to amend the bylaws, but the amendment can save the association thousands of dollars each year while maintaining accountability.

Hire a licensed CPA who has experience with homeowner association accounting. Ask the CPA to explain the difference between an audit, a review, and a compilation before you decide which service to purchase. Request a written engagement letter that specifies the scope of work, the timeline for completion, and the cost. Schedule the financial examination to conclude at least 60 days before your annual meeting so you have time to review the report and prepare a summary for members.

Consult your attorney for your specific situation to clarify your governing document requirements and to determine whether your current financial reporting practice matches those requirements. An attorney can also advise whether you need to amend your bylaws to align with your board's preferred approach.

How Manorway Supports Your Financial Compliance

Manorway helps you track financial examination deadlines, store audit reports, and document your board's decisions about financial review standards. You can set reminders for when to solicit bids from CPAs, schedule board meetings to discuss the audit results, and maintain a complete record of member communications about financial transparency. When your board uses an AI assisted platform to manage compliance tasks, you reduce the risk of missing deadlines and create an audit trail that protects the board in disputes about financial accountability.