Ohio HOA Audit Requirements: Common Mistakes Boards Make with Financial Reviews

Ohio HOA Audit Requirements: Common Mistakes Boards Make with Financial Reviews

Ohio has no state statute that requires homeowner associations to conduct annual financial audits. Your association's obligation to perform an audit, review, or compilation flows entirely from your declaration of covenants and bylaws. This absence of state law creates confusion, and many Ohio boards make the same preventable mistakes when managing financial reviews.

The Three Levels of Financial Examination

You have three options when examining your association's finances: audit, review, and compilation. An audit is the most rigorous. A certified public accountant examines your records, tests transactions, and provides an opinion on whether your financial statements are accurate and free from material misstatement. The CPA performs detailed procedures and issues a report with reasonable assurance.

A review is less comprehensive. The CPA performs analytical procedures and inquiries but does not test transactions or verify balances with third parties. The CPA provides limited assurance that no material modifications are needed to your financial statements. A review costs less than an audit but offers less certainty.

A compilation is the simplest option. The CPA takes your financial data and organizes it into standard financial statement format. The CPA performs no verification procedures and provides no assurance. A compilation simply presents your numbers in a professional format.

Common Mistake One: Confusing Review with Audit

Many Ohio boards believe they have completed an audit when they have only obtained a review. Your governing documents may require an audit, but if you hire a CPA who performs a review, you have not satisfied your obligation. The difference matters because members who challenge your financial management can argue that the board violated the governing documents by substituting a less rigorous process.

A concrete example: the Shaker Heights Condominium Association in Cuyahoga County hired a CPA in 2022 to perform what the board called an audit. The bylaws required an annual audit for any association with more than 50 units. The CPA delivered a review report. When the association raised special assessments six months later, a group of unit owners challenged the board's authority to levy the assessment, arguing that the board had failed to complete the required audit and therefore lacked accurate financial data to justify the increase. The association settled the dispute by commissioning a full audit and reissuing the assessment notice, but the delay cost the association months of cash flow and created mistrust among members.

Common Mistake Two: Ignoring Governing Document Thresholds

Your bylaws or declaration may specify a revenue threshold that triggers an audit requirement. A typical provision requires an audit when annual revenue exceeds $250,000 or when the association has more than 100 units. If your association crosses the threshold during the fiscal year, you must commission an audit for that year even if you did not anticipate the increase.

Boards make the mistake of looking only at budgeted revenue. If you budgeted $240,000 but collected $265,000 due to special assessments or legal recoveries, you exceeded the threshold. You cannot wait until the following year to perform the audit. Your governing documents control the timing, and most require the audit to be completed within 90 to 120 days after the fiscal year ends.

Common Mistake Three: Allowing the Treasurer to Select the CPA Without Board Approval

Some boards delegate the selection of the auditor to the treasurer or another individual board member. This practice creates two problems. First, it concentrates decision making authority in one person, which increases the risk of conflicts of interest. Second, it exposes the board to claims that the audit was not independent because a single officer controlled the selection process.

The entire board should vote to engage the CPA. You should request proposals from at least two firms, compare their qualifications and fees, and document the selection decision in your meeting minutes. This process protects you if a member later challenges the audit's independence or accuracy.

Common Mistake Four: Failing to Provide Complete Records to the CPA

An audit or review requires the CPA to examine your association's records. If you provide incomplete bank statements, missing invoices, or unreconciled accounts, the CPA cannot complete the examination. Many boards assume that handing over a QuickBooks file is sufficient, but the CPA needs supporting documentation for every material transaction.

You should prepare a records checklist before the CPA begins work. Include all bank statements for the fiscal year, copies of contracts with vendors, reserve study reports, insurance policies, loan documents, and correspondence related to legal settlements or special assessments. Organize the records by month and category. The better your preparation, the faster and less expensive the audit will be.

Common Mistake Five: Waiting Until the Last Minute to Engage the CPA

If your governing documents require an audit within 120 days after the fiscal year ends, you cannot wait until day 110 to contact a CPA. Most accounting firms schedule audits months in advance, especially during tax season. If you delay, you may not find a CPA who can complete the work before your deadline expires.

You should engage the CPA at least 90 days before your fiscal year ends. Discuss the scope of work, agree on a timeline, and confirm the fee in writing. Schedule the audit to begin within 30 days after the fiscal year closes. This approach gives the CPA time to complete field work and deliver the report before your deadline.

Common Mistake Six: Ignoring the CPA's Management Letter

When a CPA completes an audit or review, the firm often issues a management letter that identifies internal control weaknesses or financial reporting issues. Many boards file the management letter without reading it or taking action on the recommendations. This mistake creates risk because the same weaknesses may lead to fraud, errors, or regulatory violations in future years.

You should review the management letter at a board meeting and assign responsibility for each recommendation. If the CPA recommends segregating duties so that one person does not handle both deposits and disbursements, you should implement that change within 60 days. Document your response to each finding in your meeting minutes. If you cannot implement a recommendation due to cost or staffing constraints, explain why in writing and describe the compensating controls you will use.

What the Ohio Attorney General's Office Does

The Ohio Attorney General's office does not regulate homeowner associations directly, but it enforces consumer protection laws that apply to HOAs. If your association collects assessments without providing the financial disclosures required by your governing documents, a member can file a complaint alleging deceptive practices. The Attorney General's office may investigate and refer the matter to local prosecutors.

The Ohio Real Estate Commission regulates community association managers but not the associations themselves. If your association hires a licensed community association manager, that manager must follow professional standards that include financial reporting and record retention requirements. However, the Commission does not mandate audits or reviews.

What You Should Do Now

Pull your declaration and bylaws and search for the word "audit." Identify any revenue thresholds, unit count thresholds, or time periods that trigger an audit requirement. If your documents are silent on audits, check whether they require an annual financial report or review. Document the exact language in a memo to the board.

Contact at least two CPAs who have experience with Ohio homeowner associations. Request proposals that specify whether the CPA will perform an audit, review, or compilation. Compare the scope of work and fees. Schedule a meeting with the board to review the proposals and vote on the engagement.

Create a records checklist that includes every document the CPA will need. Assign one board member to gather the records and organize them before the CPA begins field work. Set a deadline for delivery that gives the CPA at least 60 days to complete the examination before your governing document deadline expires.

Consult your attorney for your specific situation to confirm that your planned process matches your governing documents and to address any disputes or questions about financial disclosure obligations.

Manorway's AI assisted platform helps you track audit deadlines, store governing documents, and maintain a complete financial record that simplifies CPA requests. When you use Manorway to manage invoices, bank reconciliations, and vendor contracts, you create an organized digital file that the CPA can access remotely, reducing the time and cost of the audit. The platform reminds you when deadlines approach and documents your board's approval of the CPA engagement, giving you an audit trail that protects the board if members challenge your financial management.