South Dakota HOA Audit Requirements: What Your Board Must Know

South Dakota HOA Audit Requirements: What Your Board Must Know

South Dakota has no state statute that mandates annual financial audits for homeowner associations. Your association's bylaws and declaration of covenants control whether you must hire a CPA to conduct an audit, review, or compilation of your financial statements each year. This absence of state law creates flexibility but also confusion about when a financial examination is required and what level of scrutiny your board must apply.

What Your Governing Documents Require

Because South Dakota law does not establish audit thresholds, your first step is to review your association's governing documents. Most declarations or bylaws include a provision that requires an annual financial examination when the association exceeds a specific revenue threshold. Common thresholds are $50,000 in annual assessments, $100,000 in total revenue, or $250,000 in assets under management.

Your governing documents may specify one of three examination types. An audit is the most rigorous and expensive. A CPA reviews your financial records, tests transactions, and issues an opinion on whether your statements are free from material misstatement. A review is less detailed. The CPA performs analytical procedures and inquiries but does not verify every transaction. A compilation is the simplest. The CPA takes your financial data and formats it into standard statements without testing accuracy.

If your governing documents do not specify a threshold or examination type, you are not required by South Dakota law to conduct any financial examination. However, your board still has a fiduciary duty to manage funds responsibly and maintain accurate records.

The South Dakota Attorney General's Role

The South Dakota Attorney General's office has authority to investigate consumer protection complaints, including disputes over HOA financial mismanagement. While the Attorney General does not enforce specific audit requirements, the office can pursue boards that commit fraud, misappropriate funds, or fail to disclose financial information to members.

In practice, most disputes over financial examinations arise when members suspect mismanagement and the board refuses to provide documentation. If your board does not conduct an audit when your governing documents require one, members can file a complaint with the Attorney General or pursue a civil action in circuit court.

Common Mistakes Boards Make

The most common mistake is assuming that no state law means no audit requirement. Your governing documents are binding contracts. If your bylaws say you must conduct an audit when annual revenue exceeds $75,000, you must conduct that audit even though South Dakota law does not mandate it.

A second mistake is treating a compilation as an audit. A compilation does not verify accuracy. If your governing documents require an audit and you deliver a compilation, you have not met the requirement. Members can challenge the vote to approve financial statements and demand that the board hire a CPA to conduct a full audit.

A third mistake is waiting until after the fiscal year closes to plan the examination. If your bylaws require an audit within 90 days of year end, you must schedule the CPA in advance. Most South Dakota CPAs have full schedules between January and April because of tax season. If you wait until March to call a CPA, you may not receive your audit until June, which violates your governing document deadline.

A fourth mistake is failing to disclose the examination results to members. Even if your governing documents do not specify a distribution method, transparency is part of your fiduciary duty. You should provide a copy of the audit, review, or compilation to any member who requests it and post a summary on your association website or in your newsletter.

South Dakota Context and Real Example

South Dakota has approximately 60,000 residents living in homeowner associations, concentrated in Sioux Falls, Rapid City, and Brookings. Sioux Falls accounts for nearly 40 percent of the state's HOA population. The metro area has seen steady growth since 2020, with new subdivision construction adding an estimated 1,200 HOA units per year.

One example: the Westbrook Homeowners Association in Sioux Falls discovered in 2023 that its treasurer had transferred $18,000 from the operating account to a personal account over a two year period. The association's bylaws required an annual review when assessments exceeded $50,000, but the board had not hired a CPA since 2019. Members filed a complaint with the South Dakota Attorney General's office and pursued a civil action in Minnehaha County Circuit Court. The case settled in 2024, but the association paid $12,000 in legal fees and the treasurer faced criminal charges.

What You Should Do Now

Pull your association's declaration, bylaws, and any amendments. Locate the section that describes financial examinations. Write down the revenue threshold, the type of examination required, and the deadline by which you must complete it. If your documents are silent, your board should adopt a resolution that establishes a voluntary examination policy. A common approach is to require a review when annual revenue exceeds $100,000 and an audit when revenue exceeds $250,000.

Contact a CPA who has experience with homeowner association audits. Ask whether they can complete the examination by your deadline and how much they charge. Compare at least three firms. Typical costs are $1,500 to $3,000 for a review and $4,000 to $8,000 for an audit, depending on the size of your association and the complexity of your financial records.

Create a calendar that shows when you will close your books, when you will deliver records to the CPA, when you will receive the draft examination, and when you will present the results to members. Share this calendar with your board and your management company at least 90 days before your fiscal year ends. Consult your attorney for your specific situation to confirm that your process matches your governing documents.

How Manorway Helps

Manorway's AI assisted platform helps you track financial examination deadlines, store governing documents, and maintain a record of CPA communications. You can set reminders for key dates, upload your audit or review report, and generate a member notice that summarizes the results. When your board uses a centralized system to manage financial compliance, you reduce the risk of missing deadlines and create an audit trail that protects the board in disputes.

Your board's financial discipline is the foundation of member trust. South Dakota law may not mandate an audit, but your governing documents and your fiduciary duty require transparency and accuracy. An annual financial examination is one of the clearest ways to demonstrate that your board is managing funds responsibly.