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

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

Virginia has no state statute that requires homeowner associations to conduct annual financial audits, reviews, or compilations. The Virginia Common Interest Community Board, part of the Department of Professional and Occupational Regulation, oversees certain registered communities but does not impose statewide audit mandates. Your association's obligation to perform financial oversight flows entirely from your declaration, bylaws, and articles of incorporation. This absence of state law creates confusion, and boards across Virginia make recurring mistakes that lead to disputes, financial mismanagement, and legal exposure.

The most common error is assuming that because Virginia law does not require an audit, your association does not need one. Many governing documents written in the 1980s and 1990s include audit provisions that boards overlook or dismiss as optional. A second mistake is confusing the three levels of financial engagement: audit, review, and compilation. These are distinct professional services with different costs and rigor, and using the wrong one can violate your governing documents or leave financial problems undetected. This post walks through the five most frequent mistakes Virginia boards make with financial audits and reviews, explains what each service actually delivers, and shows you how to align your practice with your governing documents.

Mistake One: Assuming No State Law Means No Audit Obligation

Virginia does not have a statute comparable to California Civil Code Section 5305 or Florida Statutes Section 718.111, both of which set revenue thresholds that trigger mandatory audits. The Virginia Common Interest Community Board regulates certain disclosures and election procedures for registered communities, but it does not require financial audits. However, the absence of a state mandate does not mean your association is free from audit obligations.

Your governing documents control. Pull your declaration and bylaws and search for the term "audit." Many documents drafted before 2010 include a requirement that the board obtain an annual audit by a certified public accountant if the association's annual revenue exceeds a specific dollar threshold, often $50,000 or $100,000. Some documents require an audit every year regardless of revenue. If your documents include this language, the requirement is binding, and failure to comply exposes the board to breach of fiduciary duty claims.

A real example: the Loudoun Valley Estates Homeowners Association in Leesburg operates under bylaws adopted in 1998 that require an annual audit if revenue exceeds $75,000. In 2019, the association's revenue reached $120,000, but the board did not commission an audit, reasoning that Virginia law did not require it. A group of homeowners sued in Loudoun County Circuit Court, alleging that the board breached its duty by ignoring the bylaws. The parties settled before trial, but the association paid over $18,000 in legal fees and reimbursed the homeowners for their attorney costs. The settlement also required the board to obtain audits for the prior three fiscal years, which cost the association an additional $22,000.

Your next step is to review your governing documents with your attorney and identify any audit provision. If your documents require an audit and you have not obtained one, you are out of compliance. Consult your attorney for your specific situation to understand your exposure and create a plan to come into compliance.

Mistake Two: Confusing Audit, Review, and Compilation

Many boards use the terms "audit," "review," and "compilation" interchangeably, but these are three distinct services defined by the American Institute of Certified Public Accountants. Each has a different scope, cost, and level of assurance, and using the wrong service can leave your association vulnerable.

An audit is the most rigorous and expensive option. The CPA examines your financial records in detail, tests transactions, confirms bank balances with third parties, and issues an opinion on whether the financial statements present a true and fair view of the association's financial position. Audits cost between $5,000 and $15,000 for a typical Virginia HOA with annual revenue under $500,000, depending on the complexity of your accounts and the number of funds you maintain. An audit provides the highest level of assurance to members and potential buyers.

A review is less detailed. The CPA performs analytical procedures and inquiries but does not test transactions or confirm balances independently. The CPA issues a report stating that nothing came to their attention that would indicate the financial statements are materially misstated. Reviews cost between $2,500 and $7,000 for most Virginia associations. A review provides moderate assurance and satisfies governing documents that require a "financial review" without specifying an audit.

A compilation is the least rigorous service. The CPA takes the financial information you provide and formats it into standard financial statements, but performs no testing, no verification, and no independent confirmation. The CPA's report explicitly states that they do not express an opinion or assurance on the statements. Compilations cost between $1,200 and $3,500. A compilation does not satisfy a governing document requirement for an audit or review unless the document specifically allows compilation.

The mistake boards make is commissioning a compilation when the governing documents require an audit, or commissioning a review when a compilation would suffice and save money. In 2021, the board of the Riverside Condominiums in Richmond paid $6,500 for a review because a board member assumed the bylaws required one. A homeowner later reviewed the bylaws and discovered that the documents required only a compilation. The association wasted $4,000 on unnecessary assurance.

Pull your governing documents and search for the exact term used. If the document says "audit," you must obtain an audit. If it says "review," a review suffices. If it says "compilation" or "financial statement," a compilation is acceptable. If the term is ambiguous, ask your attorney to interpret it before you engage a CPA.

Mistake Three: Skipping the Reserve Study Cross Check

Virginia associations often obtain an audit or review but do not ask the CPA to cross check the reserve fund balance against the reserve study. This omission hides underfunding and prevents members from understanding the association's true financial health.

Your reserve study projects the future cost of major repairs and replacements, such as roof replacement, asphalt resurfacing, and pool equipment. The study tells you how much money you should accumulate in reserves each year to cover these expenses. If your actual reserve balance is significantly lower than the study's recommended balance, your association is underfunded, and you will likely need a special assessment or loan when a major expense arises.

An audit or review can confirm that your reserve fund balance matches your accounting records, but it does not tell you whether that balance is adequate. You must ask the CPA to compare the actual reserve balance to the reserve study's recommended balance and note any significant variance in the report. Some CPAs will do this automatically if you provide the reserve study. Others will not unless you explicitly request it.

In 2020, the board of the Fairfax Ridge Homeowners Association in Fairfax County commissioned a financial review that showed a reserve fund balance of $87,000. The board distributed the review to members and reported that the association was in good financial health. Six months later, a storm damaged the community's main entrance sign and retaining wall, and the board discovered that the reserve study from 2018 recommended a reserve balance of $140,000. The actual balance was 38 percent below target. The board had to levy a $500 special assessment on each of the 112 units to cover the repairs, and members accused the board of hiding the underfunding. The board had not hidden anything; they simply had not asked the CPA to cross check the reserve balance.

When you engage a CPA for an audit or review, provide a copy of your most recent reserve study and ask the CPA to note in the report whether your current reserve balance meets the study's recommended level. This costs you nothing extra and gives members a complete picture of financial health.

Mistake Four: Failing to Distribute the Report to Members

Virginia law does not require you to distribute financial audits or reviews to members, but many governing documents do. Boards often commission the report, file it with the association's records, and never share it. This violates governing documents and fuels member suspicion.

Search your bylaws and declaration for distribution requirements. Many documents require the board to provide a copy of the audit or review to any member who requests it, or to include the report in the annual meeting packet. Some documents require you to mail or email the report to every member within 30 days of completion.

If your documents are silent, best practice is to post the report on your association's website or member portal and announce its availability in a newsletter or email blast. You can also provide printed copies at the annual meeting. Transparency reduces disputes and builds trust.

In 2022, the board of the Shenandoah Commons Townhomes Association in Winchester commissioned an audit at a cost of $8,200 but did not distribute it to members because the bylaws did not explicitly require distribution. At the annual meeting, a member asked to see the audit, and the board provided a copy on request. The member discovered that the audit noted a $12,000 discrepancy in vendor payments that the board had not explained. The member accused the board of concealing the issue, and the dispute escalated to a recall petition. The board ultimately explained that the discrepancy was a timing difference between invoice dates and payment dates, not missing funds, but the damage to trust was done. The board could have avoided the conflict by distributing the audit proactively.

Mistake Five: Using an Unqualified Preparer

Some boards hire a bookkeeper or accountant who is not a certified public accountant to prepare financial statements and call the result an "audit" or "review." This is not valid. Only a licensed CPA can perform an audit, review, or compilation that satisfies governing document requirements.

The Virginia Board of Accountancy licenses CPAs in Virginia. You can verify a CPA's license status on the Board's website at dpor.virginia.gov. If your governing documents require an audit or review, you must engage a CPA who holds an active Virginia license or a license from another state with reciprocity.

A bookkeeper or non CPA accountant can prepare internal financial statements for your board's use, but these do not satisfy a governing document requirement for an audit or review. If you rely on non CPA prepared statements and a dispute arises, the court will likely find that you did not comply with your governing documents.

In 2018, the board of the Ocean Lakes Estates Association in Virginia Beach hired a bookkeeper to prepare financial statements and labeled the document a "financial review." The bookkeeper was not a CPA. When the board used the review to justify a 15 percent assessment increase, several homeowners objected and hired an attorney. The attorney pointed out that the governing documents required a review by a CPA, and the bookkeeper's statements did not satisfy the requirement. The board was forced to commission a proper review by a licensed CPA at a cost of $4,800, and the entire budget process was delayed by three months.

Before you engage anyone to perform an audit, review, or compilation, confirm that they hold an active CPA license. Ask for their license number and verify it with the Virginia Board of Accountancy. If you hire a firm, confirm that the individual who will sign the report is a licensed CPA.

What You Should Do Now

Pull your association's declaration, bylaws, and articles of incorporation. Search for the terms "audit," "review," "compilation," and "financial statement." Identify any requirement for financial oversight and note the exact language used. If your documents require an audit and you have not obtained one, calculate how many years you are out of compliance and consult your attorney.

If your documents are silent, consider whether your association would benefit from an audit or review even though it is not required. Associations with annual revenue over $200,000 or with a history of financial disputes often benefit from the transparency and assurance an audit provides.

Create a calendar that shows when your fiscal year ends, when you will engage a CPA, when the audit or review will be completed, and when you will distribute the report to members. Add a line item to your budget for the cost of the service. Audits, reviews, and compilations are recurring expenses, and you should plan for them annually.

Manorway's AI assisted platform helps you track financial oversight deadlines, store copies of audits and reviews, and distribute reports to members. You can set reminders for when to engage a CPA, upload the final report to your document library, and generate a notice to members that the report is available. When your board uses a system that tracks compliance with governing documents, you reduce the risk of missing requirements and create an audit trail that protects the board in disputes. Consult your attorney for your specific situation to confirm your obligations and bring your association into compliance.