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The Importance of Auditing Under SAS 99

For the sake of financial transparency, auditing under SAS 99 is one of the most important HOA services a managed community can receive.
Staff Writer | Mar 28, 2024 | 2 min read

In December of 2002, the American Institute of Certified Public Accountants (AICPA) instituted tougher auditing standards for businesses, including HOAs and their homeowner's association management companies. Contained in the AICPA’s Statement on Auditing Standards No. 99 (SAS 99), the measures were developed in response to a series of highly publicized accounting scandals that occurred in the late 1990s and early 2000s. The type of financial corruption that SAS 99 is designed to uncover seldom happens to HOAs, but when it does, the measures ensure fiscal duplicity is uncovered.

For the sake of financial transparency, auditing under SAS 99 is one of the most important HOA services a managed community can receive.

SAS 99 in Perspective

SAS 99 begins with a section describing financial fraud and its characteristics. It goes on to establish the mindset auditors should use during the audit, how they should go about obtaining information, how they should identify and assess risks after evaluating the entity’s programs and controls, how they should respond to the results of the assessment, how they should evaluate audit evidence and document fraud if it exists, and, finally, how evidence of fraud should be documented and communicated to management. The process works the same every time, the only difference is whether fraud is discovered.

To an HOA board member who manages community finances, but lacks professional bookkeeping experience, an SAS 99 audit can seem a bit draconian. The person might feel ill at ease, fearing his or her amateur bookkeeping status may have resulted in some bookkeeping errors or budget miscalculations. However, board members who handle community finances should be assured that the purpose of SAS 99 standards is not to expose mediocre bookkeeping or simple bookkeeping errors, but to uncover deliberate, purposeful fraud, like the kind that occurred at Enron, Tyco, World Com, and ZZZZ Best Company.

To feel confident about the financial management of the community, many HOA boards delegate the financial management functions to a homeowners association management company that provides a full range of financial HOA services. When it comes time for auditors to comb the books, they can communicate with the bookkeeping office of the management company instead of the HOA board members. Board members who lack financial expertise greatly appreciate this simplification.

Better Safe Than Sorry

Fraud is not a common problem with HOAs, but some noteworthy cases deserve to be mentioned. For example the case of Vistana Condominiums in Nevada, where an HOA board participated in a construction scam that bilked condominium owners out of millions of dollars. Another example is the case of the Avalon community in Texas, which had thousands of dollars of HOA dues mishandled by a homeowners association management company.

The chance of fraud happening to your particular community is about as likely as someone winning the grand prize from a lottery scratch-off ticket. Nevertheless, because the possibility exists, the ironclad auditing standard established by SAS 99 is one of the most valuable HOA services for communities that depend on the scrupulous management of their finances.

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