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Should HOAs perform a full audit every year?

By Michael Hunter
Michael Hunter
Charlotte attorney Michael Hunter focuses on community and condominium association law for the firm of Horack Talley. E-mail questions.

Q: What can homeowners do when their HOA (homeowners’ association) board is not following its own bylaws, which in this case require an annual audit performed by an accountant?

Only accounting “compilations” have been done in the past, even though the budget line item for the expense says “auditing fees.” Also, final year-end financial statements are not mailed to the homeowners. At the annual meeting each December, we are provided only with a budget for the upcoming year and preliminary financial statements for the current year-to-date.

Many older communities have a provision in their bylaws that the HOA financials be “audited” every year. If the HOA’s bylaws have such a provision, the board should of course have an audit completed each year.

The Planned Community Act (PCA) only requires an audit, compilation, or review upon the request of a majority of the board or the members. Therefore, a board that does not wish to undertake a yearly audit may lawfully amend the bylaws to do away with or relax the annual-audit requirement.

In my experience, while a yearly audit might sound like a good idea, full audits by an accountant can be very costly and may be unnecessary. At the same time, it bears noting that while accounting reviews or compilations are less intensive and less costly, they are no substitute for an audit.

Depending on the community, I often recommend that HOAs amend their bylaws so that an audit is only required once every two or three years. For more information, go to www.condo-smart.com.

North Carolina law only requires that the annual financial statements be “made available” to homeowners within 75 days of the end of the fiscal year. I interpret that to mean that copies must be provided to members who request one.

If our state legislators intended for HOAs to mail a copy of the year-end financial statement to every homeowner (most of whom won’t bother to read it), the law would likely include such a mandate, but it does not.

In practice, however, most HOAs mail the statements to owners or post them on the community’s Web site.

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Q: Our HOA board never holds open sessions during its meetings, and they will end the meeting if a homeowner shows up. Thus, homeowners are not given an opportunity to discuss and resolve these issues at a board meeting. The board members state that they don’t have to abide by the open HOA meeting laws in North Carolina because our HOA was incorporated before the Planned Community Act became effective.

It’s a common misconception that HOAs formed prior to 1999 are not subject to the North Carolina Planned Community Act (PCA).

The PCA includes a list of provisions that are “retroactive,” and which apply to all HOAs regardless of when they were formed (except condominiums, which are not subject to the PCA).

One of the retroactive provisions, N.C.G.S. § 47F-3-108, reads: “At regular intervals, the executive board meeting shall provide lot owners an opportunity to attend a portion of an executive board meeting and to speak to the executive board about their issues or concerns. The executive board may place reasonable restrictions on the number of persons who speak on each side of an issue and may place reasonable time restrictions on persons who speak.”

If your board members refuse to allow owners an opportunity to speak at regular intervals, which does not necessarily mean at every board meeting, they are violating the law. And by holding “secret” or closed-door meetings, the board members are only encouraging suspicion and contempt among homeowners, which is never a good strategy.

Charlotte attorney Michael Hunter represents community and condominium associations for the firm of Horack Talley. Email questions to home@charlotteobserver.com. Find his blog at www.CarolinaCommonElements.com
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