Audits may not seem like the most thrilling task on the list of body corporates and homeowners associations (HOAs). They may even feel like a massive schlepp. However, audits are the cornerstone of financial health and transparency in any collective property management structure. Think of them as essential behind-the-scenes helpers, safeguarding your community’s assets and ensuring future provision.
Let’s look at whether they are mandatory for your common-property community, what they entail, and the benefits they hold.
Are audits really required for co-owned properties?
In South Africa, audit requirements for HOAs and body corporates vary based on their legal structure. Here’s the rundown:
- Body corporates: These entities manage sectional title schemes and, according to the Sectional Titles Schemes Management Regulations (2016), are generally required to have an annual audit. Rule 26(4) states: "Unless all sections in the scheme are registered in the name of one person, the body corporate must present audited financial statements to a general meeting within four months after the financial year ends.” So, for body corporates with multiple owners, an annual audit is mandatory by law for body corporates with multiple owners.
- Homeowners associations (HOAs): Audit requirements for HOAs depend on how they are legally structured. For HOAs registered as Non-Profit Companies (NPCs) under the Companies Act, audits are required if the HOA meets specific thresholds, such as a high public interest score or holding fiduciary assets exceeding R5 million. In contrast, Voluntary Associations (another common form of HOA) are typically only bound by the terms in their constitution, and unless it mandates an audit, there is no statutory obligation.
What is covered in an audit?
An audit provides a deep dive, almost like an X-ray, revealing every detail of the community’s finances. Here’s what auditors typically look for:
- Financial statements verification: Auditors scrutinise the income statement, balance sheet, and cash flow to ensure all numbers add up. They identify any discrepancies or irregularities to provide an accurate financial record.
- Internal control review: Auditors assess the system of checks and balances to manage funds responsibly. This ensures no single person has unchecked power over finances to prevent mismanagement.
- Compliance check: For body corporates and NPC-registered HOAs, audits check compliance with relevant laws, such as the Sectional Titles Act or Companies Act. This protects associations from fines or legal issues.
- Reserve fund assessment: Auditors review the reserve funds to verify that adequate savings are set aside for future maintenance. This step ensures that communities are financially prepared for large, necessary expenditures or emergencies.
Why are audits important for body corporates and HOAs?
An audit does more than balance the books – it builds trust, deters fraud, and aids long-term planning. Here’s why a regular audit benefits your HOA or body corporate:
- Accountability: Members want assurance that their contributions are handled responsibly. Audits demonstrate transparency, building trust among residents and creating a solid foundation for community cooperation.
- Fraud prevention: With an audit process in place, it is easier to spot irregularities and deter fraudulent activities. Knowing that audits are a regular part of operations also discourages potential wrongdoing by members.
- Legal compliance: Audits ensure the association meets legal obligations, which helps avoid penalties or regulatory issues.
- Financial Planning: By analysing spending patterns and reserve fund levels, audits equip HOAs and body corporates to make informed financial decisions regarding future projects and maintenance.
How do we get our collective property audited?
Fortunately, there are experts who do this for a living. At Huysamen Westraad, our tailored audit services provide insightful, actionable financial reports that go beyond basic accounting. We work closely with each client to ensure audits are thorough, compliant, and beneficial for future planning. Remember, audits are not just another tick box – they shield your community’s financial health. With our professional team by your side, your co-owned property management team will have clear guidance every step of the way to stay compliant, transparent, and financially secure.
.png)
