It turns out that state law actually doesn’t require anything from your association with respect to external financial audits. This doesn’t mean that your association doesn’t have to do one, or that they aren’t a good idea. It just means that the law leaves it up to your association to decide how, if, and when to do them. So how do you know what’s required of your association? Check your Declaration(CC&Rs)! If your community has decided that financial audits are an avenue they want to pursue, the Declaration(CC&Rs) will be where that process is spelled out.

What if the Declaration(CC&Rs) says the board is required to do an audit, but they aren’t doing it? 

Section 57-8-8 of the Utah Condominium Ownership Act requires board members and homeowners alike to reasonably follow the rules set forth in the governing documents. So if the governing documents require an audit and the board isn’t doing it, that could be a potential violation of state law.

What About GAAP?

“GAAP” stands for “Generally Accepted Accounting Principles”. In the world of American accounting, GAAP is often used as the standard, authoritative framework for accounting rules. Audits conducted by a certified public accountant (CPA) often use GAAP as the basis for the audit. Even though GAAP is the most recognized standard, it is not the only standard. More importantly, just as state law does not require an association to perform an audit (unless they choose to), state law also does not require an audit to be conducted using GAAP. Any decision to use GAAP would be between your board and the auditor they hire.

Homeowner Audits: Your Right to See the Books

Homeowners do not have to guess if HOA finances are healthy. As a joint owner of the community, you have a legal right to see the records. Under Section 57-8-17, the association must provide these documents within a two-week deadline after you make a written request.

You have the right to inspect a number of documents (for the full list, see the Records topic), including:

• The most recent annual budget.
• The most recent financial statement.
• The most recent reserve analysis.
• Minutes from the management committee meetings for the last three calendar years.

This access is your ultimate safety net. It lets you see if the board is being a good steward of the common expenses.

The Veto: Giving Owners the Final Word

Owners have a powerful right to participate in the budget. Homeowners do not have the right to approve of the budget - that is the board’s responsibility. However, homeowners do have a right to veto the amount the board decides to set aside for reserve funds.

Section 57-8-7.5 explains the veto process for reserves:

1. The association adopts a new budget.
2. Owners have 45 days to call a special meeting to veto the amount for the reserve fund.
3. Owners can stop the funding with a 51 percent vote of the allocated voting interests.

Looking Ahead: Financial Health is Community Health

The rules in the law and in the governing documents are a roadmap for a stable community. Following these steps prevents a financial crisis by promoting transparency and participation from the community. To be a good steward, the management committee and unit owners should talk throughout the year. Do not wait for the budget meeting to ask questions. Knowing the law today ensures your home stays safe and valuable for the future.