Serving on a real estate cooperative board means accepting responsibility for financial stewardship. Among your most important obligations is ensuring proper oversight through professional audits of your cooperative's financial records.
For many board members—especially those newly elected—understanding audit requirements can feel overwhelming. The regulatory landscape is complex, with obligations stemming from multiple sources rather than a single mandate. This guide clarifies when your cooperative needs an audit, what the process entails, and how to fulfill your fiduciary responsibilities effectively.
As a board member, one of your most important duties is ensuring that your building’s finances are reviewed and verified by independent professionals. While many board members assume audits are required by law, the reality is more nuanced.
Most states don’t impose a blanket audit requirement on all cooperatives or condominiums. However, that doesn’t mean your board can forgo an audit.
Audit obligations depend on your community’s legal and regulatory structure. Some associations are incorporated as for-profit or nonprofit corporations under state law, while others may be subject to additional oversight through financing arrangements, tax-exempt programs, or agreements with housing authorities or lenders.
In many cases, those external agreements—not state law—determine whether an annual audit is required. Even when not mandatory, annual audits are widely considered a best practice, helping boards demonstrate accountability, strengthen financial controls, and maintain lender and owner confidence.
Many cooperatives also create audit obligations through their bylaws. These self-imposed requirements are legally binding once adopted.
Most cooperatives face audit obligations through their underlying mortgage agreements. Lenders use audited statements to assess your building's financial stability and protect their collateral. In these instances, getting a real estate cooperative audit isn’t optional: it's a covenant in your loan documents.
Recent Fannie Mae guideline changes have made lenders increasingly cautious about cooperative finances, particularly regarding reserve funds and deferred maintenance. Many now view audited financial statements as non-negotiable.
Even without ongoing requirements, cooperatives often need audited financials at critical junctures such as:
Treat lender and regulatory requirements as your baseline, but use audits proactively to identify risks before they reach shareholders or create financing problems.
Once your board decides to move forward with an audit, understanding what the process involves can make it far more efficient, not to mention less stressful. A well-managed audit not only satisfies lender or bylaw requirements but also gives your board clear visibility into your cooperative’s financial health.
From selecting a qualified auditor to preparing documents and reviewing results, every step offers an opportunity to strengthen oversight and improve transparency.
Choosing based on price alone can backfire. Look for CPA firms with specific experience auditing cooperatives and condominiums. These firms understand underlying mortgages, flip taxes, capital assessments, and reserve fund requirements.
Ask prospective auditors:
Typical audit costs might range from $5,000-$10,000 for smaller cooperatives, while larger buildings with more complex finances might expect to pay $15,000-$25,000 or more.
Your property manager plays a crucial role in gathering documentation: monthly financial reports, bank reconciliations, general ledgers, and supporting documentation for significant expenses.
Most audits require 4-6 weeks once documentation is provided, assuming your records are well-organized. Poor record-keeping extends timelines and increases costs.
Board cooperation is essential. Auditors may interview board members (particularly the treasurer) and require a management representation letter affirming the completeness of financial information.
The audit produces several deliverables:
Board members should understand these documents and be prepared to explain key findings to shareholders.
Review engagements offer limited assurance through analytical procedures, typically costing 30-50% less than full audits. Reviews provide limited assurance, whereas audits provide what’s called “reasonable” assurance. Depending on the building’s bylaws, or the requirements of the entity requiring the assurance, a review may or may not be sufficient.
Compilation services provide no assurance: a CPA simply assembles financial information into statement format. These are generally inappropriate for cooperatives with underlying mortgages. You can learn more about the different types of assurance solutions available for real estate cooperatives in this article: Audit vs. Review vs. Compilation: Which Does Your Building Need?
The reality: Most cooperatives with underlying mortgages need full audits regardless of size.
Here are some best practices that boards should adopt to ensure a smooth audit process:
Audit requirements for cooperatives arise from lender agreements, governing documents, regulatory oversight, and sound governance principles. Rather than viewing audits as compliance burdens, effective boards recognize them as tools for protecting cooperative assets and maintaining stakeholder confidence.
Your specific obligations depend on your cooperative's structure, financing arrangements, and governing documents. Take time early in your board tenure to understand what's required and when audits must be completed. This proactive approach prevents last-minute scrambles and ensures you fulfill your fiduciary responsibilities.
Your board's audit isn't just a requirement: it's your best protection against financial surprises. Revonary's specialized audit team helps real estate cooperatives stay compliant, confident, and well-prepared for lender and shareholder scrutiny.
We work efficiently with boards and property managers to deliver thorough, timely audits that provide meaningful financial insights and practical recommendations.
Contact Revonary today to discuss your cooperative's audit needs and learn how we can support your commitment to financial transparency and effective stewardship.