No Independent Audit
Requirement
No statute requires an independent audit of your condo's or co-op's finances. The board picks the accountant. The managing agent recommends the accountant. Nobody checks the accountant's work.
THE PROBLEM
No one is watching the money.
In New York, there is no statutory requirement that a condominium or cooperative association undergo an independent financial audit. No minimum frequency. No requirement that the auditor be independent of the managing agent. No standard of what the audit must cover. No mandatory distribution of the results to unit owners.
Many buildings do have annual audits — but the auditor is typically recommended by the managing agent, retained by the board, and paid from common charges. The auditor's continued engagement depends on the managing agent's referral pipeline across multiple buildings. This is not independence. This is a captive relationship masquerading as oversight.
The consequences are documented and recurring. Managing agents commingle building funds with their own operating accounts. Reserve funds are invested in instruments that benefit the agent. Vendor payments are inflated and the difference is not traced. Insurance claim proceeds are deposited but not credited to the proper capital account. Without a truly independent audit, these patterns persist for years until a new board, a new agent, or a lawsuit uncovers them.
Small buildings — those with fewer than 30 units — are especially vulnerable. The operating budget may be $200,000 to $500,000 per year, which the board considers "too small" to justify audit costs of $8,000 to $15,000. But it is precisely in small buildings, where one person controls all spending and there is no professional oversight, that financial misconduct is most likely and hardest to detect.
WHY IT MATTERS TO YOU
You are funding a corporation with no financial oversight.
When you pay common charges, you are making monthly contributions to a corporation that manages a shared asset worth millions or tens of millions of dollars. In any other corporate context — public companies, nonprofits, government agencies, even homeowners' associations in other states — independent financial audits are mandatory. In New York condos and co-ops, they are optional.
This means you have no assurance that your common charges are being spent as budgeted. No assurance that reserve funds are intact and properly invested. No assurance that vendor payments match contracted amounts. No assurance that insurance proceeds were properly applied. No assurance that the managing agent's fee is the only compensation they receive from your building's operations.
Before you buy, ask for the most recent audited financial statement. If the building does not have one, that is a significant red flag. If the building has an audit but will not share it with prospective buyers, that is an even bigger red flag. Check the building's financial profile on our buildings page and review our offering plan red flags guide.
WHAT OTHER STATES DO
Other states mandate audits. New York does not.
Florida Statute §718.111(13) requires annual financial reporting for all condo associations. Associations with revenues over $500,000 must have a full audit by an independent CPA. Smaller associations must have at minimum a compiled financial statement. The results must be distributed to all owners within 90 days of fiscal year end.
California Civil Code §5305 requires an annual review of financial statements by a CPA for all associations with gross income over $75,000. The review must be distributed to all members annually.
Virginia requires annual audits for associations with assessments exceeding $100,000, administered through the Common Interest Community Board.
New York has no comparable requirement. A building with a $15M annual budget and $200M in aggregate unit value can operate indefinitely without a single independent financial audit. The managing agent controls the books. The board trusts the agent. Nobody checks.
PROPOSED FIX
Annual independent audits. Mandatory distribution. Real independence.
- Annual audit requirement: All condo and co-op associations with annual revenues exceeding $250,000 must undergo an annual audit by an independent CPA
- Auditor independence: The auditor may not be recommended, referred, or retained by the managing agent. Selection must be by board vote from a panel of at least three qualified firms
- Mandatory distribution: Audited financial statements must be distributed to all unit owners within 120 days of fiscal year end
- Smaller buildings: Associations with revenues under $250,000 must have at minimum an annual compiled financial statement by an independent CPA
- Reserve fund verification: The audit must separately verify the existence, balance, and investment status of all reserve funds
FAQ
Frequently Asked Questions
Is my building required to have an audit?
Not by statute. Most condo declarations and co-op bylaws include a provision for annual financial statements, but the requirement varies: some require a full audit, some require only a review or compilation, and some require nothing at all. Check your building's governing documents. Even when an audit is required by the bylaws, there is no enforcement mechanism if the board simply does not do it.
Can I request to see my building's financial statements?
Yes, but enforcement is weak. RPL §339-w gives condo unit owners the right to inspect books and records. BCL §624 gives co-op shareholders similar rights. In practice, boards routinely delay, restrict, or deny access. The only enforcement mechanism is a court proceeding — which costs more than most owners can justify for a document inspection.
How much does an independent audit cost?
For a typical mid-size condo or co-op (50-200 units), an independent audit costs $8,000 to $20,000 depending on the complexity of operations. For a building with a $2M annual budget, this represents less than 1% of operating expenses — a trivial cost for basic financial accountability.
What should I look for in the financial statements before buying?
Look for: (1) the reserve fund balance relative to upcoming capital needs, (2) whether the budget has been exceeded in recent years, (3) any outstanding litigation or pending assessments, (4) whether common charges have increased more than 5% annually, and (5) whether the auditor issued any qualified opinions or management letters flagging concerns.