Missing Reserve Funds - Atrocious Accounting - Reserve Study Errors - Denial of Records

I realize this post is quite long - but I think all of the information is relevant to see how bad Management Companies (MC) can be.

I don't know if the restricted reserve funds were actually stolen or more the result of sloppy bookkeeping.

Back in 2000, we had a crazed board that had secret meetings, only put into the minutes what they wanted and tried to put through a restatement of the declaration. When that didn't pass, they (with HOA attorney's help)took the homeowners to court to attempt to get it passed that way. Enough outraged homeowners objected to the court and it was dismissed. That board was fired (end of 2001)and the new board instituted an audit committee to look into some of the crazy spending that had been going on. For example, the old board had several new monument type entrance signs($27K+)with lighting installed. These were not budgeted for in the reserves - so where did they get the money to do this and so many other things that were not budged for?

I volunteered as part of that audit committee. We have 345 homes with about 48% traditional homes and 52% cluster homes. There is a base assessment for everyone and the clusters pay an additional amount for the repair and maintenance of the "private streets" that (per our declaration) is to be put into a separate bank account and used for NO other purpose. There was no bank account and the MC was keeping a sort of list on what was being spent on general reserves and on cluster streets. We did an analysis for the last 20 years (thru end of 1999) and discovered that almost 400K (including interest) was missing from what should have been Cluster's "restricted funds" and reported this to the board.

Since there was a lot of deferred maintenance, the board was anxious to get a dues increase and didn't want to stir the pot so didn't want the homeowners to know this. We felt we had a fiduciary duty to let the homeowners know but were blocked from putting any articles into our newsletter. We were told it was "not in the best interest of the homeowners to know." Finally, the board fired the audit committee - they saw us as stopping them from doing what they wanted. We put out flyers and tried to let HOs know the truth but were labeled as troublemakers.

Anyway, I've kept detailed spreadsheets (2000-2014) of the Cluster Reserves and currently there is $330K missing - $90K in deposits not made and $240K in expenses paid out that should have been paid out of General Reserves and/or the Operating Fund. The current MC (start 2011)has missed a lot of deposits to this account - at one point behind over $30K. In 2012 and 2013 before the annual meeting, I've emailed the board letting them know this so they wouldn't be bragging about how much under budget they were and hopefully make up the deposits.

The current board is fairly new and mostly new homeowners so don't know the history here. They announced they wanted to amend our declaration and started putting out a lot of misinformation about our current declaration and how HOs really needed more protection. They welcomed feedback after we read the draft. Turns out it's a lot of legalese taking away HO rights and giving a lot of power to the board and MC. I emailed the board pointing out these things and also letting them know that the newest Reserve Studies (showing cluster dues needed raised due to underfunding)was full of errors and that the opposite were true if Cluster missing monies were paid back. After wanting proof of my statement, I emailed the board my Cluster Reserve Analysis (as of 9/30/14)and also requested they post minutes and financials for the last 8-9 months so I could up-date the spreadsheets. The board president forwarded my email/analysis to the VP of the MC to look into.

After they posted a lot of the minutes and financials, I emailed back with an updated analysis (5/31/15)and requested other documents be posted - most should have been posted by 3/31/15 per Colorado law. I also let them know that for two months this year deposits($9K)were not made to the Cluster Reserves. The VP insisted they were made and perhaps I was not seeing newer financials that the board had not yet approved. I explained she was looking only at the revenue side which showed 5 months of deposits but when you looked at the balance sheet and the cash account, the months of Mar and May only showed activity of interest earned. So the financials did not balance and maybe a lot of errors were covered up by "due to/from" accounts they had set up. They immediately pulled the 5/31/15 financials from the website,

Other accounting messes: We are one entity with three different bank accounts yet they have three different sets of books set up - one for each bank account. So if I want to know how much cash the HOA has on hand, I have to get an amount from three different balance sheets and then do a separate calculation to get the total. In looking at the "due to/from" accounts to see if maybe they had money due to the clusters, I discovered something even more astonishing - they went back in time and changed financial statement numbers. For example, the Nov. 2014 cash beginning balances are $75K less than the ending balances at 10/31/15.

After this, the board president became angry with me saying my "incessant emails had to stop and were costing the HOA $125/hr. This was a lie along with telling me that if I needed additional information, I would need to attend board meetings and if not available there, I would have to pay for it. Then he stated “I will also remind you that these kinds of disclosures are not a requirement of our governing documents nor by statute, since the HOA is exempt from CCIOA disclosure requirements.”

The VP replied to the board president (hitting "reply all" by mistake)stating that "Just to be clear, we are not charging for the research or the response. You can keep telling her that, however." Then I stopped getting replies to my requests for additional records. In previous requests, I let them know that my request were all covered by Colorado statures . Then after finding this site, I send another email request listing the 4 or 5 statutes by number that had to do with Association records. I also listed three other statutes that the HOA was violating like the CAM licensing law but let them know that my intent was not to file a claim. But if they didn't post the requested records by a deadline, I would file a complaint with DORA for CAM license violations.

The community manager sent an email stating he was working on getting these items posted except for the 6/30/15 and 7/31/15 financials as they had not been approved by the board. This happened last year month after month when the board tabled the financials due to adjustments requested. I let him know that the board did not have to approve the financials for them to be posted. Any corrections/entries they wanted had to be made in the current month. Of the 10 records I requested, three were posted and them that stopped.

I'm not sure what to do!

If you've read this far, thanks for your time.

SheilaH,

Yes, I think that the board president is giving the orders here.

I think he is upset with me because of my observations. Now the board had to get new bids from the asphalt and concrete company after which the two reserve studies have to be redone. He even reported in the last newsletter "Amended Declaration update: ...our efforts have been delayed because of the distraction caused by ongoing issues with community management" ... "We’d hoped to bring it all to a vote at the Annual Meeting, but the project is, for the most part, tabled until next year.”

Yet this could have been avoided if ANYONE had read the Declaration.

The reason I put in a lot of history was to show that the missing money and problem with MCs is not new. We have had three different MCs since 2000 and NOT one of them read the declaration - or at least not the part that states how the different fees are to be handled. Instead of titling the account by its restricted purpose, one MC titled it "asphalt" so any bill from the asphalt company was paid out of there - even it was for the jog path or the clubhouse and tennis parking lots that everyone uses and so should be paid out of General Reserves. Also the same asphalt company does the concrete sidewalk R/R so it is paid from the wrong account too.

In the past, when we tried to get other involved, it's like you stated: most were apathetic or didn't want to get involved because the board has all the power to label anyone a troublemaker.

I have not done anything for these past several years other than to review the financials and track the reserve deposits and expenses.
However, just recently Colorado has passed new legislation dealing with community managers. "Property managers risk loss of license for knowingly violating or knowingly directing others to violate CCIOA."

So even if the MC works for the board, the manager is still required to follow the law no matter what the board says.

It is surprising that the MCs still flaunt the law. And to what purpose? Why try to keep HOs in the dark?

LindaS27 (Colorado)

In case I missed it above, is your community subject to the compulsory audit requirements of Colorado's Common Interest Ownership Act where both the following conditions are met in 38-33.3-303 4B2: annual revenues or expenditures at least $ 250,000 AND at least a third of the member units specifically request the audit ?

If you can get past the 2nd hurdle from enough other owners, why more rope a dope ?

( Makes me appreciate a condo environment of compulsory audits except for smallscales' opt out by 100 % consent. Audits are only a start of course, but a professional should listen )

Sorry, I forgot the attachments in the previous post

Hi Bob,

We have annual revenues of over $450k and our current by-laws require an annual audit. However, this new board in their attempt to amend the declarations, would do away with that requirement.

To me, it's not really an amendment as it is a complete restatement. The lawyers produced a 44 page legalese mess using one of their generic forms and expecting the homeowners to comment and add/delete from that. A lot of homeowners were up in arms and from the board president's message in the newsletter, a lot of it was being removed because it didn't apply to us and other sections had to be rewritten. But as of now, it is being tabled until next year.

I hope they just forget it. If they feel something is lacking, just amend that particular section.

Just because you have an audit, doesn't mean everything is okay. The CPA relies a lot on what the MC and board relays to him/her and if they don't know what's in their own declaration and even gives false information, there could be problems.
Same with the Reserve Study.

For instance, the prior board who had been in power for several years had the Reserve Study done every five years with the same company and only had to have things up-dated. This new board has the same company but must have told them how they thought the reserves should be handled because this last reserve study (2014)had a lot of changes. It listed a lot of things in the cluster reserves that shouldn't have been there at all:
1) Private driveways for homes with attached garages - shouldn't be paid for with any reserves as it's on their own private property.
2) Concrete sidewalks on common property - should be in the General Reserves (even so, they changed the life that further distorts)
3) Clubhouse and tennis parking lots - show up in both Reserves but should be paid out of General Reserves.
4) Asphalt seal coating with a 4/year life - the costs should increase because the first expense is not until 2031 (a delay of 16 years) And part of this seal coating is for the parking lots so will have to be moved to the General Reserves.

Beware of new boards combined with a fairly new MC - no one knows what they're doing!

And of course, it's blame the messenger.

Recommendations:

1. You need to find one or two straightforward issues and get support on them. Nothing positive is going to happen if you don't get support for your plan.

2. You have no plan. Demands for the big fix are generally not welcome. People are always afraid of spending additional money and getting less than adequate results. Speeches about holding someone liable is a loser. You lose more people than you attract with that kind of talk.

3. You need an independent analysis. Don't fall in love with your own efforts. It took you months to put together your reconciliation, matching this to that, finding discrepancies, reviewing contracts and minutes, etc. Even if someone is going to follow the roadmap you created, they will have to make their own independent analysis.

4. Stop going directly to the MC or the CPA. Rightly or wrongly, your efforts in that direction are not welcome. They report to the board. Leave it there.

5. Don't focus so much on personalities. It detracts from the big issue: What's happening to our money? Where's the money going to come from when we have to repave our streets? Are we going to get hit with a special assessment because the money wasn't set aside correctly?

6. So after all this nay-saying, what do I suggest. Here are my thoughts:

A. Get support for forcing the board to establish a Clusters Reserves Officer position that is separate from the responsibilities of the Prez and Treas. That officer should be a board member. He/she should have a specific charter to ensure that funds are properly allocated to the right accounts. You have a very real issue. You do need a single accountable person who will be evaluated on what happens to the clusters reserves. Right now with everyone responsible for everything, you have a real problem.

B. Get some quotes from a couple of CPA firms about doing an independent reserve audit for the current year - Not the entire history. Show them your worksheets. Find out what it will cost for a 1 year and a 3 year audit. Don't ask for a beginning of time audit. No one (other than you) is going to take on a project of that magnitude.

C. Get your message together. Short and to the point. Focus your attention on what it will take to get your clusers neighbors energized.

Hope you find some of this useful.

Another speech. And I don't think you got the message. Thanks for all the detail but nobody's listening. I think that your primary objective is to get your clusters neighbors energized. It's a long row to hoe all by yourself.

Your prior experience was what got me to make the recommendation that your HOA establish a new Officer position to be held by a board member who is not the Prez or the Treas. Not sure what you need to do to get it done - probably get the position written into your docs so the board can't get rid of it. If the voice of the people demand it, the board must listen. If you can't get enough support, then figure out what you are doing that isn't working or move on.

Question to yourself: "What do I need to do to get this Officer position established so it can't be swept away by the board?"

Answer: "Look at all these other violations. They'll mess this up too."

Right question. Wrong answer. Certainly not one that is going to get you the clusters HO support you need to make changes.

I don't agree with your statement that there are already enough laws - if only someone would follow them. My recommendation was not about creating new laws. It was about establishing a Formal Owner of the Problem. Right now you don't have an owner of that specific issue. And oh by the way, there are no owners of the statutory provisions you cited - Which seems to be the basis for your frustration.

I repeat. The Clusters Reserves problem needs an owner who operates at the board level and who cannot be removed by the board. Get support. Make it happen. Best of luck.

Click "quote" instead of "reply." Add your message to the bottom.

An "owner" of a statutory provision would be responsible for making sure that the provisions work effectively.

Keep in mind that responsibility is not the same as performing the actual task.

The Treasurer is responsible, and accountable to the Board, for keeping the financial records, tracking payments, deposits, paying bills, etc.

The actual tasks of performing those functions may be delegated to others. When this occurs, the Treasurer is still responsible to make sure those things are done and done properly.

So when these treasurer tasks have been delegated to the MC - what then is their responsibility to get them done correctly or to follow the law and the HOA covenants?

I saw the 2000 contract with the MC and it said something like they would follow our covenants, etc. I haven't seem our current contract but don't they all pretty much have stipulations that require getting the funding and accounting done correctly?

The two should not be exclusive of each other.

I didn't mean that the CRO was a big job. I meant the job of getting other homeowner support for this and somehow figuring out how to get that position put into the bylaws.

But something you said in an earlier post - I really like. Focus on the big issue: "What's happening to our money? Where's the money going to come from when we have to repave our streets? Are we going to get hit with a special assessment because the money wasn't set aside correctly?" Currently they only wanted to raise our dues by $3/mo which doesn't mean much to people but a special assessment might get their attention. And that's likely to happen if the crazy accounting continues.

Like you said, I might be more believable if another person verified my spreadsheets. In my earliest emails with the VP of the MC, she said she shared my analysis with our current CPA. Since he already has the worksheets, would it be okay to contact him and get a quote for verifying my numbers?

By the way, thanks for the help on posting with quotes.

Clarification.

When I said "convince", I was talking about convincing your neighbors that your HOA needs a CRO position established.

From the beginning, I was amazed that no one on the board had specific responsibility for making sure that the unique long-term (easily forgotten) needs of the clusters are being protected.

Even if you didn't have demonstrable proof that money and expenses are not being allocated properly, you shouldn't have to be the one bringing these matters to the board's attention. That's the job of the CRO.

It's not your analysis that's important. It's memorable stories. No more than 3.

So pick 3 of the most obvious errors made with CR funds.

Maybe one is the fact that the clubhouse electrical upgrade expense was paid out of Cluster Reserves. If you have documentation showing it great. Hold your meeting. Show the documents. Ask the questions that resonated for you: "What's happening to our money? Where's the money going to come from when we have to repave our streets? Are we going to get hit with a Special Assessment?"

Remind them that the board is saying everything is ok.

If you invited me to a meeting and showed me some actual examples, not only would you have my support, I'd be asking you what I can do to help. And that's what you need.

Pick your 3 items wisely. Make sure that the group fully understands the significance.

Convince them that there needs to be a CRO.

By the way, in my searches for invoices, I did come across this description:

Finance Committee - reviews financial audits, and monthly expenses and incomes
and ensures the HOA has a healthy financial standing for long term security.
This committee is responsible for assisting the HOA secretary/treasurer,
recommending and monitoring financial policies, goals, and budgets that support the
mission, values, and strategic goals of the HOA.

NOTE: this committee also reviewed and approved the Reserve Studies!

What do you think of this?

CRO - a board member who reviews financial audits, and monthly expenses and incomes and ensures that the Clusters Reserves have a healthy financial standing for long term security. This person is responsible for overseeing and monitoring financial policies, goals, and budgets that support the mission, values, and strategic goals for the Clusters Reserves. The CRO coordinates activities with the Treasurer, but has his/her own independent authority to oversee all matters having to do with the Clusters Reserves.

Whatever works for you. Use a highlighter before you hand out the copies to clearly identify the specific things you are going to talk about. Make it as easy as possible for them to follow along.

Plan to speak for 5 minutes. It will take you longer, probably 15 minutes, but practice what you are going to say. Don't rush.

The sooner you finish your presentation, the sooner you get to ask them what they think - And that's when the magic happens.

Actually I think they may be doing something about it and that's probably why they (board president)is so hostile to me now.

November newsletter - "dues increase for Clusters should not happen at this time due to ambiguity in the current governing documents until after the Declaration Restatement. The fact remains that the Cluster reserve account needs to have additional funding."

Truth - the dues can only be increased at a meeting with 2/3 approval. But the proposed "restatement" (if passed) would take that homeowner approval away and let the board decide.

Mid June - with the message that both reserve studies were wrong, I stated that they needed to get new bids from the asphalt/concrete company (to segregate the different components) and also have the studies redone.

End of July - Newsletter - Declaration Restatement update "our efforts have been delayed because of the distraction caused by ongoing issues with community management, and with the time of year—too many folks leave town for summer vacation. We’d hoped to bring it all to a vote at the Annual Meeting, but the project is, for the most part, tabled until next year."

Same newsletter - "Last year, Brown Brothers Asphalt and Concrete created a schedule for cluster home alley resurfacing based on priority. In the coming weeks, they will be out to re-look and bid on these recommended areas.

Two days later - board prez sent me "nasty" email:
1) Stop emails with the MC - costing HOA $125/hr
2) You will have to go to board meetings for any additional info
3) If you can't get it there, you will have to pay for it
4) These disclosures are not a requirement of our governing documents/statutes
5) Our HOA is exempt from CCIOA disclosure requirements

EVERY item is an untruth (read lie) and now emails are not being returned and I'm cut-off from obtaining records. I guess no one will get records because if they post anything online, it's available to me too.

Even if the Reserve Study is redone, I don't trust them to do a proper review. But how would anyone know, it they keep records secret.

Good luck. I think you'll do great.

Looking forward to your update.

Update:
The treasurer sent an email asking if I'd received the documents yet that I had requested. Then stated "if there are some documents that you would like to review, I will be more than happy to sit down and have a conversation with you, as well as review some of the documents that you are looking for."

At first I was pleased that not all of the board was being controlled by the president.
Now thinking maybe offer not really sincere - more an attempt at CYA

Anyone here have thoughts on this?

Thanks for the insight.

Most of the records I requested are required by law to be posted on our website by 3/31/15.

What I really wanted was my own copy so I could print, make notations, save for future reference, etc.
His offer is to only review, but I guess that's better than the president trying to stop me from getting anything.

Public disclosure required under CCIOA - Colorado Common Interest Ownership Act

38-33.3-209.4(2) ..... Available by 3/31/xx
38-33.3-209.4(3) ..... Four ways to accomplish (at no cost to unit owner)

I've attached the specific statutes with highlights.

Some of that law is fairly new - HB 12-1237 (effective 1/1/13) amended 38-33.3-317 Association Records