Budget Requirements

Is there anything that requires a board to follow their annual budget budget?

Here is a definition of an HOA budget (found online):
"An HOA operating budget is a projection of the money needed by the association to cover its operating expenses and provide adequate reserves for repair and replacement of the elements of the property the HOA maintains."

As quoted, a budget is just an estimate of income and spending, it would be a rare association that met it's budget exactly. Since predicting the future with a high degree of accuracy is beyond most of us, actual spending can vary from the budget depending on circumstances that arise, primarily unexpected expenses. Higher than anticipated delinquencies can also affect budget vs. actual.

To Dana's point, if the members feel that the board is not handling finances responsibly, they can address at the next election.

Yes, Dana, I agree. We need more about Linda's budget and her specific concerns.

The financials are being manipulated - to gain an advantage or simply because they don't know what they are doing, I'm not sure.

I understand about variances, but this goes beyond that. The board purchased "smart controllers" for the irrigation system that would calibrate the sprinklers to lower water costs. The cost was $70K (after a 25% rebate). In our newsletter, they stated they were able to pay for this "with budget surpluses from the previous year and won't have to borrow or raise dues."

The 2015 financials showed net income of $18K which would actually be a net loss if corrections were made. For example, $13K for trees and shrubs that should have been paid from operating funds was instead paid out of reserves. They do this all the time - this year fence repairs($4K)were paid from the reserve account. They can then brag about how they are under budget and doing such a good job.

When I reminded them of these facts, they stated that "the controllers will show as a variance in the operating budget and will be paid from carry over funds from prior years. This statement is also false!

I've searched several sites and can find a lot on making and approving budgets, but could not find anything about keeping to the budget.

Tim, Excellent research! Could you provide the Title/Section of that 2010 law?

The last audit was for the FYE 2014 (completed 3/20/15) However, the CPA didn't follow our declaration (re restricted reserves)when reporting as has happened in prior years. Typically, auditors follow the prior year's audit, so if that audit was missing some information, the errors just continues on and on.

I have recently requested information on the 2015 audit and was informed that it had not been completed. And I do not see in any minutes the approval of the audit although RFPs were sent out in February 2016.

Reserve studies have been done in 1999-2004-2009 which were all okay. The latest reserve study was done in 2014 and was the basis for raising dues. There were numerous errors in these reports which was relayed to the board. However, they ignored that information and still attempted a dues increase (two meetings - Nov & Dec - for a vote failed due to lack of quorum). They announced that this increase would still be requested in 2016. Because I persisted that the reserve studies had to be corrected before asking for any dues increase, they are now in the process of having NEW reserve studies done - approved at the March board meeting for $2,900.

I inquired why not just have the previous reserve company make the corrections? They stated the company was not being receptive to them. Odd since we had used this same company for several years with no problems until the 2014 studies requested by a NEW board and NEW management company.

In the meantime, because of those errors in the reserve studies, contributions to the general reserves have been lowered by $6K. The financials show that this extra money is being used to stock the lake for sport fishing ($5K) and another $1K is being budget for community events.

Logically, it would seem that contribution to reserves would go up in time due to inflation unless something was sold and/or converted for a lesser expense. This board wants to fill in the pool because it is so expensive to operate. However, nothing has been changed with our assets. So why did the contribution drop from $42K/yr to $36K/yr? As I pointed out to them, the concrete sidewalks were omitted from the study ($240K over 30 years and with inflation, by now probably around $300K/yr)

These errors just continue - along with misinformation in the newsletters. And no corrections are ever made.

Tim,

I researched 38-33.3-314 Surplus Funds. Unfortunately, that particular article does not apply to our HOA.
Under 38-33.3-117 Applicability to preexisting common interest communities.
Only certain sections apply to HOAs created before 7/1/1992 making it more difficult to actually figure out which apply. As far as I can figure out (from 2015) there 73 sections of which 36 (49%) apply to our association - created in 1973.
However, according to our board president, we are exempt from CCIOA entirely.

Not sure why the auditor change. Even if you go to all the board meetings, certain pertinent information is not included in the minutes. And I know that a lot of decisions are made outside of the monthly board meetings but are not included in the minutes as required by law.
Seems this board is not wanting to follow is the prior board's ways even though they vetted things over several years and had things running pretty smoothly. For example, this board changed asphalt companies with dire results. Almost every home (15) in my alley had damages from the work done Oct. 2015 by this new company. And several of us are still trying to make them follow up on promises to fix things.

Good idea about getting the auditor management letter. Will attempt that after I get the documents they are required to post but have not yet done. But no matter what the CPA engagement letter states, the audit should account for the different level of assessments and how our declaration states that part of the higher level is restricted. The audit report does not even mention that fact. It is a copy and paste explanation from previous years.

Clarification:
Reserve Study - Same company in 1999-2004-2009 and 2014 which had numerous errors
Instead of having the 2014 study corrected, a whole new study is being done in 2016 at a cost of $2,900.
Management Companies - Change in 2003-2011-2015
2003 change due to MC and Attorneys helping board take homeowners to court(2001)when amendment to declaration didn't pass
2011 change due retirement of MC agent and major increase in their costs
2015 change due huge errors in financials and their VP attempting to research and correct the discrepancies.
Board of Directors - Major change in 2013

Seems like all the major problems happened when the new board took over in 2013. They are out of control and just do whatever they want no matter what our declarations or the statutes require. They don't even know what those documents state. Or if they do, they lie about it to get their special agendas put through.

I'm trying to get specific statutes that I can quote to them showing where they are not in compliance.

From what I've researched, the board gets its powers from the declaration and/or state statutes.

CCIOA 38-33.3-302(1)lists powers of the association which states ... "that the association, without specific authorization in the declaration may: a thru q" (list of 17 items).

The specific item I'm wondering about is 38-33.3-302(1)g: Cause additional improvements to be made as a part of the common elements

However, since our HOA was in existence pre CCIOA, items g-h-I and n do not apply to us. Would that mean that the board cannot make improvements on its own. Am I reading this correctly? That they do not have permission to do this.

A previous board member stated that those "controllers" are capital improvements and cannot be installed without a member vote for either a loan or dues increase. But he's not sure of the statute or attorney ruling related to that.

There is no mention of these specific powers (except by vote)

"Special Assessments for Capital Improvements" In addition to the monthly assessments authorized above, the association may levy in any calendar year, a special assessment applicable to that year only, for the purpose of defraying, in whole or in part, the cost of any construction or reconstruction, unexpected repair or replacement of a described capital improvement upon the common area, including the necessary fixtures and personal property related thereto, provided that any such assessment shall have the assent of two-thirds (2/3) if the votes of each class of members who are vo9ting in person or by proxy at a meeting duly called for this purpose, written notice of which shall be sent to all members not less than 30 days nor more than 60 days in advance of the meeting setting forth the purpose of the meeting.

Linda

I was in one HOA in MA with 175 owners (25 standalone homes, 40 some odd 3-4 townhouse per building, valued at about $400K per unit). The BOD went after a $25K to $32K special assessment per owner/unit. A long, complex story but they did such a good job of explaining why and what, that over 85% of the owners agreed to it. There were several unhappy owners that banded together and kept it tied up the courts for about a year and that was with strings being pulled to move it forward in the court system.

One thing often debated/argued is when a planned/budgeted repair item comes up and some want to expand the scope of it like expand the clubhouse when re-roofing it. To me that would be a Capital Improvement and depending on the leeway a BOD has, could quite often call for owners to vote on the expense if it exceeds a specific amount.

@ LindaS27 (Colorado), maybe you can gather a handful of like-minded Members, and seek your own legal advice. It is sad when it seems your must go against your BOD over such matters, but sometimes it needs to be done, to better the community.

I wonder, Linda, if your HOA's contract with the MC states that the latter is not obligated to follow any board directives that violate any state laws or your governing documents. Ours does. Might get some leverage that way.

If, for instance the MC wrote the allegedly inaccurate newsletter item about records inspections, that seems like a very serious problem to me.

Linda, make sure you check your State Law for enforcement of your Docs. This is what my State says I can do, as a Unit Owner.

" § 55-79.53. Compliance with condominium instruments.

A. The declarant, every unit owner, and all those entitled to occupy a unit shall comply with all lawful provisions of this chapter and all provisions of the condominium instruments. Any lack of such compliance shall be grounds for an action or suit to recover sums due, for damages or injunctive relief, or for any other remedy available at law or in equity, maintainable by the unit owners' association, or by its executive organ or any managing agent on behalf of such association, or, in any proper case, by one or more aggrieved unit owners on their own behalf or as a class action.

Now, every law suit does not have to be about the "Money". I can not speak for your State, but maybe you can just call a Local Attorney, and ask how much it is to file an "Injunction" to bring your BOD into compliance. Your CCRs cut both ways, with the same amount of force. They are generally easy to prove, when you have written contracts, guidelines or rules. Just an idea.

Hi Linda:

First I would contend any BOD member stating your HOA is COMPLETELY exempt from CCIOA is a LIE. Per CCIOA:

C.R.S. 38-33.3-119 (2016)

38-33.3-119. Exception for small preexisting cooperatives and planned communities

If a cooperative or planned community created within this state before July 1, 1992, contains no more than ten units and is not subject to any development rights, or if its declaration limits its annual common expense liability to the amount specified in section 38-33.3-116 (1), then it is subject only to sections 38-33.3-105 to 38-33.3-107 unless the declaration is amended in conformity with applicable law and with the procedures and requirements of the declaration to take advantage of the provisions of section 38-33.3-120, in which case all the sections enumerated in section 38-33.3-117 apply to that planned community.

My question is 1) How large is your HOA? 2) If is is 10 units or less ... did your HOA amend to take advantage of the extra provisions under CCIOA?

Janet - Excellent reading of CCIOA

Yes, even if we were a small cooperative, we would still be subject to a handful of sections.

Our HOA consists of 345 stand alone homes in existence since 1973-1974. So even though we are pre CCIOA, we are still subject to those sections listed at 38-33.3-117. As I checked last year, this is 36 out of 73 sections (almost half) that apply to us.

I think these statutes are very difficult to understand. I can see where the board might be confused but the MC and its agents are required to know CCIOA in order to obtain their CAM licenses. However, both the MC and board need to know, at the very least, what is in our own documents - they are not that confusing nor lengthy.

And it is pertinent to know what is in our documents before attempting to amend them. And the board doesn't have a clue. They continue to spread misinformation (lies) about how urgent it is to amend our declaration. One example they give is a need to prevent kids from wading in the lake and from hitting a golf ball on the common area. These are already listed as a no-no in our "Declaration of Restrictions" effective 12/31/1986.

But it's not just the statutes and declarations - they try to manipulate everything that gets in their way - especially me!
They had one or two people(hand-picked)on the finance committee that were approving things (financials, annual audit, reserve studies, etc) that had serious errors. There were not even letting us know when these meetings were until another homeowner complained about the lack of transparency.

So they began publishing the monthly dates when the finance committee met(Saturdays before the Thursday board meetings)
I showed up at the January meeting and the only other person present was the board treasurer. There were several errors and I detailed those in an email to both the board and MC. No corrections have ever been made.

At the January board meeting, the president stated as it was the beginning of the new year, it was necessary to re appoint the members on all of the committees (this had never been done before) but he stated that the finance committee was no longer needed since the board was managing things so effectively. No mention of this in the minutes or in the newsletter. Another attempt to try and shut me up!

So at the March board meeting, I spoke up during the homeowner forum to mention problems with the latest financials. The board president stated that they were not going to hear those issues and if I wanted to discuss financials, I would have to be put on the agenda. He just makes things up as it suits his ego.

Previously the newsletter has something "from the board". Beginning this year, the article states "from the president's pen" along with his name and his picture. First time in over 40 years for something like this. What an ego!

Linda, it seems that you truly ahead of the game. I hope you can get the results, you are entitled to. I was having the "run around" issue with my HOA and PMC. I just started asking very specific questions, just to get roundabout answers. Then I went public. My questions now get a very defined answer. Please keep me / us posted, on any headway you make.

Pay attention to this advice.

With over $300,000 being unaccounted for, rotted exteriors, leaking roofs and knee high grass, won't be much of a sell point as well. Forget the receivership, have the thieves convicted.

Dana,
I'm not saying the monies were stolen. I really don't know that for a fact. But I'm positive there was a lot of BAD accounting that has not being corrected. More than bad, it is atrocious! The new MC says they are not "going back in time and are not going to re-invent the wheel." However, this MC has horrible accounting too and has made several errors. They even published 5/31/16 financials that don't balance.

Dana,

I'm glad you brought that up. It forced me to break up that $335K by management company,

Missing deposits - $91,684
Invalid expenses - $243,665

Unfortunately, only about 3% ($10K) is due to our current MC who just started 10/2015. I was working with the VP of the previous MC when the board president interfered, telling me I couldn't have any more records and shortly afterwards that MC was fired.

I wonder, though, if there is a statute of limitations on responsibility?

Joyce,

There were two reserve studies done in 2014.
General reserves were over-funded ~ 110%
Cluster reserves were under-funded ~ 30%

However, there were major errors in both. I pointed this out to the board shortly after they were posted and told them that both would have to be corrected before any dues increase. They ignored me and tried to increase Cluster dues anyway. First, by just announcing it in the newsletter. And when someone told them a vote was necessary, they tried that but a quorum was not achieved. They still plan to pursue the increase again this year.

I provided the board an analysis of the Cluster reserve account last June, which was turned over to the previous MC. As bad as their financials were, the VP was at least attempting to research my spreadsheets and get the accounts corrected.

My goal would be to transfer monies in the cash accounts so that Cluster "restricted" monies were correct.

Budget line items (largest) for grounds:
Landscaping Contract $56,100
Repair & Maintenance 8,463
Tree Maintenance 12,000
Irrigation Repairs 12,500 - the new "controllers" ($69K) were expensed here. Additional $2,500 for the software.

They mess with the accounts all the time. For instance, last year the budget for tree maintenance was the same $12,000, but the expense was $21K - expensed $8K from operating and $13 from reserves. Another example - $4K fence repairs paid from the reserves instead of operating.

The more this kind of thing is done, the more leeway for the board to be under budget and/or get special agendas done.

Where do they think all that extra money comes from? It is Cluster money that needs repaid!!

I have posted on this site last year and got a lot of valuable information. Not sure how to link to that - but there is a lot more detail there on my issues.

Basically, Our HOA has all stand-alone homes of two types: 164 traditional homes and 181 cluster homes - similar to patio homes where the lots are smaller. All the Cluster lots are 40 ft. x 80 ft.

So there are two reserve funds: the general reserves which covers everything except for the "private streets" maintenance that the Cluster owners pay extra dues of $25/mo - $54,300/yr. This money (per our declaration)is to be deposited into a separate bank account and it is restricted to that use ONLY.

However, the MC just cannot get the accounting correct - over and over. We are on our 4th MC and it is worse than the others.
The financials are wrong - wrong - wrong! Problem is the MC and/or board doesn't want to admit to error and won't correct them.

Our HOA used to have an internal audit committee several years ago but the board dismissed. Recently, there was a finance committee (approved audits, reserve studies, financials, budgets, etc.) I joined that committee because all the items approved by them were in error. Within 5 days, the board president stated that the finance committee was no longer needed because they (the board and new MC) were handling things so greatly. Nothing could be further form the truth.

Last year, I informed them that the reserve studies were in error by huge amounts. They ignored me and pursued a dues increase anyway. I persisted and now finally they are having another done (not correcting the first one, but having another company start completely over) at a cost of $2.900. More waste by this board not knowing what they are doing in the first place. And refusing to take suggestions.

I also did an analysis of the Cluster funds (deposits and expenses) but they don't want to deal with it. If they got the accounting correct, that would limit their ability to do what they want.

We were required (from 1974) to have a separate operating budget for Cluster personal water usage. This wasn’t set up until 2002 after a huge revolt when the board took the homeowners to court to force a declaration amendment.

The MCs have always had a very difficult time in trying to break down the water billings between common use (greenbelts, pool) and domestic use. This ongoing controversy ended in 2006 when individual water meters were installed in each cluster home. And since then, the only additional expense for cluster homes is for “private street” maintenance.

The 2014 reserve study was a big mess due to the board or MC company making changes that weren't warranted. And instead of making corrections, the board is having a whole new study done for $2,900. Wasteful!!!

I don’t think the CPAs have even read our declaration. Their audit report mentions two different assessment levels but they don’t state what the difference represents – unbelievable! They get their information from the MCs who don’t have a full understanding of our governing documents nor state law.

I’ve asked for an accounting of Cluster Reserve funds several times to no avail. I have my own analysis that shows ~$335K missing as of 6/30/16. The information it contains is based mostly on financials which sometimes cannot be relied upon so I'm not positive about the total but it is a start.

If anyone on this site would like to review it, I would appreciate the feedback - questions or comments

With such poor controls, it would be easy to steal from HOAs. A major problem is that board members don't understand financials and take the word of MCs who will say anything to cover up their errors and/or theft.

In the past, we had a board treasurer who was a CPA and did a lot better job than most. However, he missed a lot of things - mainly due to lack of time in checking things out. But it is understandable because he worked full time and had a growing family.

It's possible we've had some theft (due to lack of over-sight) but if so, I don't think it's major or else the CPA audit would have caught that. An audit checks items on a test basis with most emphasis on large dollar items - their report even states that the financial statements are "free from MATERIAL misstatements." But they didn't check to see that the money was deposited into the proper account or expensed from the proper account.

That being said, the most of the monies are there - just in the wrong accounts.

Operating ........... $ 74,606
General Reserves .... 357,314
Cluster Reserves .... 25,620
TOTAL .... $457,540

My suggestion would be to transfer money from the operating and general reserve to properly fund the Cluster Reserves.
Lowering the operating to 20K and the GR to 76K. This would leave GR underfunded but with enough money to pay for budgeted items for a few years. I think it is necessary to raise dues (the base dues for all 345 homes) to get the GR to a higher level.

I reminded the board that raising the dues (say, $10) for the base vs cluster extra dues gives large differences.
Raise the base $10/mo - $41K/yr ..... Raise only cluster dues $10/mo - $21K/yr, which is restricted. A $20K difference.

They don't get it! And they don't want to raise everyone's dues.

Kerry - Thanks for the input on your HOA - proves my contention that there is wide spread mismanagement.

You wrote: "But I'd say you may not move funds form one type of reserves account to another. the reason is Owners in the former cluster, say, in our case, over- contributed to get so healthy. And now they'd have some of their reserves stolen to bolster a different set of reserves???"

You are exactly right. But that is what has been done to the cluster homes.

Many times Cluster dues were not deposited ($92K)at all - leaving more money in the operating budget for the board to play around with - the same effect as if they had made the deposits and then moved them back out.

Other times, expenses($244K)were paid out of Cluster reserves that should have been paid out of General reserves - the same effect as moving cluster money out so General reserve expenses could be paid.

You also wrote: "The solution to overfunded reserves is to lower dues in that cluster until such time that they're reasonably funded."

I disagree with this statement. It would depend on why the reserves were over OR under funded.

There were two reserve studies done in 2014. (many errors that will change the %s somewhat)
General reserves were over-funded ~ 110%
Cluster reserves were under-funded ~ 30%

General reserves are not over-funded because the related dues were too high. It is over-funded because the expenses that should have been paid out of that account were instead paid out of Cluster reserves.

Why stop the board from making budgetary decisions? Is it not their job? If you do not like what they spend money on for the HOA as a whole, then get on board or vote them out. I do not see a problem unless you want to make one. I can not imagine an HOA ever staying on budget. They are only required to submit one each year. Nothing says it is what it has to adhere to it to the last dollar. The submitted yearly budget is just an outline or goal for the HOA to have guidelines in spending for the year. By no means does that mean the HOA can live in it.