COOKED BOOKS: How to Hide HOA Legal Expenses With Cash Accounting

The POHOA Annual Homeowner’s Meeting is on Tuesday December 5, 2023*. CCIOA requires that homeowners get a notice 30 days in advance, and usually this includes a financial report and budget. Many homeowners think they get to vote on the budget, but in 2022, the Board simply skipped even the motion for a vote!

In reality, homeowners only have the power to veto a budget per CCIOA:

In order for this issue to come up, the homeowners need a reason GOING INTO THE MEETING (because many vote by proxy) to have this issue raised for a vote. Therefore, transparency about the finances of the HOA need to be disclosed in advance – and a sitting Board has a very good reason to keep information that is detrimental to them politically from being released – including to other Directors who may oppose or contest decisions or agendas. It’s precisely what has happened at POHOA for several years.

Going into the 2023 Annual Homeowner’s Meeting, homeowners should be concerned with reporting of legal expenses. As someone who was on the Board into January of 2023, I recommended that we hire an HOA General Counsel that wouldn’t generally allow runaway expenses, even though the attorney may benefit financially. We saw this in 2021-22, and the POHOA Board used accounting tricks to hide them from the 2021 meeting while increasing the legal budget 3000% in one year!

Yes, we had a “document revision” process that planned to spend $10k, but because we had Directors who ran up bills with VF-Law on OTHER UNRELATED MATTERS, we actually spent about $21k and split the amount in 2 calendar years to hide the SUM. There’s receipts undisclosed in this article for brevity.

In 2023, POHOA has a $5000 annual legal budget. Early in 2023, the POHOA Board, acting on the demands of a small group of homeowners, began to pursue legal action against homeowners whose dog bit another dog. This is known as the “dog incident” of September 2023. Unfortunately, after shopping literally every HOA attorney in the state, none would allow them to move forward without first complying with HB22-1137, HB22-1139, and even HB21-1310 which involved updating several of the governing document policies as required by CCIOA.

While I resigned just before Moeller Graf was hired, I was privy to some of these cost estimates. I know that some of the firms had flat-rate pricing that would update the required policies for about $1000 (for up to 3 policy revisions). If a Board kept communications to a minimum, the whole job might be done for $1500. It appears this is what we did before approving them in March.

So, while these expenses were unavoidable as compliance was absolutely necessary, particularly before going after the dog-owners, by Summer, I was asking former Director Dr. John Tunna why the legal expenses were not appearing on the monthly reports. He told me that he was not allowed into the Quickbooks account, in spite of his significant experience in accounting. He could see no more than the rest of us, and he wasn’t allowed to see the invoices from Moeller Graf either because Director Clay Jones claimed sole authority to deal with vendors (a dubious “board policy” that remains contested by this author).

He told me that he simply assumed that if they were to exceed the $5000 budget, that there would be a meeting or vote among the Board to exceed the budget. Therefore, since no such action had occurred well into July, he presumed that the expenses on the “dog incident” didn’t exceed whatever was left of the budget after the policy updates. Let’s say that amount was $2000.

Why?

Well, the published amounts spent in 2023 per the monthly financial reporting of YTD expenses showed that by the end of August, only $1,853.50 had been spent with Moeller Graf.

The problem with this assumption, which is not a personal criticism of Former Director Dr. John Tunna, is that we have concrete evidence of a manipulation of reporting of our legal expenses in 2021-22. While I have personally attempted to get answers to questions, and have attempted to use the proper processes of document requests to get further information, both the Boards led by Former Director Gloria Jones and current President Lora Ballweber have been non-transparent on the matter. I would argue they have both deliberately obfuscated, created fictitious “board policies”, tried to create cost-prohibitive fees without basis, and flat out refused to provide documentation that contradicts my allegations and theories. Homeowners should be more than curious about this, but apathy among membership has set in.

In 2021, POHOA reported via its Annual Financial Report (published not until March 10, 2022) that there were $13,873.09 of legal expenses for the year. The budget for that calendar year was $500. There was never a meeting or announcement that the budget would be exceeded as Dr. Tunna says he would have expected them to disclose and take official action to increase the budget (and decrease it elsewhere).

While some might note it was the year my own litigation was settled (6/17/21), I can point out that the 2/28/21 expense of $806 was the effort to research the issue of parking RVs and whether the allegation by Irve Denenberg and Walker Flanary that it was a violation was true. For the third time in as many years, we found yet another attorney to tell them no. And, it took another $800+ to finalize it.

Yet, in September, just 7 months later, Trademark (our Community Area Manager) tried to raise the RV issue again, and actually had authority to create legal expenses without Board approval. When it was pointed out that we had already spent $806 in February, the attorney agreed to withdraw the bill (or Trademark agreed to pay it). We only see a nominal $99 expense listed as “September 2021 activity”.

While some may attribute those expenses to me, according to the Litigation Committee at open Board Meetings, they reported that the Insurance Company (American Family Insurance) covered all these costs and did not raise premiums as a result. We would need to examine invoices that they refused to disclosed – even to other Board members. They deleted their records upon resigning!

But, we are WAY over the budget by August of 2021 when VF-Law is hired, and no such permission was asked or granted to exceed the budget. They just did it.

Worse, they had gone on a spending spree between August of 2021 and October of 2021. In fact, they spent $5,778 in that period. We know this because while the POHOA Board attempted to whitewash the invoices from the Gmail account before they resigned, they forgot about attachments from the Accounting Department at VF-Law in their attempts to get paid. On the 12/3/21 Invoice #331957, we see not only $3,637.50 spent in November, but an unpaid Invoice #330323 for $5,778.59 dated 11/3/21.

Going back to the 2021 Annual Financial Report, we can see that the POHOA Board withheld all these expenses from disclosure (at least $9400) prior to the 2021 Annual Homeowners Meeting where there were both re-elections of prior Directors (whose performance including these expenditures should have been considered), but also the opportunity to veto the budget.

Instead, the Board appears to have used Cash Accounting to avoid disclosure – because the amount doesn’t appear on the books until the check to pay an invoice is written. An unpaid invoice isn’t really a “cost” in real time unless you use Accrual Accounting – a change made by Jen Hutchinson in late 2020 upon hiring Trademark (and she said we had to because that is what they used – which is an odd reason).

So, the Board then put $9,416.09 (from the 11/3 and 12/3 invoices) onto the book in 3 entries. The first invoice is split into one added on 11/29 (in spite of the invoice being generated BEFORE the annual meeting on 11/3) for just $778.59. Then, magically, the remainder of the invoice is booked on 12/31/21 as “December Activity” which is a flat out misrepresentation. The activity clearly preceded 11/3/21, and was likely for work done as far back as August.

The fact that a flat amount of $5000 wasn’t put on the books until the last day of the year is auspicious to anyone who has ever been involved in accounting. Things booked on the last day of a fiscal year raise eyebrows, particularly when it is Cash Accounting. Why was it important to pay this bill before the end of the year?

Well, obviously with a $15k budget for 2022, if the bills from 2021, which were never part of an approved budget, got paid AFTER the new year, it would blow the next year’s budget. And, according to Dr. Tunna’s assumption, the Board would need to both take a vote (action) on going beyond the budget, as well as notify homeowners. Note that 2021’s Annual Financial Report shows a $27k LOSS – but that Jen Hutchinson repeatedly blamed a quirk in accounting that took our FENCE expenditure (which is supposed to come from Reserves kept in a separate account) as an “expense”, when it should not affect the P/L statement at all.

Instead, the extra $11k spent in 2021 that was an actual discretionary LOSS was successfully kept out of consideration by homeowners – and their power to both consider other potential directors (running for election), or to remove those who acted this unethically, or to veto the budget because such games were being played.

Why raise this 2 years later?

Well, for one, it is hard to believe that with rumors about the dog owners and the POHOA Board failing to reach agreement and likely heading to court, that our legal expenses for the year are $1800 – with more than half of that going to update policies. We also know that there is a monthly expense (nominal – at maybe $80/mo – adding up to over $1000 annually), so after a year of fist-pounding by some homeowners to remove the dog, how could the POHOA Board have spent so little?

The numbers don’t add up right.

I’ve requested that the POHOA Board reveal the total sum of the INVOICES they’ve received so far related to the “dog incident” or overall. And, to obfuscate, they’ve created a “board policy” stating that they require me to request it via USPS Certified Mail with a wet-ink signature. I won’t comply because no such requirement exists. It’s a made-up policy, which cannot be created without following our policy on creating policies! It’s absurd!

So, I am alleging that the same bookkeeper is doing our books in 2021 and 2023 – Jen Hutchinson (except now she is paid as a contractor, and requests to see the contract are also obfuscated). She is an accountant who is aware of how this tactic, which is legal as far as I know, can be used to hide such expenses for HOA-political purposes. It’s unethical, but not actionable in any sense – other than for homeowners to use their right to veto a budget or remove or replace Board members.

In order for homeowners to exercise their political power, they have to know about the issue. The best I can do is make them aware of the history, the pattern, and the potential for this abuse to be ongoing.

If the Board wishes to dispel this allegation, they’ve had ample time to simply provide the detailed reports that INCLUDE unpaid invoices. How much has Moeller Graf invoiced us?

It won’t appear on our financial reports if they deliberately delay payments. And, we only have visibility until the end of August 2023 at this point, so it’s plausible and possible to simply pay the bill in September or October and keep tight lips until and through the Annual Meeting. So few will dig into the records to figure it out, and given what happened in 2021, if anyone besides me did notice, they are either in on the charade, or afraid of retaliation after seeing how I am treated.

I hope the Colorado HOA Task Force will look into this type of manipulation and address it in the upcoming 2024 legislative session. I am aware that certain HOA organizations help spread these tactics in their meet-ups in usually an informal manner. The problem is incentives. There is a strong incentive politically for Directors to preserve their political power by hiding the true financial picture and facts, and for HOA Managers and Attorneys to give such boards cover because they don’t want to lose clients.

Homeowners are at a perpetual disadvantage when document requests are easily denied or delayed, and things like Cash Accounting practices give such bad faith actors the ability to say “but its legal!”.

With the POHOA Board days away from their 30-day Notice requirement for the Tuesday November 14, 2023 Annual Homeowner’s Meeting, we shall soon see how they choose to disclose legal expenses for this year, and whether they choose to play the same Cash Accounting game. If they come out after the meeting again, and they manage to stack the Board with their friends who support this unethical approach to HOA governance, the homeowners are left with another ugly removal action as their only recourse.

I hope the community uses time in advance of the meeting to clear this up and vote accordingly.

The POHOA Board was advised for months in advance of this article that this topic would be published, and ample opportunity to provide counter-facts was given. If the Board wishes to provide contradicting factual evidence, I am happy to publish them or correct this article.

*CORRECTION EDIT 10/14/23: The date of the Annual Homeowner’s Meeting is Tuesday December 5, 2023, not Tuesday November 14, 2023 as originally published. While the next Regular Board Meeting on 11/14/23 gives the Board an opportunity to explain itself, the Annual Meeting Notice (and financial documents to be sent with that notice) will have to be sent no later than 11/5/23 – more than a week before this meeting.

No budget will have been approved by the Board at an open meeting prior to sending the notice, so given the scheduled meeting times, it appears the notice will be sent, and THEN the Board will attempt to approve a budget on 11/14. Since the Board does not usually release information about what occurs at Regular Board Meetings until the Meeting Minutes are approved (at the next Regular meeting), only those attending on 11/14/23 will have the opportunity to consider their new approved budget before making a decision about a veto vote.

Last year, the Board scheduled a meeting on a Tuesday at Noon on Director Jones Front Porch. It also happened to be Election Day in Larimer County. Having a budget considered and approved at such inaccessible meetings is reason to consider this process non-transparent. All homeowners should have full disclosure of the final approved budget with 30 days to research and consider. This scheduling disrupts the process.