Budgets Don’t Fail Because Spreadsheets Are Complicated
They Fail When No One Asks Enough Questions Before They’re Approved
By Michael J. Novak, CPA, CMA, CFA
Co-Founder & Co-Managing Partner
Common Interest Advisors, LLC
Every condominium and homeowners association budget tells a story.
Sometimes that story is about next year’s expenses.
Sometimes it reflects decisions made five, ten, or even fifty years ago that continue influencing today’s financial results.
And sometimes it raises questions that deserve careful examination before the budget is approved.
Common Interest Advisors is releasing a new forensic accounting report examining the proposed FY2026–27 operating budget of the 175 East Delaware Place Homeowners Association, located within Chicago’s former John Hancock Center.
Although the report analyzes one association, the governance lessons extend far beyond a single building.
The report addresses one deceptively simple question:
Does the Board have sufficient reliable financial information to make an informed decision before approving the proposed budget?
Answering that question required a 123-page forensic accounting report, supported by a second publication containing 76 pages of exhibits, appendices, and companion working papers documenting every significant reconciliation, calculation, and analytical conclusion.
That may sound excessive.
I don’t think it is.
Available Downloads
The complete publication package is available free of charge. Readers may download the full report or any companion publication individually.
Forensic Review of the Proposed FY2026–27 Budget
123 pages
Executive Summary
21 pages
Download the Executive Summary (PDF)
Plain English Summary
12 pages
Download the Plain English Summary (PDF)
Slide Deck
13 slides
Download the Slide Deck (PPTX)
Supporting Materials, Exhibits, Appendices & Working Papers
76 pages
Download the Supplemental Materials (PDF)
A Note About This Publication
Most forensic accounting engagements conducted by Common Interest Advisors are prepared exclusively for the client and are not released publicly.
Although this report examines one condominium association, it is being published because the client believed its findings could help other community associations improve budgeting, financial reporting, and governance.
Opportunities to publish real-world forensic accounting case studies are uncommon, and I appreciate the client’s willingness to make this report publicly available.
My hope is that this report serves as a practical educational resource for condominium boards, homeowners associations, community association managers, accountants, attorneys, reserve specialists, lenders, regulators, and homeowners throughout the country.
Budgets Are Governance Documents
Too often, budgets are viewed as accounting exercises.
They’re not.
A condominium budget is one of the most important governance documents a board adopts each year.
It establishes far more than the amount owners will pay in assessments. It influences reserve funding, operating priorities, maintenance planning, staffing, contractual commitments, and the financial assumptions that will guide the association throughout the coming year.
In many respects, a budget is the Board’s annual financial roadmap. Every dollar owners are asked to pay begins with that document.
If the financial information supporting those decisions is incomplete, internally inconsistent, or inadequately documented, directors may unknowingly approve a budget based on unreliable assumptions.
That is why forensic accounting belongs before budget adoption—not merely after problems are discovered.
The cost of asking difficult questions before a budget is approved is almost always far less than the cost of correcting avoidable mistakes afterward.
Budgets Don’t Start at Zero
One of the biggest misconceptions in community association governance is that each year’s budget begins with a blank sheet of paper.
It doesn’t.
Every budget inherits accounting systems, allocation methodologies, reserve assumptions, operating practices, historical classifications, and reporting conventions developed over many years.
Some of those decisions may have originated with the developer. Others may have been made by prior boards of directors, successive management companies, auditors, reserve specialists, tax preparers, engineers, or other consultants. Most were likely made in good faith.
But good-faith decisions can still become outdated.
Accounting methods that once appeared reasonable may no longer reflect current operations, governing documents, tax law, lending requirements, technological advances, or accepted accounting practices.
Unless someone periodically returns to the underlying accounting records and asks, “Is this still correct?” those assumptions simply carry forward from one budget to the next. Over time, inherited practices become institutional knowledge—and eventually stop being questioned altogether.
That is one of forensic accounting’s greatest strengths.
It does not assume that long-standing accounting practices remain appropriate simply because they have existed for decades.
It verifies them.
Why This Engagement Matters
The 175 East Delaware Place Homeowners Association occupies Floors 44 through 92 of Chicago’s former John Hancock Center. It is one of the largest and most financially complex condominium associations in the Midwest.
Large mixed-use communities present accounting challenges that many smaller associations never encounter. They combine residential assessments, commercial operations, ancillary businesses, reserve funding, multiple revenue sources, tax allocation issues, sophisticated payroll structures, and increasingly complex governance responsibilities.
Those systems are highly interconnected. A seemingly minor accounting assumption in one area can influence reserve funding, owner assessments, tax reporting, operating results, and future budgeting decisions elsewhere.
That complexity makes independent forensic accounting especially valuable.
This Isn’t an Audit
One of the most common misconceptions is that forensic accounting simply duplicates an audit.
It doesn’t.
An audit asks whether historical financial statements are fairly presented in accordance with applicable accounting standards.
This engagement asked a fundamentally different question:
Can the Board reasonably rely on the financial information supporting the proposed budget before adopting it?
Those are not the same question.
Budgets are forward-looking. Directors make future decisions based on future assumptions.
Accordingly, the objective of this engagement was not to determine whether fraud existed or whether prior financial statements complied with generally accepted accounting principles. Instead, it was to evaluate whether the accounting information, historical records, assumptions, reconciliations, methodologies, and supporting documentation underlying the proposed budget provided a sufficiently reliable foundation for informed Board decision-making.
Boards deserve more than accurate historical financial statements.
They deserve confidence that the information supporting next year’s budget has also been independently examined.
What the Forensic Review Revealed
What the Forensic Review Revealed
Every reader will ultimately reach his or her own conclusions after reviewing the report.
My responsibility was not to advocate a particular outcome. It was to determine whether the proposed budget rested upon sufficiently reliable financial information to support informed Board decision-making.
Among the report’s principal findings:
Hundreds of thousands of dollars of owner assessments appear to subsidize losses from ancillary operations that may be better addressed through pricing, allocation, governance, or operational changes rather than continued assessment support.
Approximately $325,000 of owner assessment revenue and mandatory cable television and Wi-Fi charges appeared twice within overlapping budget schedules—a duplication that could not have been identified from the materials provided to the Board alone.
The Board was not provided the proposed owner assessment and fee schedule needed to independently verify the assessment revenue supporting the proposed budget. Reconstructing that schedule became one of the engagement’s most important analytical procedures.
Historical accounting practices continue to influence the presentation of current financial information, illustrating how methodologies inherited over decades can affect present-day budgeting decisions unless they are periodically reexamined.
Reserve funding, tax elections, governance practices, budgeting methodology, and financial reporting should be evaluated together rather than as isolated issues.
Every conclusion presented in the report is supported by reconciliations, documentary evidence, accounting analyses, and companion working papers, allowing readers to independently evaluate both the evidence and the reasoning underlying each finding.
Sometimes the Most Important Finding Is What’s Missing
One of the most important lessons from this engagement wasn’t a journal entry.
It wasn’t a tax allocation.
It wasn’t even a reserve calculation.
It was a missing document.
The budget materials presented for Board consideration did not include the proposed assessment and fee schedule showing what each owner would actually be billed if the budget were adopted.
Without that schedule, directors had no practical way to independently verify whether the proposed assessment revenue reconciled to the amounts owners would actually pay.
As part of this engagement, Common Interest Advisors independently reconstructed the Association’s proposed assessment and fee schedule from the underlying accounting records.
That reconstruction became one of the engagement’s most important analytical procedures.
It confirmed the assessment calculations.
It reconciled the projected assessment revenue.
It helped identify approximately $325,000 of duplicated owner assessment revenue and mandatory cable television and Wi-Fi charges embedded within overlapping budget schedules.
Most importantly, it demonstrated a simple governance principle:
No board should approve a budget until every dollar of projected assessment revenue can be reconciled to the schedule showing what each owner will actually be charged.
Sometimes the most important forensic finding isn’t an incorrect number.
It’s discovering that the Board was never given the information needed to verify the numbers in the first place.
This Isn’t About One Building
Although this report examines one Chicago condominium association, the underlying issues are far from unique.
Across the country, boards routinely confront questions such as:
Are owner assessments subsidizing unrelated operations?
Are reserve contributions adequate?
Do proposed assessments reconcile to what owners will actually be billed?
Are ancillary operations financially self-supporting?
Are common expenses allocated fairly and consistently?
Are tax consequences being properly considered?
Is the Board receiving sufficient reliable financial information to exercise informed business judgment?
Those questions deserve answers grounded in evidence—not assumptions.
The purpose of this report is not to criticize one association. It is to encourage every board to ask better questions before approving its next budget.
Because once a budget is adopted, many of the assumptions embedded within it become the foundation for another year of financial decision-making.
Better Questions Produce Better Budgets
In my experience, associations rarely encounter serious financial problems because their volunteer directors lack dedication.
Most directors serve because they care deeply about their communities.
The challenge is that they are often asked to make decisions involving millions of dollars based on financial information prepared by others.
Responsible directors should never hesitate to ask questions such as:
How was this number calculated?
Can the projected assessment revenue be reconciled to what owners will actually be billed?
What assumptions changed from last year?
Why has this allocation methodology remained unchanged?
When was it last independently reviewed?
What evidence supports this projection?
What happens if this assumption proves incorrect?
Those questions are not signs of distrust.
They are signs of responsible governance.
Good boards ask difficult questions.
Excellent boards insist on documented answers.
There Is a Better Way
One reason I publish reports like this is because the issues they identify are often preventable.
At Common Interest Advisors, we don’t simply prepare budgets. We independently reconstruct the financial model from the underlying accounting records, reconcile supporting schedules, verify assessment calculations, analyze historical operating trends, evaluate reserve funding, review tax implications, and document the significant assumptions underlying the proposed budget.
Most importantly, we provide boards with the information they need to make informed decisions before—not after—a budget is approved.
Our Distinguished Budget Preparation™ process was developed specifically to help boards avoid the types of issues identified in this report.
We’re so confident in that process that, for a fixed fee of $30,000, we guarantee our work will identify at least $30,000 per year in recurring operating assessment savings for at least the next ten years—or we waive our fee.
That’s a minimum projected value of $300,000 in recurring owner savings from a single engagement. Many associations realize substantially greater benefits.
If your association is preparing next year’s budget, now is the time to improve the process—not after the budget has already been distributed.
Beyond the Budget™
Preparing better budgets is only part of the solution.
Teaching people how to evaluate them is equally important.
That is why I created Beyond the Budget™, an eight-hour continuing education program for community association managers, board members, accountants, attorneys, reserve specialists, and engaged homeowners.
Volunteer directors routinely approve budgets involving millions of dollars without ever receiving formal education in forensic budget analysis, reserve funding, accounting methodology, financial reporting, tax allocation, governance, or analytical review.
The program teaches participants how forensic accountants evaluate community association budgets before they are approved—not after problems are discovered. Participants learn how to assess budget assumptions, reserve funding, financial reporting quality, governance risks, tax implications, accounting methodologies, and the questions every director should ask before approving a budget.
Because approving a budget should never be an act of faith.
It should be an informed business decision.
My Hope
I don’t expect everyone to agree with every conclusion in this report.
Professional disagreement, when supported by evidence, strengthens both the accounting profession and community association governance.
What I do hope is that this report changes the conversation.
Instead of asking:
“How much are assessments increasing?”
Boards should first ask:
“How do we know these numbers are right?”
That single question changes everything.
Good governance doesn’t begin when a board approves a budget.
It begins when directors understand the financial information they’re being asked to approve.
Budgets don’t fail because spreadsheets are complicated.
They fail when no one asks enough questions before they’re approved.
Because better governance begins with better information.
And better information begins by asking better questions before—not after—the budget is approved.
About the Author
Michael J. Novak, CPA, CMA, CFA, is Co-Founder and Co-Managing Partner of Common Interest Advisors, LLC. He has more than four decades of accounting and financial management experience, including more than thirty years specializing in common-interest realty associations. His practice focuses on forensic accounting, litigation support, budget preparation, reserve funding analysis, governance reviews, and financial consulting for condominium and homeowners associations.
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Distinguished Budget Preparation™
An independent budget preparation process that reconstructs the financial model from the underlying accounting records, reconciles supporting schedules, verifies assessment calculations, evaluates reserve funding, reviews tax implications, and documents the significant assumptions supporting the proposed budget.
Fixed Fee: $30,000
Guarantee: We guarantee that our work will identify at least $30,000 per year in recurring operating assessment savings for at least the next ten years—or we waive our fee.
Learn More About Distinguished Budget Preparation™
Beyond the Budget™
An eight-hour continuing education program that teaches community association managers, board members, accountants, attorneys, reserve specialists, and homeowners how to evaluate community association budgets before they are approved.
Michael,
I am a member of the 175 HOA. I read your report and naturally as I am a member of the 175 HOA, I am concerned. I sent a letter to the 175 HOA president, Mr. Scott Timmerman to alert him of the findings, asking him to read your report and also asking some specific questions based upon my understanding of your report. This was his reply to me... FYI:
*******
Dennis,
This seems to rehash many of the issues (e.g. not understanding "reserve waiver") that have been addressed many times before. We took such allegations very seriously several years ago before realizing that either the author was factually incorrect, or had a misunderstanding of tax or law as shown in the attached.
1. Ignoring the misunderstanding of what constitutes a reserve waiver, the 2022 Reserve Study is based on an interest rate of 0.3% and our current rates for our Reserve Fund are ten times that amount. The Finance Committee looked at the Reserve Study recommendations at a variety of interest rates. Based on that, we are funding well above the long-term recommendation of the Reserve Study. Further, the reserve contribution does not just include the budgeted amount, but also includes any budget surplus, and includes the amount of interest that we earn on our $22M, which is significant at our current interest rates. This puts us above the recommended reserve amounts.
2. - Interest income and property tax were both budgeted.
3. - Cable/Internet are now individually billed to each unit, so they are no longer part of assessments. I agree that this makes a direct comparison of assessments unique for this year compared with last year. Likewise, the assessment increase percentage is based on a different (smaller) amount going forward.
4. - The law requires notice of any assessment changes, and we have notified every owner that their assessment will increase by 3.75% starting January 1, 2027.
5. - The law requires listing anticipated common expenses by category as is shown.
6. - I don't know what is considered "side commercial operations"? You list "leases, storage, laundry". We technically "lose" money on each amenity that we have (pool, fitness center, dry cleaners, Potash, etc.), but they are amenities that benefit our residents. We collect some income from some items including storage, laundry, Potash, and dry cleaners, but I don't know what it means to say there is no Board authorization.
7. - Our mortgage warrantability problem is being a mixed use building.
8. - You are not correct on the late fees. We budgeted $32K and we are on pace to collect $35,300 this fiscal year.
Scott Timmerman
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Do you have a reply to his reply to me? It sounds like he did not read your report.
Dennis