Hidden Debts, Hidden Dangers: The Real Cost of Board Blind Spots
How undisclosed liabilities and management silence threaten board decision-making, vendor trust, and the long-term stability of Illinois HOAs.
In This Issue
Budget Fraud: A Growing Concern
Red Flags Every Homeowner Should Know
Case Study: Concealed Reserve Waiver – CPAs Failing to Disclose
Hancock & Water Tower Place: Spotlight on Financial Risk
Protecting Your Association
Reserve Transparency Across States
📣 Introduction
Welcome to this edition of The Governance Ledger. Behind closed doors and buried in financial statements, budget manipulation and reserve underfunding are quietly threatening the financial future of Illinois community associations. At Common Interest Advisors, LLC, we help boards and owners expose financial misconduct and restore trust.
Budget fraud isn’t hypothetical—it’s happening now. The consequences are real: skyrocketing assessments, deferred maintenance, emergency levies, and declining property values.
⚠️ Budget Fraud: A Growing Concern
Budget fraud involves the deliberate distortion of financial statements to mislead owners or conceal mismanagement. It erodes trust, transfers risk, and unfairly shifts financial burdens to future owners.
Common tactics include:
Understating operating expenses
Overstating reserve income
Waiving reserve contributions without disclosure—now compounded by CPAs failing to disclose multimillion-dollar waivers in audits
Misclassifying income and expenses
Ignoring tax liabilities on non-operating income
These tactics disproportionately harm seniors and fixed-income owners who cannot easily absorb sudden increases or levies.
🚩 Red Flags Every Homeowner Should Know
Sudden Budget Increases: May mask overspending or financial shortfalls.
Inconsistent Financial Reports: Mismatches between budgets, audits, and bank statements are red flags.
Lack of Transparency: Resistance to releasing records may signal concealment.
Drastic Reserve Reductions: At Hancock Residences, $1.29 million of a required $2.29 million reserve contribution was waived in FY 2024–25—a 56.3% cut.
Hancock Residences Ignored Tax Liabilities: The HOA failed to budget for taxes on non-operating income, exposing the association to over $500,000 in liabilities.
CPAs Not Disclosing Reserve Waivers: Some CPAs—including Brad Schneider and Ralph Picker—have failed to disclose multimillion-dollar reserve waivers in audit reports. As a result, homeowners remain unaware of looming financial risks.
Key takeaway: Misclassifying income, ignoring tax liabilities, and failing to disclose reserve waivers undermine financial integrity and expose associations to severe penalties.
🔎 Case Study: The Concealed Reserve Waiver & CPA Non-Disclosure
A forensic review revealed that Sudler Property Management concealed a multi-million-dollar reserve shortfall by combining realized interest income with unrealized investment gains, violating GAAP and IRS rules:
By merging distinct income types, Sudler misrepresented reserve strength and misled both the board and homeowners.
Now, a new concern has emerged:
CPAs, such as Brad Schneider and Ralph Picker, are not disclosing multimillion-dollar reserve waivers in their audits, despite having legal and fiduciary obligations to do so. Illinois law requires that if reserve requirements are waived, this must be disclosed in bold print in the financial statements and communicated to prospective purchasers. When these waivers are omitted or downplayed, homeowners are left in the dark about the true financial health of their association.
Key takeaway: Accurate accounting and full disclosure are essential for informed funding decisions. Blending income types or failing to disclose reserve waivers can conceal financial risk and breach fiduciary duty.
🏢 Hancock Residences: A Breach of Fiduciary Duty?
Despite holding tens of millions in reserves, Hancock’s HOA failed to plan for federal income tax on non-operating income. The result: a $500,000+ tax bill, with only $50,000 paid.
This failure may represent:
Breach of fiduciary duty
Material default under the management agreement
IRS penalty exposure
Key takeaway: Ignoring known tax obligations and failing to disclose reserve waivers is more than negligent—it’s dangerous.
🏢 Water Tower Place: Short-Term Gain, Long-Term Cost
To boost sales, the HOA cut assessments by nearly a third in 2019 by eliminating full reserve contributions.
While this gave the appearance of relief, the long-term damage includes:
Deferred reserve contributions exceeding eight figures
Years of accumulated funding gaps
High risk of special assessments or deferred repairs
A Crain’s Chicago Business article covered the decision to slash assessments, but overlooked the future risks to owners.
Key takeaway: Artificially low assessments today create financial pain tomorrow.
⚖️ Fiduciary Duty & Intergenerational Equity
Board members are legally and ethically bound to:
Maintain intergenerational equity (each owner pays their fair share)
Disclose and address funding shortfalls
Ensure transparent, accurate budgeting
Fraudulent or negligent practices:
Defer costs to future owners
Undermine reserve adequacy
Destroy confidence in leadership
Key takeaway: Budget manipulation and non-disclosure of reserve waivers are a betrayal of both current and future owners.
🛡️ Protecting Your Association: Action Steps
If you're a board member or concerned homeowner:
Demand Transparency
Insist on clear, timely financial reporting
Question vague disclosures
Request records before meetings
Require Independent Audits
Use CPAs or forensic auditors unaffiliated with management
Review Budgets Carefully
Scrutinize unexplained waivers or optimistic projections
Monitor Reserve Contributions
Compare actual deposits to the reserve study recommendations
Verify Expenditures
Review invoices and contracts; ensure board approval
Attend Meetings
Engaged homeowners help deter misconduct
Report Concerns
If something feels off, consult a forensic investigator
Transparency starts with access. Accountability starts with action.
⚖️ Reserve Transparency: Illinois vs. Other States
Unlike Florida or Nevada, Illinois does not require detailed reserve disclosures. As a result:
Reserve studies are often withheld
Fund balances lack context
Owners are left in the dark
Illinois should adopt legislative requirements mandating:
Disclosure of current reserve balances
Reserve funding percentage vs. recommended levels
Summaries of reserve study findings
Explanations for waivers or funding reductions
Key takeaway: Illinois needs stronger reserve disclosure laws to protect homeowners.
💬 Contact Us
Have questions or concerns? We're here to help.
📧 mnovak@cia.mba
Common Interest Advisors, LLC
Independent Forensic Investigators for Community Associations
✅ Forensic Audits
✅ Financial Reviews
✅ Vendor Oversight
✅ Governance Risk Assessments
Promoting transparency, accountability, and ethical financial practices.
📢 Final Word: Take Action
At Common Interest Advisors, change starts with awareness and succeeds with action.
🔁 Share this with your board, neighbors, or attorney
🧾 Request a forensic audit or reserve study review
📬 Subscribe for monthly insights on financial governance
📧 Contact: mnovak@cia.mba
Together, we can build stronger, more transparent communities.