What a $470,000 “Missing” Variance Reveals About HOA Financials
A forensic look at how approved budgets, actual billing, and financial reporting quietly drift apart—and why it matters.
Common Interest Advisors, LLC
Forensic Accounting & Advisory for Community Associations
🧾 What I’m Seeing Inside HOAs Right Now
And Why a $470,000 “Missing” Variance Wasn’t What It Seemed
Most HOA financial problems don’t start with fraud.
They start with small disconnects—between what’s approved, what’s implemented, and what’s reported.
Over time, those disconnects compound.
This is one of those cases.
📍 What I’m Seeing
Since returning to the Illinois area, I’ve been working closely with unit owners, board members, and both current and former directors across a range of condominium and HOA properties.
And it’s not just local.
I’ve fielded calls from across the country—California, New Jersey, Minnesota, Florida—all describing variations of the same underlying issues.
Different buildings. Different people. Different circumstances.
Yet the same financial patterns keep showing up.
Not occasionally.
Repeatedly.
🔍 The Patterns
1️⃣ Reserve Studies That Look Compliant—But Aren’t
On paper, everything looks fine.
But when you run the math:
Funding plans don’t lead to adequate reserves
Percent funded declines over time
Long-term underfunding worsens—not improves
📉 In several cases, associations are projected to become tens of millions more underfunded over time.
2️⃣ Auditors Not Responding to Required Standards
When risks are identified, there are required responses.
But I’m seeing:
Silence where escalation should occur
Missing governance communications
No meaningful response to identified issues
These aren’t judgment calls.
They’re requirements.
3️⃣ Financial Reporting That Masks Reality
Financials often “tie out.”
But that doesn’t mean they tell the full story.
Common issues:
Year-end adjustments that obscure results
Reclassifications that change presentation—not economics
Compensation embedded without clear approval
📊 Result: Decisions are being made on incomplete information.
🔍 Case Study: A $470,000 Variance
In a recent engagement involving a large high-rise, I was asked to review reserve funding across a multi-year period.
At first, it looked like a familiar issue:
👉 “Missing revenue”
👉 Approximately $470,000 across two years
But the deeper we looked, the clearer it became:
This wasn’t a collection problem.
📊 What Was Approved vs. What Was Billed
Across two consecutive years:
The Board approved increased reserve contributions
Those increases were not fully implemented in billing
📉 The result:
Year 1 shortfall: ≈ $220,000
Year 2 shortfall: ≈ $250,000
➡️ Total variance: ~$470,000
🧾 The Explanation Provided
When questions were raised, the shortfall was attributed to:
Delinquent unit owners
Uncollectible amounts and write-offs
Legal limitations on recovery
This is a familiar explanation in community association finance.
And sometimes—it’s correct.
🔎 Where the Explanation Breaks Down
But explanations have to reconcile to the numbers.
In this case:
Identified delinquencies didn’t match the scale of the variance
Receivables were materially lower than the shortfall
Operating and special assessment collections remained largely intact
The variance tracked closely with the gap between approved funding and actual billing
👉 In other words:
The ~$470,000 gap could not be explained by collections alone.
🧨 Compounding Risk: Already Underfunded
This didn’t happen in a vacuum.
The association was already operating with a multi-million dollar reserve deficit.
That changes everything.
When an association is already underfunded, failing to implement approved contributions doesn’t just delay funding—
It deepens the structural gap.
⚠️ Why This Matters
This case highlights a breakdown at a fundamental level:
Budgets approved—but not fully executed
Financials reflecting multiple baselines
Variances explained—but not fully reconciled
📌 Once a problem is misdiagnosed:
The real issue goes unaddressed
Future budgets rely on flawed assumptions
Financial risk compounds quietly over time
🌐 The Bigger Pattern
This isn’t an outlier.
Across associations, I’m consistently seeing:
Budgets that look compliant—but aren’t implemented
Financials that reconcile—but don’t reflect reality
Reserve plans that exist—but aren’t followed
Variances that are explained—but not fully reconciled
This isn’t a complexity problem.
It’s an execution problem.
🔁 The Common Thread
Across different buildings and boards:
What’s approved, what’s implemented, and what’s reported are not always aligned.
🧠 The Takeaway
Delinquencies and write-offs are real.
But they are only one piece of the picture.
If a $470,000 variance doesn’t reconcile to the numbers, it’s not a complete explanation.
The question I kept coming back to wasn’t just how to analyze these issues—but what to do about them.
🎓 New: CAM Financial Survival Series (8 CPE Hours)
Based on what I’m seeing across associations, I’m launching a course focused on these exact issues.
Starting in May, we’ll be launching a monthly, four-session course—
CAM Financial Survival Series: Budgeting, Risk & Real-World Failures
This is not a “how to build a budget” course—it’s a course on how budgets actually fail in practice.
Who This Is For:
Board members
Community association managers
Finance committee members
📘 What You’ll Learn
Using real-world examples, participants will learn to:
✔ Evaluate budgets critically
✔ Identify early warning signs of financial stress
✔ Understand reserve funding assumptions
✔ Improve financial oversight and decision-making
Each session builds on the last, giving you a framework you can apply immediately.
🧩 Format
4 sessions (2 hours each)
💡 8 CPE Hours
Live, virtual instruction
🎯 What Makes It Different
This isn’t a “how to build a budget” course.
It’s about:
How budgets fail in the real world—and how to catch those failures early.
📩 Early Access
The first cohort will be intentionally limited.
If you’d like details on schedule, pricing, or early registration:
👉 Reply with “CAM Course”
💼 For Boards & Firms
I’ll also be offering:
Private group sessions
Association-specific workshops
Custom training based on your financials
⚠️ Note
This course focuses on financial analysis and governance.
It is not intended as legal advice.
🔄 A Shift in Direction
Late last year—November and December—I explored the idea of forming a traditional property management company.
At the time, it seemed like a logical extension of the work I was doing.
But the more I evaluated the landscape—and the issues I was seeing inside associations—the clearer it became:
The problem isn’t just who is managing. It’s how management is structured.
So instead of building another management company, I shifted focus.
🏢 From Management to Self-Management Advisory
Rather than inserting another layer, I’m now helping associations:
Transition away from traditional management structures
Build board-controlled, self-managed operations
Implement financial systems with full transparency and oversight
This approach gives boards something many of them are actively seeking:
Control over their finances, their vendors, and their decision-making.
👥 Expanding the Capability
As part of this shift, we expanded our team to include a licensed Community Association Manager (CAM) to support operational and governance initiatives.
This role serves as:
Managing Director of Property Management & Governance Advisory
with a focus on:
Implementing operational turnarounds
Supporting associations transitioning to self-management
Establishing structured, board-controlled systems
🧠 Why This Matters
What I’m seeing across associations isn’t just isolated financial issues.
It’s a structural problem:
Limited transparency
Misaligned incentives
Overreliance on third-party summaries instead of underlying data
Self-management—when implemented correctly—addresses all three.
⚠️ Not for Every Association
To be clear, this model isn’t the right fit for every building.
But for associations that:
Want control over their financials
Don’t trust their current management structure
Are willing to implement disciplined systems
…it can be a significant upgrade.
🔜 What This Means Going Forward
This shift is directly influencing how I’m working with associations today:
Targeted financial diagnostics
Transition planning
Governance and operational restructuring
📊 How I’m Working With Associations
Most engagements right now are targeted and diagnostic:
Focused financial reviews
Identification of key risks
Clear, actionable next steps
💡 Fixed-scope engagements capped at $3,200
📉 Early Data: PATS (Property Asset Transparency Score)
Across the first five associations evaluated:
4 scored 0
1 scored 15
Out of 100.
These results indicate:
Limited transparency
Weak controls
Significant gaps in financial visibility
📩 If This Sounds Familiar
If something in your financials doesn’t sit right—
There’s usually a reason.
And more often than not:
It’s discoverable.
And more often than not—it’s been hiding in plain sight.
🔒 A Note to Readers
As we approach our one-year anniversary on Substack, I want to thank you for following this work—and for helping bring transparency to an industry that rarely gets it.
Effective June 1, this publication will transition to a paid model.
The reality is simple:
This level of forensic analysis—uncovering financial mismanagement, governance failures, and systemic issues within condominium, HOA, and CIRA communities—requires time, rigor, and independence.
As the only forensic accountant working full-time in this space, my commitment is to continue delivering detailed, evidence-based insights you won’t find anywhere else.
Your support ensures this work not only continues—
but expands.
Founding subscriber details and early access will be shared shortly.
More to come.
Michael Novak, CPA (Illinois), CMA, CFA
Co-Founder & Co-Managing Partner
Common Interest Advisors, LLC
Forensic Accounting & Advisory for Community Associations
mnovak@cia.mba
📩 Reply directly for inquiries, reviews, or course interest