A Discussion and Demonstration On How To Inflate Your Results

It was announced Fall of 2025, that residents would notice a change in the “format” of the HOA’s Financial Statements. This was an understatement. What occurred were significant changes in the accounting for the 2021 Special Assessment along with the destruction of the HOA’s historical accounting.

The changes did nothing to improve residents’ understanding of SPA 2021 or the HOA’s financial position. If anything, in my opinion, the changes solidified the Board’s reputation as a dishonest, unethical, administrative body. The changes do not assist with transparency or improve accuracy or clarity. Instead, the changes provide opportunities for the Board to hinder, fabricate and misrepresent.

Implementing the new method results in conclusions that are so far-fetched and implausible, one can only laugh. Our Board prides themselves on their professionalism.  This new accounting methodology is not professional. It is amateurish, dishonest, and in my opinion, a violation of law. A legal entity, with fiduciary responsibilities, can not just simply fabricate revenue.

It is alarming to see, when it comes to the preparation and release of financial statements, management appears brazen and increasingly sloppy. They seem to embrace a willingness to disregard good practices. Financial statements are released with errors that are so flagrant, we wonder if instead, they desire criticism or simply want to get caught. Perhaps this is just their way of thumbing their noses at residents?

Clearly, there is intent. How could there not be? It is my opinion that management’s actions are governed by four implicit policies:

1.      SPA 2021 is short of cash and cannot fund its obligations. HOA operating cash is being used to make-up for the shortfall. This fact must be hidden from residents.

2.      The Board lacks fiscal discipline, frequently overspends budgets, and suffers from liquidity shortfalls. These missteps must be kept hidden from residents.

3.      The current and previous Boards have spent large amounts of cash on the golf course. The LLC suffers from poor accounting and controls. The financial statements must be “cleansed” of all entries on how much the HOA has invested, how and when. Residents must be prevented from knowing the amounts the HOA has transferred to the LLC.

4.      The current financial operations of the LLC must be carefully monitored and hidden from residents. Residents must be provided with a carefully “manicured” picture of LLC operations. Only positive outcomes can be reviewed by residents.

It’s important to recognize the Board implements these policies, primarily to deflect criticism, avoid being held accountable, and to maintain support for their failed strategy. It is obvious, these policies are detrimental to the financial health of the community.

The first change made by the BOD was with the consolidation.  Accounting doctrine and common sense calls for Operating and Non-operating business segments to be reported separately. The Operating segment benefits from managerial decision-making. The Non-operating does not.  Therefore, by separating the two, managers can get a clear picture of their businesses and the results of their decision-making. 

Our Board has decided to combine or consolidate Operating and Non-operating segments. Why? If separating the two gives managers and shareholders clarity, then combining the two must provide a lack of clarity.  Please refer back to item #2 in the Policy List.

SPA 2021 generates positive revenue every month. This originates with residents paying $15 each.  If your fiscal discipline is poor, lacks control and you find yourself overspending budgets, what could be better than adding a stream of dependable positive revenue to your income stream? By consolidating SPA 2021, management achieves their goal of hiding overspending and budget overruns. See Policy List item #2.

Management is doing similar with the Golf Club (LLC). The LLC receives $42,300 monthly, $507,600 annually, from the HOA. The LLC accounts for these capital contributions as revenue, not capital. This accomplishes two goals; it boosts the earnings of the LLC every month by $42,300 and it alleviates any evidence of capital investment. See Policy List item #3.

Our auditors, IRO, defined a new method for determining periodic SPA 2021 income.  For any measurement period:

                                Start With:       (Losses)/Profits from the Golf Club

                                Add:                 Golf Club Depreciation

                                Add:                 (Total SPA 2021 Debt Service (P + I))

                                Equals:             (Total SPA 2021 Income)

The answer is in the form of a large negative number. This is because losses from the LLC are large and obviously negative. The Debt Service are payments and hence negative.

What the auditors do is then add this large number to Operating Revenue but first they change the sign to a positive.

This expression takes Golf Club losses and payments on loans, miraculously converts them to positive cash flows, and adds these as revenue to the income statement. Why are we bothering with selling when we can create revenue through accounting?

Because the debt service is part of the expression, as long as there are losses at the LLC, this expression will generate an amount greater than debt service. This satisfies Policy List item #1.

But this expression is not robust. In fact, I would say it is defective. There is no linkage whatsoever with the collection of the $15 special monthly assessment from residents. This expression completely ignores the fact residents are paying $15 monthly.

Additionally, if the Golf Club has a profit, this expression will return a value less than debt service. The expression can return a value that is positive. If the methodology is to then change the sign, what would a negative number mean as a measurement of periodic SPA income? It is nonsensical and I believe, fraudulent. Usage needs to be abandoned.

The Board has also introduced a role for depreciation despite our community having a long-standing capitalization policy. I won’t go into detail except to say, in a tax-exempt environment, depreciation does not provide any benefits.  Depreciation is a non-cash, pretax charge to earnings, intended to reduce taxable income. It serves no purpose in a tax-exempt environment.

I mentioned earlier that this change in accounting is dishonest.  Let me demonstrate.

1.      Examine the December 2025 Consolidated Income Statement.

2.      For the month of December, Total Assessment Revenue is $465,480. This is calculated by taking (2820 x $165) = $465,300 (there is a slight error)

3.      SPA 2021 Income is shown as $483,336, $18,036 greater than Total Assessment Revenue.

4.      How is this possible? We can estimate that there remains approximately 1800 residents still paying the monthly $15.00 (SPA 2021).  How could 1800 residents paying $15.00, exceed 2820 residents paying $165.00? It’s impossible.

Let’s look at the full year 2025.

1.      For the full-year 2025, the Consolidated Income Statement shows a total of $1,012,789.00 of income received from SPA 2021.

2.      At the onset of SPA 2021, the maximum amount of income it could generate annually was ($15 x 12 x 2820) = $507,600.

3.      This methodology was obviously developed to inflate revenue and misinform residents as to the true amount of SPA 2021 receipts. See Policy List item #1.

4.      The SPA Revenue for the full-year 2025 is carried down through the income statement where Interest Expense and Depreciation are subtracted.

5.      This leaves $770,244.62 as the bottom-line. It is then added to the HOA’s Operating Loss of ($317,114.95). The end result is the HOA reports a profit of $453,129.67. This is carried to the Balance Sheet and is posted to Retained Earnings. Because it is obviously incorrect and inflated, we must conclude the Balance Sheet is no longer valid.  But Policy List item #2 is satisfied.

The BOD has difficulty applying this methodology. For the 2024 December and YTD Consolidated Income Statement (audited), an additional calculation is made by subtracting out the Golf Club Income as an expense. This substantially reduces the amount of SPA 2021 income. The auditors take this step for 2024, the BOD for 2025 does not. This would have reduced the 2025 bottom-line by approximately $516,487.00 to $253,757.62.

Added to the ($317,114.95) operating loss, and you have a loss of ($63,387.33).  We are moving in the right (truthful) direction but still recognizing only a fraction of what was reported.

This demonstrates how unreliable HOA accounting has become.  The auditor has developed this non-sensical methodology, the Board adopts it, but leaves out a crucial step, increasing profitability by $516,487.00. What utter nonsense. And again, it’s intentional, meant to hide the true results of our Board’s decision-making. See Policy List item #2.

Hiding or fabricating the results of their actions, prevents the Board from being held accountable, avoids criticism, and allows them to continue with their unsuccessful and unpopular strategies. That is the bottom-line.

Further evidence of issues with HOA accounting exists for the January, February, and March 2026 statements.  No SPA 2021 revenues were recognized for any of these three months.  In January, the LLC falsely reported a profit. That would have resulted in SPA 2021 revenue that was less than debt service. Not a desirable outcome and probably why there is no reported revenue.

It is one thing to fabricate revenue. It is another issue entirely, when the HOA collects funds from residents, and does not account for the collections. This is a very egregious violation by the HOA. The Board has adopted this new methodology yet is still collecting from Unbilled Special Assessments, just not reporting the collections.

We have learned a lesson. If you want to inflate your bottom-line, misrepresent your results, and avoid being held accountable by your constituents, simply devise a method of fabricating $1 million of revenue, spice it up with some depreciation expense and then apply liberally and inconsistently.

It works for as long as no one is paying attention.

It has also been made obvious, that there are bad doctors, there are bad policemen, there are bad lawyers, bad politicians, why would we not think, there are bad CPA’s and auditors?

Ed Fredericks

For the People

05/01/2026