Condo owners urge court-ordered forensic audits after alleged self-dealing; industry warns of cost and abuse

Unit owners, attorneys and a forensic accountant pressed the Insurance and Real Estate Committee to allow unit owners to seek court-ordered forensic accountings of common-interest community finances, describing allegations of a property manager charging inflated labor rates and directing business to companies he owned.

Attorney Rachel Baird and unit owner Edward Peruta described a Rocky Hill condominium where, they say, a property manager billed the association at $95 per hour for labor while earlier interviews and contract drafts reflected a $65-per-hour rate. Baird said the board and association counsel failed to compel delivery of records; as a result a unit owner paid a $10,000 retainer to a forensic accountant who still lacks access to invoices and payroll records needed to audit the community's finances.

"We were not seeking money. We were only seeking the records," attorney Rachel Baird told the committee, recounting failed attempts to obtain documents through existing association governance channels. Baird said unit owners lack an effective remedy when the board or manager refuses to provide records.

Why it matters: Unit owners said missing invoices, disputed labor rates and alleged self-dealing left a 168-unit association with reserves withdrawn to pay an insurance premium and no adequate accounting. They said the community's annual auditor has refused to sign off on recent financial statements until a forensic accounting is completed.

Details from testimony

Peruta, a unit owner who helped collect proxies to change the board last December, described reserve-account withdrawals and invoices lacking itemized labor and materials. "In mid 2023 ... the invoice said, repair the weather stripping around the door ... $430," he said, and he asked why the association paid what he called excessive amounts without board approval. Peruta said he paid a forensic-accountant retainer of $10,000 to begin the review.

Baird said she reviewed similar statutes in other jurisdictions that permit owner-requested accounting reviews but told lawmakers those statutes often lack court-enforcement mechanisms for compelled records. "What if nobody will give me the records? ... We're gonna have to go into tax records, we're gonna have to go into contacting these workers," she said.

Industry pushback and suggested safeguards

Speakers from the Community Associations Institute, insurance brokers and industry counsel opposed the bill as written. Greg McCracken, an association attorney, said the problems that prompted testimony were real but rare, and he warned that forcible forensic audits are expensive (simple audits near $5,000, forensic audits several times that amount) and that a low petition threshold could allow small groups of owners to force reviews that raise association insurance costs and discourage board service.

Dave Pillin, a homeowner-association insurance broker, warned that litigation and audit activity can trigger increased fidelity-bond or directors-and-officers claim frequency, raising association premiums and impairing small associations' access to coverage.

Compromise ideas offered

Industry and association witnesses suggested raising the owner-petition threshold to match existing statutory thresholds for calling meetings (for example, 20%), requiring a forensic accountant's written certification of a credible factual basis before a court orders an audit, and making petitioners responsible initially for audit costs—potentially converting the expense to a common-charge if the audit finds malfeasance.

Committee perspectives

Lawmakers said they have received numerous complaints from constituents about HOA transparency and that they would consider raising thresholds and adding guardrails. Several asked stakeholders to produce drafting language that balances unit-owner access to records with protections against frivolous audits. No committee vote occurred at the hearing.