The Preserve at Smith Creek HOA: 2025 Audit, Reserve Study & 2027 Budget Transparency Center

Side-by-Side Comparison: Summary Notices vs. Official Audited Records

Every figure below is verified directly from the HOA's own 2025 BRC Audit Report, the February 20, 2024 Draft Giles Reserve Study, the 2024 Clubhouse Lease, and the 2027 Budget Spreadsheet:

Smoking Guns #1, #2 & #3: Inside the 2025 BRC CPA Audit Report

1. Proof to the Penny: How Page 3 of the Audit Catches the May 2026 Balance Sheet Plug ($17,281.25 vs. $12,481)

• Jan–Apr 2026 Monthly CINC Balance Sheets: Reported Reserve Cash of $180,768.44, Reserve Retained Earnings of $163,487.19, and an interfund loan liability (20-5110-00 Loan from Reserves) of $17,281.25 owed to the Operating Fund ($180,768.44 - $163,487.19 = $17,281.25).
• BRC’s 12/31/2025 Audited Balance Sheet (Pages 3 & 4): BRC credited the $4,800.00 Clubhouse Lease rent ($400/mo × 12) to the Replacement Fund instead of the Operating Fund. Subtracting that $4,800.00 rent credit from the $17,281.25 CINC loan equals $12,481.25—which is the exact $12,481 (Due to operating fund) liability certified on Page 3 of BRC's Audit! Adding $4,800.00 to CINC's $163,487.19 Reserve Retained Earnings equals $168,287.19—which is the exact $168,287 (Contract liabilities) net Reserve balance certified on Page 3 of BRC's Audit!
• The May 2026 Erasure: In May 2026, management deleted the $17,281.25 loan liability without repayment or Board resolution and plugged all $17,281.25 directly into 30-3900-01 Retained Earnings - Reserves ($180,768.44). On October 20, 2026—8 days after BRC signed the audit—the Board used that falsified CINC balance (+ $1,639.97 in 2026 interest = $182,408.41) to claim an $87,252.59 reserve shortfall against $269,661.00. Because $12,481 belongs to the Operating Fund, true net reserves are only $169,927.41 ($169,926.97 using BRC whole dollars), making the shortfall $99,733.59 ($99,734.03 rounded)—$12,481 worse than told to homeowners!

Figure 1: Comparison of BRC's Audited Net Reserve Balance ($168,287) and Oct 2026 True Net Reserves ($169,927.41) against the Falsified May 2026 CINC Equity ($180,768.44) and Giles Engineering Benchmarks ($269,661 for 2025 YE; $283,836–$290,038 for 2026 YE).

2. Why Page 4 of the Audit Shows $35,612 Funded to Reserves (Explaining the GAAP ASC 606 Mechanism)

Under GAAP standard FASB ASC Topic 606 (explained in Note 2, Page 7 and Note 6, Page 9 of the Audit), assessments collected for future capital repairs are recorded as Contract liabilities on the Balance Sheet until spent on capital projects. Look at the four lines at the top of the Replacement Fund column on Page 4 of the BRC Audit:

• Homeowner assessments: $29,488
• Interest income: $1,324
• Rental income: $4,800
• Less: Contributions to Contract liabilities: $(35,612) (transferring all $35,612 onto the Balance Sheet, raising Replacement Fund Contract liabilities from $132,675 on 1/1/2025 to $168,287 on 12/31/2025!).

Smoking Gun #4: The 32-Month Concealed "DRAFT" Giles Reserve Study & The $50,000/Yr Contribution Lie

• Concealed for 32 Months While the Outdated 2019 Study Was Uploaded as a Decoy: The Giles Flythe Reserve Study uploaded on October 28 (6 MB, 47 PDF pages) is dated February 20, 2024 and stamped across the cover: DRAFT WITH UPDATED STARTING BALANCE - FOR REVIEW PURPOSES ONLY. For 981 days (32.2 months), this study was withheld from homeowners—and on August 14, 2025 (18 months after receiving the Feb 2024 draft), management uploaded the outdated 2019 Reserve Study (Reserve Study Update.pdf, 2 MB) to the portal instead!
• Three False Inputs Fed to the Engineers (Page 5, Page 12 & Appendix A, Page 1):
  1. Told Giles the community had 178 units instead of 200–202 homes;
  2. Provided an unaudited Jan 1, 2024 starting reserve balance of $174,051—yet BRC's Audit (Page 5) proves that even a full year later (Jan 1, 2025), actual Reserve bank cash was only $158,553 (and net Reserve balance was only $132,675); and
  3. The $50,000/Year Contribution Assumption: Told Giles the HOA's "Current Reserve Funding Rate" was $50,000 per year! Even at $50,000/yr, Giles warned the Reserve Fund would go negative by 2039 and recommended Alternative 1 (+4%/yr): $50,000 (2024), $52,000 (2025), $54,080 (2026), and $56,243 (2027) or Alternative 2 (+$4,500 every 2 yrs): $50,000 (2024), $54,500 (2025), $54,500 (2026), and $59,000 (2027) (Appendix A, Pages 11–13).
• Misreading the $269,661 Benchmark & Deferring $40,019 in Scheduled 2026 Repairs: On Appendix A, Page 11, $269,661 is Giles's projected 2025 Year-End / 2026 Starting Balance. Giles's true 2026 Year-End Benchmark is $283,836 (Current Plan), $290,038 (Alt 1), and $293,040 (Alt 2)—even after spending $40,019 in scheduled 2026 capital repairs ($30,000 to replace corroded pool restroom partitions shown in Photo 18 + $7,000 pool filtration, Appendix A, Pages 4–5). Yet the budget allocates $0.00 for Reserve Contributions and spent $0.00 on Reserve Repairs in 2026!

Figure 2: (Panel A) Giles Engineering's required annual Reserve contributions ($50,000–$59,000/yr) compared against the HOA's $0.00 budgeted contributions in 2024, 2026, and 2027; (Panel B) 2025 BRC Audited Operating Expense breakdown showing $48,407 spent on Professional/Legal Fees (41.6% of operating revenue).

Smoking Gun #5: The 2024 Clubhouse Commercial Lease ($400/Mo & 100% Free Utilities Paid by Homeowners)

The 9-page lease (The Preserve Clubhouse Lease 2024.pdf) between the HOA and Declarant Garner Road Associates, LLC exposes a lopsided commercial subsidy under N.C.G.S. § 47F-3-105:

• 100% Free Utilities, Taxes, Insurance & Maintenance Paid by Homeowners: Sections 1, 3, and 14 grant the Developer exclusive use of the Clubhouse Office, non-exclusive use of the Conference Room and Closet, and 4 marketing events/year specifically "to assist in the marketing of new homes within other phases of this community" (Preserve West). Under Sections 6, 8, 9, and 10, the Developer pays $0 security deposit, can terminate early at any time once lots are sold (Section 15), and the HOA is forced to pay 100% of all real property taxes, insurance, electricity, gas, water, sewer, HVAC repairs, maintenance, telephone, and internet FREE OF CHARGE to the Developer!
• Backdated Execution, Post-Termination Notarization & Unpaid 2023 Rent: Although Page 1 states the lease was made June 1, 2024, it was not signed until August 19, 2024 (Page 8) and September 12, 2024—notarized by the former property manager six weeks after prior management's contract ended on July 31, 2024 (Page 7)! Furthermore, Section 5 (Page 2) admits that in late 2024, the Developer was just then agreeing to pay $4,200.00 for the 2023 calendar year. (The contract also contradicts itself between a 48-month term in Section 4 and a 2024–2026 schedule in Section 5, and skips Section 18 entirely, jumping from 17.4 to 19.5).
• A 9.59% Dues Hike for Homeowners vs. a 4.17% Rent Increase for the Developer: For 2027, homeowner dues are proposed to increase by 9.59% (+$70/yr) while the commercial lease increases by just $16.67/month (+4.17%, from $4,800 to $5,000/yr)—which the Board admitted on October 27 is not even signed or authorized yet! Moreover, in the 2025 Audit (Page 4), the $4,800 rent was credited to the Reserve Fund, whereas on the 2027 Budget Spreadsheet, it is shifted to the Operating Fund (41-4105-00).

Smoking Gun #6: Reconstruction of the Omitted "Total" Rows on the 2027 Budget Spreadsheet & Preserve West Voting Dilution

The 2027 Budget Spreadsheet distributed to homeowners on October 20 (Spreadsheet 2A) omitted the "Total Income" and "Total Expense" rows. Summing every line item reveals why:

Figure 3: Visual reconstruction of the omitted Total Revenue, Total Operating Expenses, and Unallocated Operating Cash Surplus rows on the 2027 Budget Spreadsheet (Spreadsheet 2A).

Seven Questions Every Homeowner Should Demand Be Answered on the Record (Oct 29 & Nov 5)

Please print the 2-Page Homeowner Fact Sheet (PDF) and bring it to tonight's 6:30 PM Open Board Meeting and next Thursday's November 5 Budget Ratification Meeting to make sure these seven questions are answered on the record:

1. 1. False Claim Regarding 2025 Reserve Funding vs. -$35,192 Operating Deficit (Audit Pages 1, 4, 5 & 9):
   "In the October 18 Audit Update, homeowners were told that 2025 reserve funding 'was not conducted due to the legal actions taken by a member.' Yet Pages 4 and 5 of BRC’s 2025 Audit prove that homeowners DID fund $35,612 into the Replacement Fund in 2025 ($29,488 in assessments, $4,800 in rent, and $1,324 in interest) and that Replacement Fund cash increased by +$22,215, while the Operating Fund ran a -$35,192 deficit after spending $48,407 on Professional Fees (41.6% of operating revenue). Why were homeowners falsely told that reserves were not funded in 2025 while concealing a $35,192 operating loss and a -$132,675 restatement of the 2024 financial statements?"
2. 2. The Unlawful May 2026 Balance Sheet Plug & Understated Reserve Shortfall (Audit Page 3):
   "Page 3 of BRC’s Audited Balance Sheet certifies that as of December 31, 2025, $12,481 of the $180,768 sitting in the Replacement Fund bank account is a liability owed back to the Operating Fund ('Due to operating fund: $12,481'), leaving a net Reserve balance of only $168,287. Why was that interfund loan deleted on the May 2026 CINC Balance Sheet without repayment to inflate Reserve Retained Earnings to $180,768.44—and why was that inflated number used in the October 20 budget notice to understate our true reserve shortfall by $12,481 ($99,733.59 true shortfall vs. $87,252.59 claimed)?"
3. 3. 32-Month Concealment of the Feb 20, 2024 "DRAFT" Giles Study (Giles App. A, Pages 1, 4–5, 11–13):
   "The Giles Reserve Study uploaded on October 28 (6 MB) is dated February 20, 2024 and stamped 'DRAFT FOR REVIEW PURPOSES ONLY.' Why was this February 2024 study concealed from homeowners for 32 months—while the outdated 2019 Reserve Study (2 MB) was uploaded to the portal on August 14, 2025 instead—and why cite this draft study to raise dues by $70 while ignoring its recommendation to contribute $56,243 to $59,000 to Reserves in 2027 (budgeting $0.00 on Line 43-4300-01), misreading the 2025 year-end balance ($269,661) as the 2026 benchmark ($283,836–$293,040), and skipping $40,019 in scheduled 2026 reserve repairs?"
4. 4. Continued Concealment of BRC’s CPA Management Letter (Audit Page 2):
   "In the October 18 eBlast, the Board admitted BRC’s audit includes 'recommendations for improvements' regarding financial operations, which Page 2 of the Audit identifies as BRC’s communication of 'significant audit findings, and certain internal control related matters.' Why was BRC’s Management Letter withheld past the October 28 statutory deadline in violation of N.C.G.S. §§ 47F-3-118 and 55A-16-02, and will the Board post that Management Letter tonight?"
5. 5. Omitted Budget Totals, Hidden $42,067.13 Surplus, Doubling Legal Fees to $20,000 & Missing $9,000 Audit Fee:
   "Why were the 'Total Income' and 'Total Expense' rows omitted from the 2027 Budget Spreadsheet—hiding an estimated $42,067.13 operating surplus in 2026 ($150,488.00 income vs. $108,420.87 expenses)—why is 70.7% of our dues increase going to double Legal Expense from $10,000 to $20,000 when 2026 legal spending is estimated at just $5,283.94, and why is the $9,000.00 BRC audit fee completely missing from the 2026 Year-End Estimate?"
6. 6. The Unconscionable Clubhouse Commercial Lease ($400/Mo with 100% Free Utilities):
   "The 2024 Lease with the commercial Developer (signed in Aug/Sept 2024 and admitting in Section 5 that 2023 rent of $4,200 wasn't paid until late 2024) gives the Developer an office and conference room to market Preserve West homes for $400/month with $0 deposit, while Sections 8, 9, and 10 force existing homeowners to pay 100% of all utilities, internet, HVAC, insurance, and taxes free of charge. Why raise homeowner dues by 9.59% (+$70/yr) while raising the Developer's rent by just 4.17% (+$16.67/month), and why was the $4,800 rent booked to Reserves in the 2025 Audit but shifted to Operating in the 2027 Budget?"
7. 7. Preserve West Voting Dilution (50+ Annexed Lots vs. Only 2 Lots Paying Dues):
   "Why were 50+ Preserve West lots annexed now to inflate the 51% voting threshold required to reject the budget on November 5, while budgeting only $1,600.00 in 2027 assessments from Preserve West—the dues of just TWO lots—forcing existing homeowners to pay 99% of the Association's assessments ($161,600)?"

Primary Source Document Vault (Download & Verify Every Page Yourself)

Click any button below to view or download the original PDFs and forensic reconciliations: