Last Edit: 2009 Feb 14. Click on History for changes and updates.
__Making an ongoing estimate of the projected year-end financial results is one of the primary obligations of the board of directors. The budget is annual; so the primary checking point on financial status should be the projected results against that budget.
__One of my ongoing questions at Open Forums is asking for financial results — particularly compared to prior year results. In general, the board is not prepared to answer the question even though the board has just approved filing of the financial report for the prior month.
__The continuation of this post contains further discussion and my estimate of the operating loss for 2008 which is in the range of $200,000 loss (most optimistic) to $280,000 loss. Mr. Todd Chwatun, general manager, was unequivocal during the Dec 13 meeting that the operating loss would be the optimistic number — $200,000 loss. For 2008, the board approved a balanced budget, meaning that the performance to budget is an unfavorable $200,000 at best.
__The Line of Credit and Accounts Payable are also unfavorable to 2007. In 2007, the board used $80,000 from the reserve fund for operations. These three accounts are a short-term debt of $566,000 which is about 65% of the annual dues billing.
__But maybe members aren't interested in receiving correct and competent financial information since they voted to not have an independent audit committee that could provide trustworthy financial reports.
Don Nordeen
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Click Continue for Post Continuation and any Comments.
- Key Words: MOA Financial, Working Capital, budget
Estimate of Operating Loss for 2008 (continued)
__Making an ongoing estimate of the projected year-end financial results is one of the primary obligations of the board of directors. The budget is annual so the primary checking point on financial status should be the projected results against that budget.
__One of my ongoing questions at Open Forums is asking for financial results — particularly compared to prior year results. In general, the board is not prepared to answer the question even though the board has just approved filing of the financial report for the prior month. This happened again at the 2008 Dec 13 board meeting during which uncertain answers were provided and no information concerning comparison to prior year appeared to be available. I was advised that the November financial reports would be posted shortly on the MOA website. Not posted as of Dec 28.
__My estimate of the operating loss for 2008 (shown below and download at Estimate of Operating Loss for 2008) is in the range of $200,000 loss (most optimistic) to $280,000 loss. Mr. Todd Chwatun, general manager, was unequivocal during the Dec 13 meeting that the operation loss would be the optimistic number — $200,000 loss. The primary uncertainty in the estimate concerns the bar & restaurant revenue during the holiday season. For $2008, the board approved a balanced budget, meaning that the performance to budget is an unfavorable $200,000 at best.
__There are other indications of further deterioration of financial condition. The short-term line of credit has increased $48,000 from $250,000 at 2007 Oct 31 to $298,000 at 2008 Oct 31. Accounts Payable has increased by $70,000 over 2007 and is $188,000 at 2008 Oct 31. In 2007, the board used $80,000 from the reserve fund for operations. These three accounts are a short-term debt of $566,000 which is about 65% of the annual dues billing.
__No reason to be concerned, however. The board has approved a balanced budget for 2009. I have a bridge for sale.
Estimate of Operating Loss for 2008 Date: 2008 December 13 From: Don Nordeen Re: Estimate of Operating Loss for 2008
__The Board’s reporting of financial information in written form to MOA members has been minimal, though the results are available at the MOA website, without explanation, about six weeks after the end of the reporting period. The Business Reviews have provided no summaries, explanations, and actions to address the obviously deteriorating financial results.
__What is done is done; the prior financial results cannot be changed. However, the prior financial results do provide a basis for looking forward — in this memo only one quarter. Depending on the method of analysis, the estimate for the 2008 operating LOSS is $230,000 with a range from $203,000 to $288,000. I asked the Board for an estimate of 2008 year results on 2007 Nov 15. The General Manager, Todd Chwatun, replied unequivocally that the loss would be $200,000. That is $200,000 unfavorable to budget, which does not include expenditures for loans, capital investments, Replacement Fund (allocation is way short of preservation requirements), etc. Yet the Board has not had an agenda item to address the deteriorating financial results.
__The estimate is based on reviewing the financial results for the years 2006-2008, which are shown in the bar chart below. The budget numbers are included for the year only (fourth quarter), and are basically zero and hardly show on the chart. The budgets obviously don’t meet the Bylaws requirement for a balanced budget. Moreover, the budgets only include revenue and expenses, and do not include other receipts and expenditures (loans, capital purchases, funding for preservation of assets, etc.). Consequently, the actual financial results are much worse than shown in the chart.
__Click on the image for a full-size and clearer image, and then use your browser's back button/arrow to return to this post.
__The bars are all year-to-date results. The cyclical nature of the operations is shown in the chart. Most of the golf revenue is in Q3, which reduces the operating loss through Q2. The revenue for the first and second quarters is primarily from the allocated dues and the bar & restaurant. The second quarter has some golf revenue but also has the expenses for preparing the course.
__The chart shows the year-to-year deteriorating financial results — each year is $50,000 to $100,000 worse than the prior year.
__MOA had a negative cash flow of about $100,000 in 2007. The Audit Reports indicate that MOA used about $80,000 from the Replacement Fund for operations in 2007. There appears to be no interest by the Board in correcting the funding of the Preservation Fund.
__(added 2009 Feb 14) Cash to Preservation Fund — Mr. Chwatun's estimate of a $200,000 operating loss for 2008 is likely based on MOA's accounting which doesn't conform to GAAP, and specifically to the AICPA Audit and Accounting Guide for Common Interest Associations. According to GAAP and the A&A Guide, the amounts set aside for reserves are not included as revenue as is shown in MOA's audit reports for 2006 and 2007. Consequently, Mr. Chwatun's estimate overstates revenue by $48,000. With this adjustment, his estimate of operating loss for 2008 would be about $250,000 which better matches the projection in the chart above.
__Please call re questions or errors.
Don Nordeen
(989) 939-8240
- History:xx
- 2009 Feb 14 — Link to Preservation Fund added.
- 2009 Feb 14 — Added discussion concerning the CPA's operating loss will be greater than MOA's.
- 2008 Dec 28 — Initial Post
- Links: Estimate of Operating Loss for 2008 at [http://swagmanmwpoa.blogspot.com/2008/12/estimate-of-operating-loss-for-2008.html]
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