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__ The continuation of this post is my email to Todd Chwatun, general manager of MOA, concerning the 2008 year-end financial statements published by MOA to the members. The following areas for improvements are discussed:
- Need to conform to GAAP and the AICPA Audit and Accounting Guide for Common Interest Realty Associations. The MOA Board adopted a policy to conform to GAAP and specifically to the AICPA Audit and Accounting Guide for Common Interest Realty Associations.
- Need to compare MOA accounting financial statements with those from the CPA to identify accounting practice changes for MOA to implement.
- Need for MOA's accounting to always include comparisons to prior year and to budget.
- Need to correct the shortfall in unrestricted cash of $80,000+ as indicated by the CPA's 2007 audit report.
- Need to reduce the dues revenue in the income statement by the amount placed in the Preservation Fund (approximately $48,000) as required by GAAP. The effect is to increase the operating loss from about $250,000 reported in MOA's accounting to about $300,000 which is expected to be reported by the CPA.
Don Nordeen
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- Key Words: • Accounting Practices, MOA; • Accounting Principles and Issues; • Financial Information, 2008 General; • General Manager; • MOA Operations, General/Total; • Reserves for Capital Repair; accounting principles; audit; CIRA; Common Interest Realty Association; CPA; financial statement; preservation fund; preservation; reserve fund; reserve
2008 Year-End Financial Statements (continued)
____ From:_ Don Nordeen
_____Date:_ 2009 March 20 11:48:02 EST
______ To:_ Todd Chwatun
_______cc:_ Mary Woodhouse
__ Subject:_ 2008 Year-End Financial Statements
Todd,
__ Thanks for the copy of the 2008 year-end financial statements from MOA accounting. They are more complete than what is published in the 2008Q4 Business Review.
__ I will not dwell on prior questions except that my analysis of the $80,000 shortfall of cash in the reserve fund is now available in PDF form at Accounting for the Reserve [Preservation] Fund.pdf [URL is http://swagman.typepad.com/files/MOA%20Fnncl90311%20PrsrvtnFundAR.pdf]. It is also posted on my weblog at Accounting for the Reserve [Preservation] Fund [URL is http://swagmanmwpoa.blogspot.com/2009/03/accounting-for-reserve-preservation.html]. The amount of restricted cash in the reserve fund (cash, cash equivalents and certificates of deposit) should be about $330,000 based on the 2007 audit report and a deposit of $48,000 in 2008. Yet the restricted cash is shown to be $228,304. Accordingly to MOA's accounting the shortfall of cash in the reserve fund is now over $100,000. That $100,000+ is shown as unrestricted cash in the 2008 Year-End financial statements published to the members by MOA.
__ The availability of the restricted funds in the Preservation Fund (reserve for RRR) is further reduced by the $100,000 used as collateral for the additional $100,000 line of credit. The overall result is that the available restricted funds for capital RRR is the the $330,000 it should be but only $130,000. None of this was made clear in the 2008Q4 Business Review.
__ I am disappointed that the reported operating loss is now $250,000. I specifically asked you about the projected result at the 2008 Dec board meeting. You were most assertive that the operating loss would be $200,000.
__ Actually, the accounting has incorrectly claimed all dues revenue as dues income. The allocation of dues revenue to the reserve fund is not reported as income as described on pages 2 and 3 of the 2007 audit report. The CPA report conforms to the AICPA Audit and Accounting Guide for Common Interest Realty Associations, and to rulings of the IRS.
__ Consequently, it should be expected that the CPA will report dues revenue for the operating fund to be about $48,000 less that should in the income statement created by MOA for end of 2008. Therefore the operating loss will be about $300,000 for 2008 which is a deterioration of $100,000 from 2007. I don't find any explanation for such a major unfavorable trend in the 2008Q4 Business Review. Good accounting practice includes comparisons to prior year and to budget. Comparisons to prior years are provided in the CPA's audit report and financial statements.
__ The accounting and related management problems based on the accounting are the direct result of not conforming to the AICPA Audit and Accounting Guide for Common Interest Realty Associations. The 100 page booklet is available from AICPA and from CAI. Even without the AICPA Guide, the accounting problems described above could be prevented if MOA's accounting just matched the financial reports (accounting schedules) provided by the CPA in the 2007 audit report. In my view, one of the first actions to be taken upon receiving the draft copy of the CPA's audit report is to compare MOA's financial statements to the CPA's financial statements. The comparison identifies the accounting practice changes needed to conform to GAAP which the CPA uses. The MOA Board adopted a policy to conform to GAAP and specifically to the AICPA Audit and Accounting Guide for Common Interest Realty Associations.
__ My recommendation is that MOA's accounting for 2008 year end be corrected to show the schedules and the line items that the CPA provided in the CPA's 2007 audit reports and financial statements. This should include comparisons to 2007 results and 2008 budget. Further word descriptions of the shortfall in the Preservation Fund and the use of the restricted Preservation Fund assets as collateral for the additional line of credit be clear communicated to members.
__ Please call to discuss. I am available to meet with you and show you the specifics from the CPA's 2007 audit report and financial schedules.
Don Nordeen
- History: _
- 2009 Mar 20 — Initial Post
- Links: 2008 Year-End Financial Statements at [http://swagmanmwpoa.blogspot.com/2009/03/2008-year-end-financial-statements.html]
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