Last edit: 2009 Mar 22. Click History for a list of changes and updates.
__The 2008Q4 Business Review is significantly better than prior ones. It includes serious letters from the board and the general manager. We should also thank the board for these improvements.
__A saying attributed to former Senator Moynihan is that everyone is entitled to his/her own opinion but not to his/her own facts. Where members question or have concerns about what is represented as "facts" in the Business Review, we should speak out and ask for clarification, further investigation, and correction where appropriate.
__The continuation of this post speaks out and asks for clarification, further investigation, and correction where appropriate for selected items. If any of my "speaking out" is not correct, please advise.
Don Nordeen
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- Key Words:_ Accounting Practices, MOA, Business Reviews, 2008, Financial Information, 2008 General, MOA Board of Directors, MOA Members & Members' Rights, MOA Operations, General/Total, Reserves for Capital Repair
Comments Concerning MOA's 2008Q4 Business Review (continued)
Introduction
__Below are comments on selected items in the 2008Q4 Business Review. They are organized in a sequence so that comments apply to later items in the list.
__Many concern the accounting with is critical to any analysis of the need for a dues increase. Because the major discrepancies in content and schedules between MOA's accounting and the CPA's accounting and statements in the audit reports, my recommendation is that MOA issue a revised accounting conforming to the statements and content in the CPA's financial statements. Two items of over $50,000 each are involved.
__The comments below identify the page number in the business review, the document, and the paragraph.
Business Review in Total #Total
__What is the overall message in the 14 pages in the 2008Q4 Business Review? Perhaps this is summarized in the first paragraph of the Letter from the Board of Directors page 1, which states, "The Board of Directors is obligated to the Membership of Michaywé to operate and manage the Association and maintain its amenities as they were established at its inception. This responsibility of the Board is required by our governing documents, which each Member agreed to follow when they purchased property in Michaywé whether it was last week or 30 years ago."
Comment — The board's statement is marginally correct at best. See the post, Developer's Representations and History — 1971 to 2000, for what existed prior to 2000 back to 1971 ("at its inception"). What MOA has today was largely put into place by MOA since 2000 and mostly by the board of directors from 2000 to 2002 of which Ron Hees was president.Page 5, "Setting the Record Straight", Second Diamond #Audit
There are many alternatives for a new bargain. See the post, Index, Posts on MOA's Challenges, which is a collection of proposals made by a number of members over the past several years. Given the magnitude of the problems, a New "Bargain" will likely have to include a combination of changes.
- Very little of what was put into place since 2000 is "cast in concrete". Most if not all can be changed.
- It should be clear to all members that what was put into place by the board from 2000 to 2002 is fundamentally flawed.
- The repeating message in the Business Review is preserving the status quo, meaning what was put into place since 2000.
- In several places, the Business Review acknowledges that the status quo doesn't work, but nonetheless, the board seeks to preserve the status quo with higher dues.
- A new bargain is needed. See the post, A New "Bargain" for MOA Members.
"Will the 2008 audit report be available to the Membership prior to the voting date?
__The audit report for the 2008 financials will not be available before the vote on the dues increase proposal. The unaudited draft financials for 2008 will be available by that time. We do not anticipate any major discrepancies between the draft and final reports."
Comment — There are two areas in which there are major discrepancies in content between MOA's accounting published in the Business Review and the CPA's 2007 Audit Reports and Statements:Page 2, Letter from the Board, Third New Paragraph #Listen__"The Board has spent numerous hours listening to the opinions of each other, listening to the thoughts of Members, and attempting to identify the amount of a dues increase that a majority of the Members would approve. It is the opinion of this Board that the dues increase needed to fund the amenities the Membership has come to enjoy and expect would never pass in today’s economic climate and MOA will be destined to fail. On the other hand, if we do not attempt to increase the dues we ultimately fail anyway."
The omission of the Statement of Revenues and Expenses and Changes in Net Assets for the Preservation Fund is directly related to the first and second bullets above. There is no reason that MOA cannot copy the statements (schedules) used by the CPA in MOA's accounting which all compare current year to prior year.
- The first is the accounting for the Preservation Fund (reserve fund). The dues revenue for operations must be reduced by the amount set aside in the restricted Preservation Fund — approximately $48,000. This increases the operating loss from $250,000 to approximately $300,000. See the post, 2008 Year-End Financial Statements, which references the post, Accounting for the Reserve [Preservation] Fund.
- The second also involves the Preservation Fund. in 2007, about $80,000 was taken from the Preservation Fund and used for operations. These funds should be returned to the Preservation Fund. See the post, Accounting for the Reserve [Preservation] Fund.
- The third also involves the Preservation Fund. The financial statements provided by MOA does not include a Statement of Revenues and Expenses and Changes in Net Assets for the Preservation Fund. The CPA's 2007 Audit Report for MOA provides this schedule on page 3 of the report.
Comment — The above may be true, but essentially all recommendations for change have apparently been rejected. The overall message in the 2008Q4 Business Review is to preserve the status quo, but with increased dues. Consider:Page 5, "Setting the Record Straight", Third Diamond #Allocation"costs by amenity?
As a whole,what is clear from the 2008Q4 Business Review is that essentially all of the recommendations from MOA members have not been acted upon. The same appears to be true with regard to possible actions considered by the board. Without an analysis of each recommendation or possible action, there is no basis for decision. Further, the MOA members are left in the dark.
- Is there a list of the recommendations from members? Is the list available to other MOA members on the MOA website?
- Is there an analysis of each of the recommendations including the reasons for adopting or rejecting each recommendation? Is the list available to other MOA members on the MOA website?
- Is there an agenda item on each recommendation for one or more board meetings with a vote on disposition by the board?
- Is there a list of possible actions that were identified by the board? Is the list available to other MOA members on the MOA website?
- Is there an analysis of each of the possible actions including the reasons for adopting or rejecting each possible action? Is the list available to other MOA members on the MOA website?
- Is there an agenda item on each possible action for one or more board meetings with a vote on disposition by the board?
__The Board has provided these numbers numerous times since October 2007. They were originally released during the development of the 2008 budget and have been used many times since. There are many different accounting methods that can be used to determine these costs and most of them are correct in varying circumstances. MOA is using the method recommended to us by our financial professionals and will continue to do so. The “armchair quarterbacks” will undoubtedly try to prove our methodology wrong rather than apply their energy to something positive."
Comment — This writer, who has attended most board and town hall meetings since October 2007 has not seen such cost breakdowns. Given the many times I have asked for such total costs by recreational facility and major activity, it is curious that the board would not make a special effort to communicate same when available. Consider:Page 5, "Setting the Record Straight" Third Diamond, Last Sentence #Qacks
- Released to whom during the development of the 2008 budget? Are the "numbers numerous times" available to other MOA members on the MOA website?
- Who are the professionals? What questions and instructions were provided that resulted in the recommendations? What is the specific answer to the questions asked? Are both available in writing?
- The CPA firm that provided the 2005 Audit Reports (MOA Audit Report, 17), stated,
"The Association and the Pines Club Corporation amended their lease agreement to allow Pines Club Corporation to lease the Association's real estate properties for $1. It was determined. that Pines Club Corporation was not yet in the financial position to support lease payments large enough to cover the Association's expenses for the real estate properties. Currently it is estimated that rents in excess of$195,000 per year would be necessary to break-even on real property taxes and depreciation incurred by the Association for the Clubhouse and the Pines Golf Course assets."The decision to not charge PCC with the property taxes (most of the $55,800 shown in the 2009 budget) and depreciation (most of the $140,000 shown in the 2009 budget) on the facilities leased from MOA to PCC was made by the board in 2002. This change is described in a 2002 Apr 01 letter from the board (Ron Hees, president) to MOA members. Some of us call this the April Fool's letter because it has distorted the communication of the real costs for operation and maintenance of the golf course and the bar & restaurant in MOA's communications to members. The interest cost on the loan for golf renovation and other capital improvements (most of the $125,000 shown in the 2009 budget) is similarly booked to MOA, not to the facilities improved. In addition, some of the personnel costs booked to MOA are to provide supervision of and accounting for the PCC operation (part of the $250,000 shown in the 2009 budget).
- In addition, some personnel and administrative costs are booked to MOA, but the services provided are to both MOA and PCC.
- Consequently, more than $200,000 operating loss should be added to the operating loss for PCC reported to MOA members in Business Reviews and financial reports.
- In presenting the financial information, the MOA board should either correct the accounting or include a note that the operating loss for PCC is unfavorable by at least $200,000.
__The raw total of the four items above in the 2009 budget is $570,800. Some of those facility costs should be booked to MOA: swimming pools, community center grounds, Opal Lake Park, MOA's use of the Great Room and the Activities Room. etc. Perhaps half of the personnel costs should be booked to MOA. Today's number with the added interest costs and added depreciation is certainly in excess of the $195,000 estimated by the CPA in 2005.
__Not only is this incomplete accounting misleading to members, it is misleading and misdirecting to the board and staff. The 2008Q4 Business Review reports on page 4 that "It would only take an additional $2.31 spent per lot per month in the restaurant and another $9.46 per lot per month in the golf course to break even." If the above analysis by the 2005 CPA is included, the effect would only reduce the operating loss to $200,000. To not mislead members, the financial statements for PCC should include a note defining the costs not included in the PCC financial statements.
__"The “armchair quarterbacks” will undoubtedly try to prove our methodology wrong rather than apply their energy to something positive."
Comment — Everyone is misled by incorrect and/or incomplete information. The purpose of the information is to provide a factual basis for decisions. The above "break even" discussion illustrates how both the general manager and the board are misled by the incomplete information.Page 3, General Manager's Letter, Second Paragraph #NotSpecific
The board has adopted a policy of conforming the accounting to GAAP and specifically the AICPA Audit and Accounting Guide for Common Interest Realty Associations. The CPA audit's report states conformance to the standards. Why doesn't the board follow through and implement the same accounting standards for MOA's accounting? I submit that the "armchair quarterbacks" are available to help.
- Why would the board try to discredit members who question the accounting and factual information? Is the board not interested in more correct and more complete information?
- Why would the board want to get into name calling and demonizing members?
- This language suggests that the board is uncertain of the correctness of the financial information as a reasonable description of the financial status.
- Professionals hunger for feedback because they want to be informed of opportunities for improvement.
- One of the principles of good management is that to use a number, you have to know what is wrong with the number.
- If the financial statements published by MOA just conformed to the financial statements and notes from the CPA, these concerns by the "armchair quarterbacks" would not exist.
- While I have repeatedly expressed concern over this accounting issue, I have many times provided recommendations for improvement in the financial statements and notes.
__"We have made some tough decisions going into 2009 to become leaner and more efficient. We made operational and staffing cuts that we anticipate will save the Association in excess of $100,000 just this year. Some of these changes are: the elimination of two maintenance positions, closing and winterizing the golf facilities during the off-season, implementation of new ways to save energy, placing more administrative responsibility on the department managers, and much more. These are changes that I would have recommended even in a booming economy because they make business sense and needed to be addressed. If you are like me, you are reading this and thinking “Yeah right! I’ll believe it when I see it!” I would be happy to sit with you and show you the specifics at your convenience. We are doing things differently than they were done in the past. That way didn’t work."
Comment — What is missing is a published operating plan for MOA and PCC in 2009 which should form the basis for the 2009 budget. According to the accounting by the 2006 and 2007 CPA financial statements, the published operating profit (Total Net Income) should be reduced by $48,000 — the amount to be made restricted assets in the Preservation (Reserve and Maintenance Fund) — from $23,922 to negative $24,078. The operating plan should include a description of the operational changes being made. Consider:Page 1, Letter from Board of Directors, Second Paragraph #BdAction
The paragraph by the general manager describes broad generalities that are easy to state. But the overall result is an increased operating loss for $200,000 to $300,000 which isn't explained. Why is an explanation of a $100,000 increase in operating loss not explained? Is it not important?
- The 2009 budget does not include a comparison to 2008 actual. Further, the formats are different. The budget is a consolidated budget, but the 2008 results are separately reported to members for MOA and PCC. No consolidated statements are included.
- With an operating plan and specific definition of the changes planned, the validity and credibility of the estimates may be revealed.
__"As a Board, for the past 2 1⁄2 years we have looked at various operational alternatives concerning how we should manage and finance our amenities." [followed by a list 8 changes described in general terms."
Comment — Members certainly should expect that the board will implement changes to improve operations and keep the organization financially viable. But these are described in general terms with no specifics regarding costs and other factors.
Talk is easy; actions are difficult. Or as stated in a cliché in the planning community "Planning is easy; implementation is a bitch." That is why numerical results are always needed to cut out the Pelosi.
- What are the cost and revenue changes association with each of the 8 changes listed? Were records kept to understand the effects of the changes?
- Yet the overall results from 2007 to 2008 is an increase in operating loss from $200,000 to $300,000, but no analysis or explanation is provided.
- The general manager and board likely mislead themselves by not using financial information that provides comparisons to prior year and to budget?
- Or, do the comparisons exist and the board chooses to withhold the comparisons from the members?
- History:_
- 2009 Mar 22 — review and edit
- 2009 Mar 21 — Initial Post
- Links:_ Comments Concerning MOA's 2008Q4 Business Review at [http://swagmanmwpoa.blogspot.com/2009/03/comments-concerning-moas-2008q4.html]
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