Click History for a list of changes and updates.
__The continuation is my email to the board on this subject. There are a number of discrepancies between MOA's account (that provided in Business Reviews and usually available at the MOA website) and the CPA's accounting in the audit reports. Except for year-end adjustments, these should be the same.
__The email describes and discusses five major discrepancies between MOA's accounting and the CPA's. The accounting should be based on Generally Accepted Accounting Principles. MOA's accounting does not appear to conform to GAAP.
Don Nordeen
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- Key Words:_ Accounting, Business Reviews, Financial Information (2008 General), MOA Operations (General/Total), Preservation Fund
Accounting Discrepancies — MOA vs. CPA (continued)
_____Date:__2009 April 27 17:50:50 EST
______ To:__MOA Board of Directors
_______cc:__Todd Chwatun
__Subject:__Accounting Discrepancies — MOA vs. CPA
Dear Colleagues,
Introduction
__The purpose of this email is to describe discrepancies between MOA's accounting and the accounting in the last several audit reports completed by a CPA. These discrepancies add confusion to the critical accounting information and undermine the trust between the Association and the members.
__The following are the discrepancies in MOA's accounting using the CPA's accounting as the base:
- Overstated dues revenue in the accounting for unrestricted funds resulting in an understatement of operating loss (unfavorable loss) by $48,000
- No accounting for the restricted Reserve [Preservation] Fund for capital repair, replacement, and renovation. The result is incomplete accounting and failure to note the next bulleted item.
- Failure to maintain restricted cash and cash equivalents for the Preservation Fund equal to the amount set aside in the statement of revenues and expenses for the Fund. In effect, about $80,000 of restricted cash has been commingled with unrestricted funds. Consequently, the cash position stated by MOA is more favorable by $80,000 than it should be. But it also means that the cash was used for operations and is no longer available for the restricted Preservation Fund.
- Failure to provide an accounting for the Preservation Fund in relation to the cash required to be set aside for future repairs, replacements and renovations. This shortfall is large — on the order of $1,000,000 at this time.
- Failure to provide full-cost accounting for the Major Facilities and Activities. This incomplete accounting misdirects everyone involved.
__These are not matters that some members may want to see the accounting done differently. Rather, these questions concern whether or not MOA's accounting conforms with Generally Accepted Accounting Principles — whether or not MOA's accounting is correct.
__In my view, either MOA should adopt the CPA's accounting and correct the above or ask the CPA to use MOA's accounting methods in the CPA's audit reports for 2008.
Overstated Dues Revenue
__The dues revenue used by the CPA in prior-year audit reports removes the amount set aside for the Preservation Fund from the revenue in the Statement of Activities (revenues and expenses). MOA's year-end accounting does not reflect this adjustment to dues income for the unrestricted Statement of Activities. Consequently, the consolidated operating loss for 2008 is approximately $300,000, not the $250,000 reported to members in the 2008Q4 Business Review.
__This discrepancy was communicated in my 2008 Dec 13 email, Accounting for the Reserve [Preservation] Fund, to Mr. Yodzevicis with a copy to Mr. Chwatun. The post (link) includes copies of the pages from the 2007 CPA's audit report with arrows showing how the CPA entered the dues income. No reply has been received, nor has any action been noted in MOA's communications to members.
No accounting for the restricted Reserve [Preservation] Fund
__The lack of accounting for the restricted Preservation Fund is interrelated to the overstated of dues income. The specific page is the third of the copied pages in Accounting for the Reserve [Preservation] Fund. No reply has been received, nor has any action been noted in MOA's communications to members.
Failure to maintain restricted cash and cash equivalents for the Preservation Fund
__This is covered in the first and second of the copied pages in Accounting for the Reserve [Preservation] Fund. The second copied page is the CPA's list of certificates of deposit which short of the required set aside amount by $80,000 (or larger). Since there is no line item for restricted cash, the conclusion must be that the $80,000 was commingled with cash for operations.
Failure to provide an accounting for the Preservation Fund
__The latest reserve study conducted in 2005 is copied in the CPA's audit reports for 2005 and 2007, The 2005 reserve study projects an annual amount needed for the items included of $161,000 compared to the $48,000 actually being set aside. Moreover, the pool repair was taken from the Preservation Fund and was a non-planned expenditure. So it is not surprising that the projected current shortfall is over $1,000,000.
__At the spring 2007 Town Hall Meeting, Mr. Latuszek reported that many reserve, replacement and renovation (RRR) items are not included in the reserve study and that some or many of the projected RRR amounts are likely on the low side.
__The status of the Preservation Fund should be reported to the members as part of the quarterly Business Reviews.
__This is a long-standing request. No reply has been received, nor has any action been noted in MOA's communications to members.
Allocation of Costs to the Major Facilities and Activities
__The alternate description is failure to provide full-cost accounting for the Major Facilities and Activities. This allocation has never been provided, except perhaps piecemeal to selected members. Both of these limitations are prone to sustain any errors. Some members have repeatedly asked for the allocation. To be believable, it must be done correctly.
__The revenue and expense reports for the Pines Golf Course and Inn the Woods restaurant are misleading because not all expenses are included. The major expense not included is the property expense which is charge rent to PCC for $1 per year.
__The CPA's 2005 Audit Reports (MOA Audit Report, p 17), states,
"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."
Based on the CPA's estimate in 2005, $195,000 of expenses are not included in the operations for the Pines Golf Course and Inn the Woods restaurant. In addition, other expenses for PCC are also included in MOA's expenses: personnel, administrative services, and some professional fees.
__The effect of this accounting and presentation to MOA members without notes and explanations incorrectly describes the financial condition of PCC. Two examples of the misdirection caused by this incomplete accounting are:
- Mr. Chwatun stated in the 2008Q4 Business Review, "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." The amount would be much greater if the $195,000+ expenses were included and allocated in the accounting for Inn the Woods.
- In a recent election of the Board of Directors, one of the candidates stated that the cash flow for the golf course was nearly zero. The amount would be large negative number if the $195,000+ expenses were included and allocated to golf operations.
Financial Results for Selected Parameters (2008 YTD)
__Including the items above in the accounting provides a different perspective on MOA's financial condition. Appended are financial results for selected parameters.
__The appended table is also presented in 2008 MOA&PCC Financial Results, which also contains the notes referenced in the appended table.
CPA's Audit Reports for 2008
__I fully expect that the CPA's reports will different from MOA's 2008Q4 accounting and will include the results discussed above. This is just another reason why summaries of the CPA's financial statements and major notes should be included with the Notice of the Annual Meeting. I plan to ask about these accounting issues at the Annual Meeting.
__I am available to assist in discussing and developing a mutual understanding of the issues described.
Don Nordeen
(989) 939-8240
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Financial Results for Selected Parameters (2008 YTD)
__________________________________________________Using CPA's_______
Parameter______________________________2008Q4 BR______Methods____Notes_
MOA&PCC Operating Profit (Loss)_______($250,000)___($300,000)______1
PCC Operating Profit (Loss)___________($244,757)___($444,757)______2
Annual Cash Flow for Generic Accounts and Items____________________3
___MOA&PCC Operating Profit (Loss)____($250,000)___($300,000)____Line 1
___Adjustment for Depreciation__________$252,000_____$252,000______4
___Line of Credit, Net_________________($50,000)____($50,000)______5
___Loan Payments_______________________($70,000)____($70,000)______5
___Capital Improvements________________($43,000)___($100,000)______6
___Replacement Fund____________________($48,000)___($113,000)______7
______Total variance__________________($209,000)___($429,000)__Approx.
______________________________________________________________$220/lot
Working Capital_____________________Not Reported___($693,917)______8
Replacement Fund Assets_________________$228,304_____$228,304______9
Replacement Fund Net Assets ________Not Reported_____$330,272_____10
Required Replacement Net Assets_____Not Reported___$1,289,350_____11
Current Cash Shortfall
___Working Capital_______________________________($1,000,000)_____12
___Replacement Fund______________________________($1,060,000)_____13
______Total Cash Shortfall_______________________($2,060,000)_____14
Long-Term and Other Debt_________________________($1,642,838)_____15
_______________________________________________________________Approx.
_____________________________________________________________$1060/lot
Booked and unbooked debt_________________________($3,702,838)_ __16
_______________________________________________________________Approx.
_____________________________________________________________$1900/lot
Notes — See 2008 MOA&PCC Financial Results for an explanation of the Notes.
- History:_
- 2009 Apr 27 — Initial Post
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