Circling the wagons: Part One . . .

Eighty five days into a new year, and the 2023 year end “preliminary” financial statements (1) containing significant differences from the GM’s January slide presentation (2) were finally posted to the POA website. Hoping for some discussion or explanation from leadership at the March board meeting, there was none.

Meanwhile, touting themselves as the only true source of the real facts, (3a) our elected board has chosen to spend an inordinate amount of time and energy discounting all avenues and platforms of “social media” rather than providing any new, current, fresh and/or significant information of their own to the Big Canoe community.

Instead, they have in effect circled the wagons, with the developer now also a vocal and supportive spoke in the wheel, (3b) to proclaim their status as dedicated volunteers while blindly supporting any and every calamity or misstep that might be made by management, unintentional or otherwise.

All that said, let’s actually take a look at the unceremonious posting of the 2023 year end financial package.

Some historical reference . . .

Over the recent years, publication of the year end financial results has become increasingly delayed. Historically posted by previous management concurrent with the January board meetings, the present leadership explains that the decision was made to delay the posting of the financial package in order to ensure that any invoices that may have been received late were included in the results. (4)

The 2021 and 2022 financial packages were posted approximately mid March with the 2023 financial package withheld from the community until on or about March 25^th.

Note: Keep in mind that the preliminary statements are subject to audit and change by the Association’s accountants, Mauldin & Jenkins, as also noted by the POA President.

Thus only now do we have any information available to actually review the 2023 year end financial results. Bizarre and unacceptable. Perhaps leadership was hopeful we would forget to look, forget to ask and just simply move on to more current financial events.

Soaring administrative expenses in December 2023 . . .

First, as a reminder, the financial performance for the actual month of December 2023 was omitted from the GM’s January slide presentation. (2) (5) https://bcmatters.org/now-for-the-rest-of-the-story/  Nor was the community privy to a balance sheet since November 2023.

As a component of the operating departments, the administrative department has no revenue. It’s monthly expenditures which are confined to payroll expenses of administrative personnel and sundry operating expenses typically average $190-195k. However, December 2023 reflected $403k in expenses (exceeding budget $169k). (1a)

Note: This variance was noted in operating expenses rather than administrative payroll.

Judging from the various changes to the GM’s January slide presentation , (2) it would appear that a portion of the excessive administrative expenses were known by leadership prior to the January board meeting with the remainder discovered or disclosed afterwards. And given the customary expenses associated with this department, it seems unlikely that some rogue outstanding invoice was discovered.

Rather than delay even further by bombarding leadership with the many additional Ask the POA questions regarding the associated discrepancies that should have been openly and voluntarily addressed by leadership, perhaps the board will instead address with specificity the many bulleted questions that follow in this article.

• • Could it be that some Association asset was written down or written off and charged against administrative expense?

  • Could this be associated with expenses from “paused” Renew Big Canoe projects such as the Chimneys or the Post Office?

  • If not, exactly when and what extraordinary transaction(s) took place to create the $403k expense total?

Note: Perhaps this is an opportunity for the Board to provide the community with the real facts.

An immediate red flag . . . food and beverage cost of sales . . .

And with the December information now available, it is quickly learned that food and beverage losses for the month previously reported by this writer (5) can be partially attributed to an outrageous monthly cost of sales totaling $161k (78% of revenue). (1b) Obviously, this expense contributed prominently to the year end loss now reported at $655k.

With no explanation provided in the GM’s January slide presentations, this writer again hoped for some voluntary explanation from leadership for the anomaly. And again there was none.

Until . . .

However, during the March 28^th Q&A, a property owner asked for confirmation of information they had received regarding “inventory losses at the clubhouse”. (3c)

The GM unabashedly responded by confirming that an additional $100k had been charged to cost of sales after performing a physical verification of inventory at year end.

He stated that due to all the employee turnover, the staff was not in a position to comply with “best practices” by doing a monthly inventory count. (3d)

Note: Information regarding the restaurant industry recommends monthly and preferably weekly verifications of inventory. (6)

An invitation to steal . . .

In an alert to the world on youtube, the General Manager announced that he and the Director of Finance had made the decision to “estimate” food and beverage inventory over the previous five to six months rather than do a physical verification. (3d)

Estimates by the General Manager and Director of Finance?

And rather than compare the outgoing inventory to customer receipts or perform any additional investigation or audit to determine the actual cause of the discrepancy, the GM surmised the $100k variance to be reasonable based on prior year’s cost of sales percentages. Really? Not likely. One must certainly ask,

• • Has the Association’s CPA firm, Mauldin & Jenkins, been apprised of this deviation from procedure and discrepancy in inventory?

  • And when was the Board made aware of this deviation in “best practices”?

Note:  Management and the board’s failure to more fully research the possible disappearance of $100k in inventory is beyond comprehension.

Concluding the discussion, the General Manager proclaimed the year end financials that had just been posted to the POA website to be 100% accurate. (3e)

One might wonder if the GM would also certify that the third quarter financial statements provided to Wells Fargo Bank (as required by loan covenant) using estimated inventory balances were also 100% accurate.

Note: All of the above is a precise example of why a forensic audit of the Clubhouse function should and must be performed.

And without any reference or explanation . . .

The posted year end financials now reflect a net income from operations totaling only $915k (1c) as compared to the GM’s January slide presentation of $984k. (2)

More importantly, this $69k reduction to income (7%) that was determined sometime between January 25^th and March 25^th, 2024 is hardly immaterial and certainly warrants explanation. It should have been noted by leadership at the March 28^th board meeting, but, unfortunately, it was not. That said, perhaps the board can also describe with specificity,

• • What transaction(s) was discovered in the January to March time frame that drove down net income $69,262?

And given the GM’s proclivity to reporting the financial results as variance to budget rather than utilizing the actual numbers, it might also be noteworthy for some to mention that after this adjustment, the year end net income from operations was $41k under budget rather than $28k better than budget as shown on his January slide. (1c)

A really big red flag . . .

And remarkably, management somehow also failed to accurately report the amount paid in 2023 on the Association’s debt. Unbelievable. Accurate reporting of debt service should have nothing to do with delayed invoices.

Specifically, the January board meeting presentation of the 2023 Statement of Cash Flows slide (7) reflected total principal payments at $1.359 million. And yet, the published year end financial package reported principal payments at $1.398 million . . . a discrepancy of $39k! (1d) How does this happen? It is unfathomable that management was unable to accurately determine and report payments against the Association’s debt at the January board meeting.

• • How was it determined after January 25^th that the Association had actually reduced debt an additional $39k?

• • What was the offsetting accounting entry for this change?

The song and dance . . .

Given all the discrepancies and unknowns cited above, one might wonder if any of the original year end financial results were accurate or simply estimated? Surely we, as a community, deserve better.

It appears that the board’s January 2024 presentation of year end financial results was nothing more than another orchestrated performance by the General Manager.

Putting things in perspective . . .

In order to put things in perspective, consider another community, repeatedly cited by the Board as comparable to Big Canoe whose 2023 annual report and “audited” financial statements have already been presented to that community. There are numerous interesting comparisons to be discussed that will be outlined in part two of this article.

And then there is the re-elected Finance Committee Chair’s tutorial on GAAP and accountability . . . so much to talk about and so little time.

To be continued . . .

. . . . .

If you believe the information contained in this post is important, please help distribute the message and pass it on. And should you be interested in seeing part two of this article, please subscribe for an email notification or check back frequently. Meanwhile, take care, stay safe and thank you for your readership.

Patricia Cross

10438 Big Canoe

References:

1)   December 2023 Financial Package, a) Summary of Income from Operations, pg. 8; b) Summary of Income from Operations, pg. 9; c) Summary of Operations, pg. 1; Statement of Cash Flows, pg. 3 (POAwebsite>login>POA>financials>2023>December)

2)   2023 Preliminary Financial Summary slide presented at the January 25^th, 2024 board meeting, GM’s January slide presentation

3)   Big Canoe POA Board meeting, March 28^th, 2024, video on Youtube at a) 2:50; b) 8:45; c) 1:26:50 d) 1:29:15; e) 1:31:00   https://www.youtube.com/watch?v=9-2mBzllukQ

4)   Big Canoe POA Board meeting, January 25^th, 2024, video on Youtube at 19:30 https://www.youtube.com/watch?v=O8EeqiaNK1Q

5)   “Now for the rest of the story”, bcmatters.org, February 1^st, 2024. https://bcmatters.org/now-for-the-rest-of-the-story/

Six) https://smallbusiness.chron.com/should-small-restaurant-inventory-22550.html

https://www.sculpturehospitality.com/blog/how-often-should-you-perform-restaurant-inventory-counts

7)   2023 Statement of Cash Flows presented at the January 25^th, 2024 board meeting, 2023 Statement of Cash Flows