Apparently persistence pays off as this writer has finally received answers to those questions regarding the $265k discrepancy in the Master Plan Fund that have been submitted multiple different ways via management, the board and the Audit & Risk Management Committee since the beginning of 2021. Truthfully, it has been exhausting and probably just as exhausting to those of you who read this blog. And even more truthfully, the news is not good.
The cited discrepancy . . .
What began as the POA Treasurer’s reference to “capital true ups” (1) eventually morphed into “reconciling entries” only to conclude with the admission that the missing transactions were in fact transfers to other POA accounts as inquired by this writer since day one.
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Specifically, $31k was electronically transferred out of the Master Plan Fund into the operating account in August 2020.
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An additional $234k was electronically transferred out of the Master Plan Fund into the operating account on January 21st, 2021. (The amount of this transfer was represented to be a reimbursement to the operating account primarily for Clubhouse kitchen expenditures that took place in January and February 2020 along with some expenses pertaining to Creek nine.)
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It is important to emphasize that the $234k transfer did not take place until late January 2021, yet those dollars were included in and used to manipulate the 2020 year end balances in the operating account and the Master Plan Fund.
Future year cash transactions . . .
Presumably, in order to reconcile the accounts to the bank statement, the Treasurer states that the transfers are treated as “deposits in transit” while also pointing out that the auditors/accountants reviewed all bank account reconciliations “with no adjusting entries required”. Simply astounding.
Given what appears to be an unconventional method of allowing a cash transaction dated 21 days into a future year (2021) to be reflected in the current year end balance sheet totals (2020), one can only hope that after over ten years auditing the association’s annual financial statements, the accounting firm has maintained the ability to remain vigilant when necessary.
And surprisingly . . .
In the process it was further learned that all bills for master plan projects as well as capital replacement projects are paid out of a central operating account rather than the designated capital accounts as originally intended. As explained by the Treasurer, “Reconciling entries are made as part of routine month end closing procedures and treated as deposits in transit on bank reconciliations. When receipts” (such as depreciation expense; $25 monthly assessments; and/or the $2,500 Capital Contribution Fees)“are greater than expenditures the amount is electronically transferred into a capital account and if expenditures exceed receipts it is done in reverse.”
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Given this new information, it is now unknown what dollar amount was similarly transferred into the operating account from the Capital Replacement Fund in January 2021.
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More musical chairs . . .
And further, one must not forget that the April 2021 board approved transfer of $1.1 million from the operating account back to the Capital Replacement Fund was also used to augment the beginning year balance of the Capital Replacement Fund referenced in the reserve report. Seriously, who can even imagine what the actual year end balance was in any of these accounts and whether/if the operating account even had $1.1 million available to transfer at that time without drawing the balance down below the established minimum operating cash level of $2 million. If this sounds confusing, it is. And this is exactly what a shell game looks like.
And most unfortunately . . .
It is particularly perplexing that the current procedures are in direct opposition to that proposal presented by the former Finance Committee Chair to the Board on June 18th, 2020, (2)(3)(4) which stated that all capital expenditures, both routine and Master Plan, would be paid from the designated capital fund accounts rather than the operating account. The proposal was approved by the board, unanimously, 6-0 and was also referenced in subsequent meetings of the board. (5) (6) With no documentation found of any approval by the board to rescind the original proposal, the constant moving of cash between the various accounts without disclosure and board oversight is disconcerting.
One must now surely ask who authorized this deviation from the board approved procedure.
Likewise, the current procedure contradicts the recently approved Capital Contribution Fee covenant specifying that “All CCF funds collected will be deposited and held as part of the Board Designated Master Plan Fund to be used for . . . “ (7)
Other considerations . . .
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The current procedure provides no audit trail back to the original capital expenditure. One must trace back through multiple accounts to arrive at the point of invoice. In fact, as demonstrated in the $234k example, reimbursements were even made to the operating account for some capital expenditures reaching back almost one year before.
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In addition to the deviation from the approved proposal, Board Policy and Procedure 106.2 also requires the review and co-signature of either the POA President, Vice-President, Treasurer or Secretary in addition to management personnel to issue payment in excess of $20,000. It is reasonable to assume that this requirement should apply to the electronic transfer of funds. Is appropriate documentation available of that secondary review and approval of all transfers?
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And finally, one must also ask if all directors are familiar with the described transfers, processes and procedures as questions regarding the discrepancies in the capital funds that have been directed to various members of the board, Audit & Risk Management Committee and Whistleblower Hotline have been redirected to the board Treasurer for response.
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In conclusion, as a property owner that has spent a considerable amount of time analyzing the association’s financial information, it is becoming quite clear that analysis is quite a futile endeavor. It is impossible to know the balance in any given cash account on any given date. It is impossible to obtain prompt answers or explanations to questions clearly asked.
And now considering these examples along with the board’s continued explicit level of non-transparency, concerns should be heightened by all as the board now pushes forward to remove all property owner approval requirements for replacement and maintenance capital expenditures . . . regardless of amount. Property owner protests should abound.
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To see additional articles posted in the future, please check back frequently or subscribe for an email notification. Likewise, please feel free to contact me at thepcrosses@gmail.com for questions or further discussion. Meanwhile . . . take care and stay safe.
Patricia Cross (10438 Big Canoe)
References:
1) “An update to a balancing act”, February 12th, 2021, bcmatters.org https://bcmatters.org/an-update-to-a-balancing-act/
2) Finance Committee Meeting Minutes, June 16th, 2020 (POAwebsite>login>POA>Committees>Finance>Minutes>June2020)
3) Meeting of the Board of Directors Video, June 18th, 2020, FinanceCommitteeRecommendationsJune2020 (POAWebsite>login>POA>Meetings>SubscribeToOurYouTube . . . >)
4) Meeting of the Board of Directors Video, June 18th, 2020, at 29:53 through 31:40 and 52:45 through 56:20 (POAwebsite>login>POA>Meetings>SubscribeToOurYouTube . . . >)
5) POA Board of Directors Meeting, Minutes, July 23rd, 2020; Finance Committee Board Comments attached at pg. 15 (POAWebsite>login>POA>Meetings>Minutes>July2020)
6) POA Board of Directors Meeting, Minutes, August 20th, 2020; Finance Committee Board Comments attached at pg. 15 (POAWebsite>login>POA>Meetings>Minutes>August2020)
7) Fourth Amendment to the Covenants, dated January 4th, 2021, Article VI, Section 14(3) (POAWebsite>login>POA>GoverningDocuments>Covenants>CovenantsCCF2021)
Bless you. Residents should never give up the right of approval requirements for replacement and maintenance of capital expenditures – I may not understand this financial shell game but simple logic of past history by Finance, POA, GM has produced a tremendous curtain of mistrust and manipulation.
Thank you Patricia Cross for your persistence in finding answers to important questions concerning the use and accounting of POA finances. I have (3) points to make in response to your post:
1) Mauldin & Jenkins (M&J) have been Big Canoe POA auditors for over 10 years with a “low-bid,” not “best-bid.” Obviously selecting the same auditors every year provides a significant advantage to be “low-bid” with a positive report (few or no findings) at the end of each audit. M&J should not be included on a future list of auditors to bid based on a history of incomplete (as supported by the above BCMatters article) and lack of trust by the POA Community in the results of a M&J audit.
2) New Policies & Procedures 152 (P&P 152), which the current Board continues to push through for approval, has significant changes where a Property Owner vote is no longer required. P&P 152 should be opposed by the Big Canoe Community. This opposition is based on the Board’s history of mismanaging Operating and Capital funds with examples as reported in the above BCMatters article.
3) The Finance Committee should report to the POA Board, not the General Manager. This major responsibility should be handled by a BC Community elected Board, not an employee of the POA.