An unfolding of events all began with a recent unusual Friday morning e-blast announcing “POA Board of Directors to Vote on Financing New Fire Engine”. (1) What a misleading choice of words, as the Association already owned the fire engine delivered in late June after paying cash in advance to have the fire engine built eighteen plus months before. Instead, the fire truck just happened to be yet another item of collateral pledged on a loan for the purpose of generating additional cash which will be deposited in the “Capital Replacement Fund”.
And unfortunately, rather than saving or setting the proceeds aside (restricted Capital Reserve Fund) for the interest free purchase of some future fire engine, the funds will be used for other future, presently undefined capital projects. In fact, one director even acknowledged that it was “a vote in anticipation of the Master Plan” which the property owners have yet to be privy to. (2)
But first, to be fair, it should be acknowledged that the director of finance has graciously assured this writer that a component of the $20 million Wells Fargo credit facility was actually utilized for this new loan. Because of that, leadership deserves a few kudos for at least ditching their previous, outrageous plans to secure a loan apart and in addition to the previously committed credit facility. (3) (4)
And the oddity of it all . . .
Meanwhile, wondering if the urgent announcement that the Monday morning meeting would be “livestreamed” was an attempt by leadership to satisfy Board Policy No. 104 requiring that “All meetings where the Board is scheduled to vote on Association business are open to the property owners and residents . . .”, this writer sent an Ask the POA request regarding other votes taken recently by the board in closed session absent livestreaming. (5) Suffice it to say, the responses were both odd and astounding.
As for that Monday morning meeting, the minutes now show that the meeting actually began at 9:00 with discussion of the financing first on the agenda, yet the cameras were not turned on until 1 ½ hours later to record the vote. Hardly a “livestreamed” meeting.
Construction in Progress . . .
Further, due to the eighteen month delay in taking delivery of the fire engine, this writer became interested in determining whether the recently audited financial statements contained any reference to the prepaid purchase of the vehicle. Learning that over $3.4 million had been attributed to “Construction in Progress” at year end 2021 (a category not broken out on any internal financial statements provided to the property owners), this writer requested an itemization of the projects included in the 2021 and 2020 totals. (6)
Note: Construction in Progress (CIP) is a sub category of Fixed Assets representing the expenditures for capital projects that have not been completed. At completion, the project is moved out of CIP, capitalized as a fixed asset and depreciated (expensed) over time.
The information requested should ordinarily be readily available and maintained in sub-ledgers or internal spreadsheets thus requiring little effort for the accounting staff to provide.
And into La La land . . .
Instead, a partial response was received from the POA President. A follow up request was submitted for a balance and similar information as of June 30th . It is frankly remarkable that such an innocuous request could generate such a bizarre series of responses from our leadership. First, this writer was asked to “please explain to what end you need this information in the middle of the year when it’s not broken out in interim financial statements?”
After explaining, the President continued to balk by noting “We’ve never broken out CIP in interim statements, only official audited statements” and “It’s not a report that’s already put together . . . “ while also directing this writer to the second quarter capital plan scheduled to be posted to the POA website the following week.
Now this is alarming. Is leadership saying that the Association only breaks out the CIP at year end for the benefit of the independent accountants? Really? And is leadership really implying that a property owner is not entitled to an accounting of millions of dollars of capital expenditures?
After much back and forth, a response was finally received referencing a $1.9 million balance in the CIP as of June 30th with an unverifiable itemization containing often inaccurate, conflicting and missing information.
And unfortunately, the interaction appears to have culminated in the subsequent removal of an entire column of financial detail from that second quarter “Capital Plan” report posted to the POA website the following week.
How did this happen? . . .
One must only look to the first quarter Capital Plan Report and compare it to the second quarter report to see that the entire column titled “2022 to-date expenditures” has been hidden or REMOVED. (7) Because of that it is absolutely impossible for a property owner to determine where and how over $1 million was spent on capital projects in the second quarter.
For example, without this information and without an itemization of the CIP, property owners do not know how many dollars have been spent on Lake Petit or allowed to accumulate in the CIP over recent years without ever being capitalized or expensed. Or how many dollars have been spent in 2022 on yet to be defined projects such as a Clubhouse redesign that property owners may not even want. And even how many dollars have been spent paying a “consultant” (the same consultant used to design the presently deferred Chimneys renovation) to help the board decide on what yet another Master Plan should look like for OUR community.
Leadership’s inability to provide any verifiable reconciliation of the projects included in “Construction in Progress” coupled with the removal of the financial detail from the quarterly capital reporting is beyond unacceptable.
Seriously, how did this happen?
And yet another UCC filing . . .
And finally, given leadership’s previous reluctance or inability to provide accurate or complete answers to this writer’s questions, it now seems appropriate to simply mention that during a previous search of public records to determine the collateral held on the credit facility, (4) (which would not have been necessary had leadership simply provided those loan documents requested when asked) yet another UCC filing was discovered that was recorded in August 2021 in favor of Jerry Pate Turf & Irrigation, Inc. Is this a mistake? Could this be related to the irrigation system installed on Creek 9? Who knows? Is this debt still outstanding? Surely not. And yet, it is impossible to tell.
. . . . .
As always, please feel free to post comments or contact me at thepcrosses@gmail.com for questions or further discussion. Likewise, should you wish to see additional articles posted in the future, please subscribe for an email notification or check back frequently. Meanwhile, take care and stay safe.
Patricia Cross (10438 Big Canoe)
References:
1) July 22 2022 e-blast, POA Board of Directors to Vote on Financing New Fire Engine”
2) Big Canoe Special Board Meeting, July 25th at 10:30 a.m. On YouTube
3) POA Finance Committee Minutes, dated May 19th, 2022
(POAwebsite>login>Committees>Finance>Minutes>May2022)
4) https://bcmatters.org/lets-revisit-that-20-million-credit-facility/
5) Ask the POA request #7542, dated August 3rd, 2022 and responses
6) Ask POA Request #7476, dated July 26th, 2022 and responses
7) First and Second Quarter Capital Plans (POAwebsite>login>POA>Financials>Budgets>2022>1stQuarter Capital and 2ndQuarter Capital)
8) Jerry Pate Turf & Irrigation, Inc. , UCC Filing recorded August 19th, 2021, Pickens County, Georgia
Clearly the POA have mortgaged every thing possible – even our POA dues, the income from all activities, the ground beneath our feet. Is the POA preparing for the possibility of a long depression? Or is this simply preparation for any surprises related to the dam? The credit line created could actually be a protection from nasty long lasting surprises if frugally used. I sincerely hope so.
Granted, I never trust people with power who always want more. Want their way. Don’t want to be restricted by rules followed in the past. I dislike debt of any kind. Interest paid to have something today instead of tomorrow. Opulence puts a bad taste in my mouth. So getting my head around $20,000,000 is very difficult.
Ms. Cross, Thank you and applause for your clarion calls. For the POA to obligate owners for $20 million debt and then to deny any information on that instrument raises natural concern. The accounting practices you report raise further concern.
I question – at what point does an Ostrich sense impending danger?
Thank you for the update. I am reading your recent “The domino effect” awesome as always. What happened their requirement of “Fiduciary Responsibilities ”. I guess the question is do they owe owners Fiduciary Responsibilities? They understand exactly what they doing and do great work to keep the owners in the dark!!
Your statement “The information requested should ordinarily be readily available and maintained in sub-ledgers or internal spreadsheets thus requiring little effort for accounting staff to provide. Again where are their Fiduciary Responsibilities. You cannot manage or run the POA with out having a day to day financial accounting of your business. It’s very hard for me to believe Property owners just accept the POA attitude of La La Land!!
Thank you for ALL you DO!!
Let’s talk fire trucks! Purchasing a line truck is not much different than an electric utility buying a large line truck. Today’s economics calls for the line truck to be paid for up front and getting the delivery 2.5-3 years from now….supply chain issues is a root cause and lack of materials. The truck is paid for as you order in today’s prices and bumped up at pickup in that day’s difference.
Hence, a $20M ‘line of credit’ is the usual way it is handled. In many cases no money is ever drawn or needed by the borrower. An arrangement is made with the bank until the “time of need arrives”. In this case a Reserve account is usually used first and followed by the line of credit. The only time these steps are reversed is if the interest rates are higher in Reserves than in the loan rate.
A couple simple questions to the POA….do you have a Reserve account and how much is in the account? Does the Board intend on using reserves before going to the bank? Is the project necessary for the general use and operations of the homeowners. A vote or survey is necessary to truly know.