THE BUDGET BOMB IS STILL TICKING

: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/swlakesc/public_html/includes/unicode.inc on line 345.

(This is the text of a "Dear Neighbor" letter sent 7-27-12)

The June financial statement has been posted on the community website at http://www.keepandshare.com/doc/4335990/2012-2nd-q-amj-financials-pdf-1-... If you know how to read a financial statement, study it carefully. If you do not, have a friend or neighbor help you understand it. This is the accounting of your Board’s management of your money! My comments and opinions follow, but first let’s back up a bit:

Last November, your Board prepared a budget based on faulty assumptions, the most serious error being an assumption that there would be $122,034 available at the beginning of 2012 to pay for current year disbursements in excess of collected assessments.

But the 2011 audited financial statements showed only $49,950 in operating cash at year end (and $43,525 in accounts payable).

And actually, the audit data is not quite accurate: a booked transfer of $11,909 to reserves was never made, although it was accrued in the audit. The accrual was reversed in March of 2012, after the audit was finalized. The effect on the audit is (a) an understatement of operating cash, (b) an overstatement of reserves, and (c) in effect, a movement of reserves to operating accounts. The Board’s attorneys have indicated that this is defensible - that there are no restrictions on our reserves, and that reserve funds can be used as the Board pleases. The Board’s CPA/auditor, on the other hand, has indicated that our reserves are restricted.

The June financials indicate that another transfer to reserves of $12,813 was not made, and this time was not even accrued.

The net result is that $24,722 (that we feel strongly should remain in reserves) has been left in the operating account. Despite this “sweetening” of operating funds, there is only $49,801 in the operating account at the end of June, and accounts payable have increased to $75,230. This is an illiquid position.

None of this should surprise you. Last November 21, in a “Dear Neighbor” letter titled “The 2012 Budget Bomb”, we forecast this position. In that letter, we said:

“The point is, the operating account ends up out of cash. That’s according to our Board of directors’ numbers. My numbers (the Board doesn’t do a monthly cash budget) indicate that will happen in August or September of 2012 unless there’s some kind of bail out.”

OK, I was wrong. The Board is already short of cash, sooner than I forecast. In that letter, we posited some alternatives, and the Board has already resorted to the first three:

Alternative 1: Just don’t pay all the bills. Yup, the unpaid bills are piling up, $75,240 as of June 30 (versus $43,525 at 2011 year-end). That’s 151% of cash on hand, for those of you who like simple financial ratios.

Alternative 2: Transfer cash from the reserve account to the operating account. As we have seen, the Board has already withheld $24,722 from reserves to augment the operating account.

Alternative 3: Cut the budget. That’s been done, too, though not officially (i.e. with a published revised budget). The Board promised, in its 2012 budget, to spend $301,786 on operations - community maintenance and services - through June 30. So far, it has spent only $273,534 of which 8.5% was for legal fees.

And here are a few more numbers to think about: the $757,334 in budgeted Disbursements for 2012 works out to $739 per home, or $185/quarter. How did the Board come up with a $145/Quarter assessment? By adding into this year’s revenue $122,034 of revenue already counted in prior years. Right, double counting of revenue. If a regulated corporation did this. . .

In the Summer 2012 newsletter, President Perkins stated that “as of the second quarter of 2012 we continue to be on track with our budgeted forecasts.” And he thanks “John Kammerer, our CPA, who delivered a presentation of our financial condition (it’s excellent)”.

Any questions?

The budget bomb is still ticking.

The next meeting of the Board will be Wednesday evening, 7 p.m. August 1, at the golf course meeting room. Attendance at the last meeting was dismal. Would a special assessment get your attention?