Community Association Articles and Resource Center
Volume I, Issue 8 2007
Can the MVF Financial Reports Be Trusted?
The Village News Has Arrived. The Good News About the MVF Finances is not so good!
Mr. Wright You're Wrong Again!
The MV News November 1st “ Money Matters column by Interim Treasurer Richard Wright reported that “Through 9 months the (financial) performance is essentially on track…with income $301,000 better and expenses $264,000 worse than budget. However, the expenses profile…will wind up slightly negative”.
The remaining narrative was a series of un-intelligible explanations of the alleged income and expenses categories line item amounts and anticipated 2007 year end budget variances. While attributed to Wright, the report was written in the familiar unreliable financial “Lois speak” style prose of Lois Campbell.
The Observer has restated the MVF financial statements through September 30, 2007. While both versions used the exact same income-expense general ledger accounts and cumulative line item amounts, the Observer’s rendition leads to a much different conclusion about the state of MVF’s financial health.
Financial Reporting Goals
The effectiveness of the of the financial management budget reporting systems depends on the board’s confidence and willingness to take prompt corrective action and make good financial decisions on unfavorable variations from the budget as indicated by the monthly financial reporting system.
All that said it seem reasonable that the primary goal of the budget and financial reporting system is to produce an accurate, complete, timely, understandable income-expenses budget comparison and balance sheet statements each month.
Inherent in all successful business, non profit and community association organizations is an intuitive sense of urgency about financial reporting, that mandates complete accurate financial reporting communicated thought out the organization normally within days of the end of the reporting period.
MVF Financial Reporting Traditions
In addition to a well planned and deliberate misleading, confusing and convoluted reporting system, the Foundation has developed to a fine art of time stretching from the end of the reporting period to when the MV Village News Money Matters feature fictionalizes the MVF financial highlights.
Because the staff driven bureaucracy has no sense of urgency about completing and distributing MVF’s inaccurate, improperly prepared and misleading financial reports until a few days before the monthly board meeting, any meaningful communications is already 2 to 3 month old.
The Realities of the MVF Financial Report System
The MVF financial statements and reports prepared by staff, presented to members of the Board of Directors in advance of meetings, summarized and reported by the MVF Treasurer at the MVF monthly board meetings and reported in the MV News deliveries an empty message. This results in a distorted and misleading accounting presentation of revenue, expenses, assets, liabilities and equity accounts.
By all indications reporting accurate, complete, timely, financial information is not intended purpose or desire of the senior staff, the Board of Directors and the Audit Committee.
Limited selected financial information is only communicated to create an illusion of favorable financial condition and excellent staff performance as well as to justify past and current board decisions and actions.
Mr. Wright, Prove Me Wrong!
Dick, you may take exception and disagree. If so please set the record straight when you give the Treasurer’s Report Thursday at the December 6th Board meeting.
Make sure when you report “It (year end budget to actual variance) is expected that the year will wind up slightly negative” discuss and refute The Observer’s projection of a deficit of ($1,002,479) in 2007 (See schedule P4)
When you explain that the Maintenance Activity Fund (MAF) only has a ($42,122) deficit for the first 10 months of the fiscal year please mention that MAF income includes contract income of $603,750 “Fixed Price & ala Carte for Administrative Facility” which isn’t really income but an internal bookkeeping entry .
When “Fixed Price & ala Carte for Administrative Facility” is excluded on the 2007 audit report the projected MAF deficit in 2007 will be $1,231,553. (See schedule C)
When you state “Expenses are worse than budget by ($171,016) explain the budgeted line item amounts for “Direct Expenses” accounts used in the budget to actual comparison report are not the amounts approved and published for the 2007 budget.
As you know $674,290 of the direct operating expenses for the first 10 month of the fiscal year was charged to “Fixed Price – Maintenance 5590” which off course is only another bookkeeping entry so no one is really sure if money was actually paid, services preformed or what direct expenses were actually charged. (See schedule i)
When you report that “Through October Reserve spending was $422,000 and Reserve contribution and reserve interest income totaled $276,000” it would be helpful mention the $422,000 “Reserve spending” was not really spent on capital improvement projects but transferred to “Fixed Assets” account under “Fund Balances” , (another bookkeeping transaction off course) .
Also remind everyone that $276,000 “Reserve contribution and interest” isn’t really contributed to the “Reserve Fund” because the Designated Reserves fund is no long is classified as a MVF fund type. Why don’t you, Lois, Keith or someone from the Audit Committee explain how the majority of funds budget for “Reserve Contribution”, “Reserve Interest” and “Reserve spending” (via the “Fixed Asset” account) is used to fund the on going annual deficits of the Community Management and Maintenance Activity Fund. (See schedule V)
Dick, if you don't feel comfortable commenting in your Treasurer’s report at the meeting please feel free to post your comments on The Observers blog or publish both versions in the Village News.
Differences the MVF Financial Statements and the Observer's Version
The Observer has restated the MVF financial statements through September 30, 2007. While both versions used the exact same income-expense general ledger accounts and cumulative line item amounts, the Observer’s rendition leads to a much different conclusion about the state of MVF’s financial health. Following are the differences between the MVF and the Observer's versions.
Overhead Expense Allocation The overhead expenses allocated the various accounting funds equals between 20 to 23 % of the total expenses. There is no evidence that the allocations of overhead cost are routinely made prior to the preparation of the MVF monthly financial statements. Consequently any Income - Expenses and Balance Sheet reporting by fund type is inaccurate and misleading.
Summary vs. Detail The MVF financial statements do not include detailed comparative reports of expenses and income categories, individual line items or fund types. The Observer has made the cost allocation and has reported by operational groups within each fund type.
The “Income/Expense Summary” and “Balance Sheet as reported in the Village News only displays total) and expenses. The Observer’s Income - Expenses comparison report presents a detailed comparative of expenses and income categories and fund types and comparison of the MVF balance sheet information with the December 31, 2006 audit balance sheet totals.
Unrecognized Income “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” are income accounts which are offsetting income and expenses bookkeeping transactions and are not recognized as revenue in the annual audits.
When these transactions are included as income in any budget draft or financial statements, the total income is inflated and misrepresents the Income/Expense reporting. The Observer has excluded “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” from its version explaining the significant variation in income between the 2005 and 2006 and the annual audits and the Observer’s 2007 and 2008 income projects against the approved published budgets for those years.
Financial Analysis Narrative There is no factual basis for the MVF narrative analysis and conclusions that are printed in the Village News and accompany the financial statements provided MVF board members in advance of monthly MVF board meetings.
The “Money Matters” columns only publish a total summary “Income/ Expense” and “Balance Sheet” and does not include a detail of sub categories, fund types and income-expenses categories for the periods being compared and analyzed. However, the oral and published narrative and explanations refers to and compares unrevealed financial data.
Consequently, you either accept the staff’s analysis and conclusions on blind faith or assume what is being presented is fiction, fantasy or fraud.
Comments on the September 30 2007 MVF Financial Reports
Income and Expense Budget Comparison
Through September 30, 2007 MVF the Observer shows a deficit of (-$547,344) and a projects a 20007 year end deficit of (-$1,053,942) based primarily on a year end lose of (-$1,141,333) in the Maintenance Activity Fund (MAF).
Balance Sheet
The MVF balance sheet does shows no dollar amounts in many account classifications. Balance sheet accounts included in “Accounts Receivable” and “Accounts Payable” summary categories are normally updated to the last day of the reporting period as part of a standard accounting “close out” preformed as a necessary and crucial step in preparing and producing the monthly financial reports.
A zero balance in these accounts indicates a lack of standard, consistent and routine predetermined accounting operating procedures for preparing accurate monthly financial reports. This raises serious questions to the accuracy of the published financial reports. For instance there are zero balances in the following balance sheet line item categories:
Accounts receivable categories –“Accounts Receivable due from operating funds”, “Maintenance charges”, “Advertising, “Accrued interest and “Other”.
Accounts Payable, accrued expenses and deferred revenue categories – “”Due to Reserve Funds”, “Accrued employee benefits”, “Due to homes corporations”, Advances for classes”, “Deferred Assessments” and “Deferred Inspection fees”
Comparing the MVF balance sheet variances through September 30, 2007 with the 2006 year end balance sheet summary categories:
Assets – “Cash & equilvant” (-$1,740), “Investments” ($239,434), “Accounts Receivable” (-674,037),
Liabilities – “Accounts payable and accrued expenses” (-$371,538), “Deferred revenue” (-$303,239).
Fund Balances – “Operations” $36,572”, “Reserves” (-$266,570).
