The Rancho Santa Fe Post

Keeping You In The Loop on your Money

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Over the last two months, the RSF Association board and staff have completely overhauled our accounting department, financial reporting and our banking relationships. The amount of time and energy that have gone into these projects in order to get them done without slowing down the budgeting process that is underway — or short-changing any other projects — is staggering.

Let’s look at accounting and financial reporting first. With recent staffing changes in the Association office over the past few months, the accounting department has been completely overhauled. With consulting and temporary accounting personnel provided by AKT (our audit firm), we have finally made the move to full accrual accounting. This conversion has enabled us to produce monthly balance sheets for the first time ever. 

Now, along with income statements each month, we will be able to see accurate statements of restricted reserves and funds balances for each entity within the Association: General Services, Golf Club, Tennis Club, Osuna and Community Enhancement. Believe me, it sounds simple, but making the change from an accounting system that was cobbled together over decades required a herculean effort. This project could not have been accomplished without a huge commitment from our new Manager and all of our staff.

As I reported two weeks ago, during the process of moving toward full accrual, the AKT accountants found discrepancies between the internal reports of funds balances and the audited balance sheet as of 6/30/2014. They were sure that this was a result of inaccuracies internally and did not represent any actual missing funds. To prove this, they went back to 2000, reviewed all of our internal reserve reports and audited year-end balance sheets, and worked forward. They discovered all of the inaccuracies and made the adjustments necessary to reconcile. The material causes identified in the analysis which required corrections that reduced fund balances by about $1,600,000 were as follows:

•General Services: incorrect recording of transactions from property and equipment and from debt funds and incorrect recording of annual excess of revenue over expenses. Approximately $500,000.

•Golf Club: duplication of receivables. Approximately $215,000.

•Community Enhancement Fund: incorrect reserve amounts added to fund balance. Approximately $505,000.

•Additional miscellaneous corrections totaled approximately $400,000.

Now, all the mistakes have been corrected and reconciled with the 6/30/2014 balance sheet. We have a new 2/28/2015 balance sheet that is correct. Having balance sheets every month will ensure that this type of situation will not occur in the future. As the partner for AKT said in his letter to us: “Our analysis did not disclose any defalcation (theft) of assets but the inability of former management to prepare accurate internal schedules based on accrual financial statements and the preparation of a monthly balance sheet.”

He went on to say: “In the future, we recommend management separate out the activity by department between restricted and unrestricted balances on the financial statements and the schedule become part of the audit.” This type of reporting and disclosure is now in effect.

Was this all “much ado about nothing?” In a word, NO. First, this is your money we are talking about. Members of the board and staff must be absolutely sure that your money is being accounted for accurately. Secondly, we are running businesses and, therefore, we require accurate depictions of our financial health in order to make the best decisions for the future. We are all breathing a collective sigh of relief that we have tidied up our accounting department and brought our reporting up to the standards that all of you deserve.

One final word on accounting: We welcome the newest member of our staff, Don May, CPA, to head our Accounting and Finance department. Don has many years of experience in the HOA industry and brings new energy and ideas to our accounting staff.

Now, on to banking. Last fall we realized that we had huge cash balances sitting in our checking account at Union Bank earning nothing while the Golf Club was paying 4.0 percent on its loan at Pacific Western bank. We determined that the best course was to go out to several banks in the community to see not only if we could get a better rate on the loan on behalf of the Golf Club, but also to see if we could reduce the cost and improve the quality of the regular banking services we were receiving.

After a long and detailed process, Union Bank took on the competition and greatly reduced its fees. It redesigned its reporting for us to accommodate the special needs of our HOA. Finally, it has agreed to lower the interest on the loan by 0.75 percent. By lowering the interest rate and shortening the amortization period, we project that the Golf Club could save as much as $250,000 in interest expense over the life of the loan.

The moral of this story is that we must make our vendors compete for our business. The RSF Association board and Manager Overton are committed to continuing to create a competitive environment for all of our vendors, in every department. We believe this will lead to additional savings and efficiencies for your Association in the years ahead.

Ann.boon@me.com