This blog addresses the recent audit failure and provides details of the "receivables." It is our opinion that what occurred was the failure of a cover-up scheme, that ultimately caused our community damage. The Blog recommends holding our Treasurer and past LLC President accountable.
SPA 2021, was a seven (7) year, $15 monthly assessment for the purchase, operation and improvement of the Golf Courses. It should have been listed in the Equity section of the Balance Sheet as ( $15 x 12 x 7 x 2820 ) = $3,553,200 but it wasn’t. One of many errors in SPA accounting. As of December 31, 2024, SPA 2021 is listed as $3,273,179.41.
On the Asset side of the Balance Sheet, on day one (1), SPA 2021 listed an accounts receivable with a value of $3,553,200. It’s value was subsequently reduced by 776 residents paying the “upfront” one-time discounted fee of $1,162 but the adjustment was done incorrectly.
The receivable is labeled, “Unbilled Special Assessment Receivable.” Its value represents the uncollected, unbilled, monthly payments from residents who chose to pay SPA 2021 over time.
I believe it is this account that has caused the auditors trouble, and for good reason.
SPA 2021 provided funds for Golf Course Operating losses and improvements. Those funds have been expended. The remaining monthly payments were earmarked to pay off the Fustos Loan.
Illegally, Maynard Thompson’s loan and later the PNC Irrigation Loan were transferred into the Special Assessment. Residents were never consulted. The obligations were just transferred.
Maynard Thompson’s loan with a principal value of $396,004 at closing, was paid down to a balance of $91,579 by October 2022 and then due to a cash shortage at the LLC was increased back to $385,662 by June 2023. All told, $690,087 was borrowed from Maynard Thompson and guaranteed by SPA 2021.
The PNC Irrigation loan was transferred to the SPA 2021 in January 2023 but not recognized as an obligation until June 2023 with a principal value of $307,771.
As of December 31, 2024 loan balances were $666,199, $215,575, and $186,645 for the Fustos, Thompson and PNC loans, summing to $1,068,419 without accrued interest.
Documents show that as of September 2023, since inception, an additional $494,603 was transferred to the LLC to cover Operational Losses. These payments originated presumably from SPA 2021 because it would be illegal for Operating Funds to be used for this purpose. The total obligation assigned to SPA 2021 therefore was $4,770,337. This represents overspending by (4,770,337 – 3,553,200) = $1,217,137.
SPA 2021 is unable to meet its obligations and has a shortfall of at least $1,217,137.
Enter two CPAs, let’s call them A & W. A is the Treasurer of the HOA and W has been a past Treasurer of the HOA. When W was appointed Treasurer of the HOA in the summer of 2022, he stopped updating the Balance Sheet Accounts associated with SPA 2021 including the Unbilled Special Assessment Receivable account. Residents continued to make payments as required, approximately $35,000 to $40,000 monthly, but it was not recorded as coming from the Unbilled Special Assessment Receivable. How it was accounted for is unknown.
Between October 2022 and September 2023, the receivables account was not updated. Residents continued paying their $15 monthly but during the twelve (12) month period, Unbilled Special Assessment Receivable remained at $1,932,918.
For the quarter ending September 2023, after twelve (12) months, Unbilled Special Assessment Receivable was updated by reducing its value by $376,530 to $1,556,388. Normally cash would be increased but cash had already been recognized, recognizing it again would result in double-counting. Instead, EQUITY was written off as if the $376,530 was bad debt.
By reducing Unbilled Special Assessment Receivable on the asset side and then reducing Equity on the Liabilities side, a knowledgeable person would interpret this as:
"We received the cash from Unbilled Special Assessment Receivable but it is unaccounted for so we are going to write it off by reducing Equity."
This could be one of the reasons why we have failed the audit.
What is interesting is why Unbilled Special Assessment Receivable was not updated (reduced) with the value of receipts. Every month cash was received, SPA 2021 was designed this way.
That is the question. W maintained a large spreadsheet containing 2820 rows, one for each lot owner and the amount paid for a given period. These rows are summed up for any period to produce an estimate of cash for that period. But apparently, the data once calculated, was never entered into the accounting system. A & W had the data but they never transferred it. Why?
The difficulty of maintaining such an elaborate spreadsheet was exacerbated by real estate transactions. The HOA requires residents to pay off their remaining obligation of SPA 2021 when selling their homes.
The monthly cash provided by SPA 2021 is then comprised of two components, one component is the sum of resident payment obligations at $15 a lot, the other component is the sum of payoffs from real estate transactions, closing during the measurement period.
The monthly cash provided by SPA 2021 is shrinking as each month real estate transactions reduce the number of residents obligated to pay $15 a month, additionally, the frequency of transactions is slowing and the amount of the pay-off is less as SPA 2021 matures.
Unbilled Special Assessment Receivable was updated reducing it by $376,530. This represents only (376,530/12) = $31,377.50 of collections a month. This is too low, greater amounts of cash were received. Unbilled Special Assessment Receivable is undoubtedly over-stated, and the cash received is understated.
This is probably another issue for auditors.
Why would A & W do this? Why did W stop updating the SPA Accounts? Why didn’t our treasurer, intervene? Our treasurer has a fiduciary duty to maintain the HOA's finances. Failing an audit has negative ramifications and destroys the reputation of our community.
The Unbilled Special Assessment Receivable represents funds available to pay-off debt. The SPA 2021 has been over-spent since 2022. I first notified W of the over-spending in the Summer of 2022. Shortly after, he stopped updating the account.
By halting the updating of Unbilled Special Assessment Receivable, debt payments continue to be made reducing the principal balance outstanding. This gives the impression that there is enough funding left in the receivable to pay off existing debt. But as noted previously, there is not.
It is my opinion, that the reason we failed the audit is because a scheme designed to give the impression that there was enough resources in SPA 2021 to pay-off existing debt, back-fired.
Management has over-spent SPA 2021. There are not enough assets to pay off its obligations. I have no doubt HOA Operating Funds are being utilized to pay SPA 2021 obligations. Debt service requirements are $33,072 monthly. It is highly unlikely that cash from SPA 2021 will reach $30,000 monthly.
The account was not correctly updated during the 2022 audit and hasn’t been updated correctly during 2023 and during 2024. This essentially invalidates the Balance Sheet.
The main point, improper manipulation of the Unbilled Special Assessment Receivable by the Treasurer and W, has resulted in our failed audit and damage to our community. We need to hold these people accountable.
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