Can't Believe Anything These Days...

 We all would like to believe what our leadership tells us.  Unfortunately, they do a good job of making that impossible. Not only do they make arguments that make little sense, but they also provide evidence or facts that are easily refuted. Additionally, they then go out of their way to direct demeaning comments at residents to discredit those with opposing viewpoints.

Recently, an analysis was conducted of management’s transfer of funds.  The results put into question the source of management transfers from the HOA to the LLC.  Management has defended the transfers by referencing cryptic account numbers that mean nothing to residents and provide no justification.  Once again, we conclude the funds did not originate as described by management.

It was noted:

1.      SPA 2021 was/is incapable of providing funds to satisfy its debt obligations, let alone provide funds for transfer and use by the golf courses.  In January 2025, SPA 2021 generated only $28,050 of cash, while in February 2025, it produced only $27,210.  As a reminder, SPA 2021 has a monthly debt service obligation of $33,072.

2.      SPA 2023, received $211,500 in March of 2024, paid $50,000 of principal, retiring the M.T. Unsecured Debt, and had earlier paid $18,000 for marketing services to the golf courses. This left only (211,500 – 50,000 – 18,000) = $143,500 available.  By September 2024, the HOA had transferred $275,000 to the LLC, leaving informed individuals to question the source of the additional (275,000 – 143,500) = $131,500.  You cannot get blood from a stone, and money doesn’t just appear out of nowhere.  We surmised the shortfall of funds was funded by HOA Operating Accounts, which, if correct, would have violated the community’s covenants.

Management was mistaken saying $20,000 of the $50,000 of funding in January 2025 originated from SPA 2023.  It is not possible. 

3.     SPA 2024 is dated October 2024 and received $493,500 from residents. Between September 30, 2024, and December 31, 2024, the HOA transferred $420,272 to the LLC. This could only have come from SPA 2024. There is no disagreement on this point. After this initial transfer, SPA 2024 had (493,500 – 420,272) = $73,228 remaining in assets. 

Despite having only $73,228 remaining in assets, the HOA Balance Sheet for December 31, 2024, showed SPA 2024 having $127,662.50 in RECEIVABLES and $35,752.50 in CASH for a total of (127,662.50 + 35,752.50) = $163,415.  Add this to the amounts transferred to date, and you get (420,272 + 163,415) = $583,687.  This far exceeds the assets of SPA 2024 and casts doubt on the accuracy of HOA accounting.

SPA 2024's original funding was $493,500.  How could we sum up its assets, as of December 31, 2024, and get $583,687?  Balance Sheet RECEIVABLES and CASH exceed the value of SPA 2024 by $90,187.  Again, this is as of December 31, 2024.

Evidence suggests the CASH and RECEIVABLES accounts for SPA 2024 are incorrect.

4.      It gets better.  By the end of January 2025, one month later, RECEIVABLES for SPA 2024 were down to $26,861.55, and CASH had increased to $55,252.50.  Adding these together, we have (26,861.55 + 55,252.50) = $82,114.05 of liquidity, which certainly would be able to provide $30,000 of funding to the LLC during January – if the money was actually there.

But the change from December 31, 2024, to January 31, 2025, was ($163,415 – 82,114.05) = $81,300.95.  Liquidity was reduced by $81,300.95.

Management states they removed $30,000 and transferred it to the LLC.  But the accounts dropped by a total of $81,300.95.  The question then is, where did the remaining $51,300.95 go?  It is missing from the Balance Sheet.

If management wants us to believe that the values on the December 2024 and the January 2025 Balance Sheet were accurate, then they must account for the missing $51,300.95.

We conclude the accounts do not accurately reflect balances available at the time of reporting.  Management probably looked quickly at the account balances and incorrectly thought the money was available and used it as a convenient excuse.

5.      This is why, in the original analysis, I simply took the $420,272 and added in the January 2025 CASH and RECEIVABLES of $82,114.05, getting $502,386.05, exceeding the value of SPA 2024 but more importantly, all SPA 2024 funds were accounted for, allowing us to conclude, the January funding could not have come from SPA 2024. 

I reiterate that the funding did not originate from SPA 2024. Again, it is not possible if you believe HOA Accounting.

6.      Let’s examine February 2025.  Management states that the entire $55,000 that was transferred to the LLC from the HOA in February 2025 originated from SPA 2024.  As of January 31, 2025, SPA 2024 CASH + RECEIVABLES were (55,252.50 + 26,861.55) = $82,114.05. 

By February 2025, SPA 2024 CASH + RECEIVABLES had dropped to (45,277.50 + 17,283.09) = $62,560.59.  This is a change of (82,114.05 – 62,560.59) = $19,553.46.

How could $55,000 be transferred from SPA 2024 if, during that time, the accounts changed by only $19,553.46?  Where did the remaining $35,446.54 come from that was transferred?  If it came from SPA 2024, then CASH + RECEIVABLES would have a combined value of $27,114.05.

An informed point of view would be concerned with whether the overstating of cash balances is intentional.

To believe the $55,000 originated from SPA 2024, we must assume the account values were inaccurate as stated.  Which is the problem that management does not seem to grasp.

The accounting for the HOA is unreliable.  Other examples of erratic accounting include, but are not limited to:

·        A. In September of 2022, the HOA Treasurer ceased updating the SPA 2021 UNBILLED SPECIAL ASSESSMENT RECEIVABLES. These receivables were not updated till September 2023, a full 12 months later.  During 2024, this account was updated only sporadically.

·        B. The ADVANCES TO GOLF COURSE LLC was not updated for two years until suddenly $40,000 was added to the account in December 2024.  What was the economic rationale to suddenly add $40,000 to the account in December? 

·        C. INVESTMENTS IN GOLF COURSE OPERATION. An account that saw dramatic inflation throughout 2024 was, without justification, as of December 2024, reduced from $1,236,028.56 to $752,052.74, a reduction of $483,975.82, which is the level it was back in March of 2023. There was no rationale for the inflation, and no reason for the sudden decrease.

The HOA Accounting has issues. The three primary issues are:

1.      Management is unfamiliar with the many relationships existing within the accounts of the various financial statements.   Management does not appear to understand even the simplest of relationships, for example, given a specific period, a reduction in RECEIVABLES must equal an increase in CASH, all else held equal.

2.      In the author’s opinion, the CASH and RECEIVABLES (Liquidity) accounts cannot be relied upon to provide accurate indications of fund balances or to maintain relationships within similarly affected accounts.

3.      Separation of funds does not appear to be occurring, which has led to the problems we are witnessing.  It appears funds are being commingled and accounting for individual accounts is incorrect. Management has lost control of the balances.  Money flows from accounts that do not have the balances to support the withdrawals and, as demonstrated here, become overdrawn. 

Furthermore, in my opinion, management has lost control of the entire accounting function.  They do not appear to know current liquidity levels or requirements.  Debt levels are unreliable, as is the recording of interest expenses. Asset values are inaccurate and change sporadically, and equity accounts are incorrect. 

My conclusions are based on the financial statements provided by management and reported to be correct, along with management’s actions and their informal justifications.

The reader is invited to form their own opinions.