Misinformation has recently been circulated by a few property owners regarding the state of our financial accounts, the most troubling being that $1 million may have been removed from the Restricted-Capital Reserve Fund. This is completely false. A factual response follows for those interested in the accounting details.
In 2010, Property Owners voted to establish the Restricted-Capital Reserve Fund, which could only be used for emergency purposes or in years when capital needs of the Association exceeded budgeted depreciation. Prior to that time, the POA had little in reserves and Property Owners had recently voted against the creation a Capital Contribution Fee. This new fund was in addition to the Operating Account, where routine expenses (payroll, landscaping, maintenance, etc.) and capital (new vehicles, roofing, roads, etc.) were paid. The balance is shown every month in the POA balance sheet and has grown to $2.8 million over the last 10 years. It has never been used by the POA.
In 2020, the POA established two new accounts: the Board Designated-Capital Replacement Fund and Board Designated-Master Plan Fund. The Capital Replacement Fund account is used for routine capital expenses, rather than commingling those funds with our regular operating funds as was done in prior years. An amount equal to the annual depreciation expense is transferred into this account throughout the year. If any additional funds are transferred from another POA account, which happened this year, it is recommended by the Finance Committee and voted on during a public Board meeting.
The Board Designated-Master Plan Fund account is used for Master Plan items, such as Creek 9 Golf Course rejuvenation or the Chimneys meeting center renovation. Capital Contribution Fees collected from the sale of homes, along with the $25/month capital component in general assessments, fund this account.
Total POA Cash as of April 30, 2021
Operating Cash $2,642,899
Board Designated-Master Plan Fund $1,509,168
Board Designated-Capital Replacement Fund $1,599,137
Restricted-Capital Reserve Fund $2,831,848
CAPITAL RESERVE STUDY
Our covenants require that we hire an independent firm to perform a Capital Reserve Study every 3 to 5 years. This study is a management tool and provides a roadmap for capital expenditures that may be required by the Association over many years. The Association can then consider if future assessment increases are required to fund those needs over time. A summary of estimated future repairs and replacements is also contained in our Audited Financial Statements as supplementary information required by accounting standards.
When the last Capital Reserve Study (CRS) was completed in 2016, there were only two accounts: Operating Cash and Restricted-Capital Reserve Fund. The beginning balance on the CRS was $2,500,000 and the balance held in our Restricted-Capital Reserve Fund was $2,584,597.
As of 2020, the newly established accounts (Board Designated-Capital Replacement Fund and Board Designated-Master Plan Fund) are now the funds used for capital needs, rather than Operating Cash and Restricted-Capital Reserve Fund. Therefore, the 2021 Capital Reserve Study finalized in May reflects those accounts and does not include the Restricted-Capital Reserve Fund. $1.864 million, noted as the opening balance in Part 1 Reserve Management Plan, is unrelated to the $2.8 million in the Restricted-Capital Reserve Fund as opposed to missing. The Restricted-Capital Reserve Fund is still intact, grows slowly over time and has never been used.
That $1.864 million amount is comprised of the balance of the Capital Replacement Fund at the end of 2020: $796,210, plus the exact amount of surplus cash generated from 2020 operations – $1,068,365 – which was to be transferred to the Capital Replacement Fund early in 2021. When the transfer ultimately occurred, for convenience it was rounded up to $1,100,000.
The POA has a very competent staff, a Board whose members take their duties very seriously, and excellent Finance and Audit/Risk committees comprised of dedicated Property Owners who bring a wealth of finance and accounting knowledge from their decades as successful professionals. Having to answer questions and address doubts spurred by erroneous information that attacks our financial condition and integrity is time consuming and destructive.
Those seeking to disparage the POA should get the facts before making inaccurate or misleading public statements. We are always open to answering questions, including face-to-face meetings, and have even have extended an invitation to join the Finance Committee — all of which were declined.
Our independent accounting firm, Maudlin and Jenkins, will be presenting results of the annual audit during this week’s Board meeting on Thursday. Anyone with further questions or concerns should attend that meeting, ask questions, and get the facts.
POA Board Treasurer
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