Finance Committee Minutes

March 9, 2010

The Finance Committee of the Falls Run Homeowners’ Association met this afternoon in the Center.

Personnel in Attendance: Don Horan, Bill Barnes, Daniel Owens, John Frisch, Mal Malo, and Casey Naatjes.

Center Financial Procedures:

Mal Malo was introduced as Bill Trzyna’s replacement. They have talked and will be meeting to go over procedures in detail before Bill leaves. Bill has also been asked to prepare a document of desktop procedures for the work he has been doing with the financial records of the Center.

Audit Procedures for Adjustments

The content of the following message was reviewed for those in attendance.

The purpose of this message is to report on the status of my query about cumulative financial statement values in 2009. It responds directly to Susan Manch's request for status which was sent on March 3, 2009.

My query stemmed from the fact that I had summed the monthly Revenue and Expense Reports for 2009 and my results did not agree with the cumulative values from the December 2009 Statement issued by Armstrong.

A phone conversation with Suzanne Allen and Renee Thompson resulted in the following explanation.

"As I reviewed the December 2009 Income and Expense Report, I noted that the monthly details for the 12 months of 2009 did not agree with the cumulative results at the end of the year. There were several instances in various expense accounts that caused this problem and they all occurred in June 2009.

I asked Armstrong to explain what had happened and suggested that it might have something to do with audit adjustments for 2008. I received a reply shortly thereafter stating that the reason for my observations was, indeed, the audit adjustments. Since I did not understand why that should happen, I asked for further clarification. I had a phone conversation with Renee Thompson and Suzanne Allen on 2/26/2010 that explained the situation.

Armstrong corrected the accrual entries in June 2009, but posted them to the December 2008 General Ledger (meaning a "back dating" to December 2008). Then, the accruals were reversed in January 2009 (again using a "back dating" to January 2009). The result was that the cumulative information in the financial reports at the end of June 2009 was correct. The monthly general ledger was also correct, but the data I was posting still came from financial reports that did not include the adjustments (because January was never reissued). Therefore, my monthly detail would not add up to the cumulative data.

Once I realized what had happened, the three of us worked out a procedure that would give more visibility to this situation. Rather than back dating the information to the first month of the fiscal year, Armstrong will simply post the adjustments in the month they are posted. They will, in the same reports package, include an explanation in the narrative section of the reports that provides the details of the adjustment."

Armstrong accounting personnel (and management) have reviewed this message and agree with the contents, except as noted by the following statement from Renee Thompson.

"Your draft is fine although I don’t want to give the Board the impression that "back dating" the audit entries is wrong, rather merely our method for treating audit entries to ensure that the December 2008 GL matches the audit. Perhaps add the following language or something similar.

The 2008 audit entries were entered in June 2009 as of December 2008 to tie the December 2008 general ledger to the audit. The audit entries included additional accrued expenses for invoices paid in January 2009 that were for expenses incurred in December 2008. As with all accrued expense journal entries Armstrong then reversed the accrual in the following month, January 2009. Since the entries were done in June 2009 and Armstrong did not reissue past months financial statements merely for audit entries you will have to adjust your January numbers to tie to the year to date. Going forward Armstrong agrees to post the audit entries as before but to post the reversal of any additional accrued expenses as of the month of entry (in the prior year that would have been June 2009) so that the year to date numbers tie to the sum of all prior month financial statements without the need for adjustments."

In my judgment, this issue is resolved, however, there are a few actions that we need to take to "tidy things up".

First, I've asked Debbie Sutton to coordinate a posting of the audited financial statements for 2008 on the Falls Run Web Site(s). I believe there are two web sites that need to be updated with these reports.

Second, I want to review this message with the Finance Committee next week under the theory that it would be good to have a few more eyes and minds look at this before the Board takes any action. In this regard, it would be helpful if I could have a copy of the audited December 2008 statements before we have this meeting next week.

Third, the Board needs to review the results at the next meeting.

Susan, thank you for your interest in this matter, and for the efforts of your staff, Suzanne and Renee. I wanted to bring all of this material together into one place to make subsequent reviews easier. Thus, the rather wide distribution of this message.

Those in attendance at the meeting of the finance Committee agreed with the information provided above. Our summary statement for Board of Directors is as follows:

We recommend that, going forward, audit adjustments for any fiscal year shall be backdated to the last month of subject fiscal year (December). Furthermore, Armstrong should reissue the financial results from December of the subject fiscal year once those adjustments have been posted (and regardless of where we are in the following year). Since there are likely to be accrual entries included in the adjustments, those accruals should be reversed in the following year in the month in which the adjustments are actually posted. That is, these transactions should not be back-dated to January. Furthermore, it will not (normally) be necessary to reissue any financial reports from the current fiscal year, provided that the narrative for the month in which the adjustments are made adequately explains and documents the details of these ensuing adjustments to the current fiscal year.

The reason for reissuing the December financial statements after the audit adjustments are posted is to “prove” the entry of the audit adjustments in the financial records of the FRCA.

Financial Report Products

The committee recognized that there might be a need for a follow on meeting on the third Tuesday of March, based on the review of the January Financial Statements.

That review has been completed. The postings of the snow plowing efforts were thoroughly reviewed, and they were found to be correct. The Variance Analysis of Reserve Fund Equity and Assets was conducted. These results and questions have been sent to Armstrong. We are awaiting their explanation. Accordingly, a follow on meeting is not required on March 16. This meeting is, therefore, cancelled.

Adjournment: 3:45 pm.

Casey Naatjes

Chair