Finance Committee Minutes

May 18, 2010

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

Personnel in Attendance: Mal Malo, Bill Barnes, Jake Bernard, Tom Whalan, Debbie Sutton, and Casey Naatjes.

Merrill Lynch (ML) Proposal

Bill Barnes related that the Board had favorable entertained an ML proposal at the last Board meeting. Bill stated that he had been analyzing the proposal further, and he wanted to determine if the Finance Committee shared his concern(s).

The proposal was to increase the annual fee from $50 to $300 with the understanding that our return on interest would be increased by 0.5%. Pure arithmetic indicates that costs are going up by $250. The exact offset, in terms of new interest earned, would be a balance of at least $50,000 (.005 times 50,000 = 250).

The current Balance Sheet (March, 2010) indicates these balances:

            ML General Operating:          $132,861.43

            Merrill Lynch Reserve:          $  29,019.22 .

If each account is to be charged $300, the Operating Account would be profitable. However, the Reserve Account would not be profitable. Interestingly, the Operating Fund would be paying the $300 for each account since our auditors point out that the Operating Fund must pay bank fees on Reserve Accounts.

The Finance Committee came to the conclusion that the Board should re-examine this proposal, since the Treasurer also indicated that actions would be taken to decrease the ML General Operating Account as well. If the ML  proposal is all or nothing (both accounts, the Board may decide to deny the proposal. If the ML proposal can be accepted for only the ML General Operating Account, the Board may well accept the proposal for that one account.

In a “side issue” the committee also discussed the FDIC insuring ceiling of $250,000, and that we should ensure that we manage our account balances to stay below that ceiling.

Reserve Fund Variance:

It was noted that the variance at the end of March, 2010 was $509.99 – a large improvement due to reconciling efforts on the part of AMS. Suzanne Allen stated that this remaining balance would be corrected in April, 2010.

Draft 2009 Audit:

Don Horan reviewed the draft audit report for the committee. His comments are included here.

Must be changed:

1.  NOTE 10 – ACCOUNTS RECEIVABLE – VILLAS:  The statement “As of December 31, 2009 and 2008, the Association was due $201,944 from Villas for master Association assessments and shared expense reimbursements.”, is incorrect and contradicted by the following two, correct sentences noting 2008 payments by the Villas and write off of the remainder.  The A/R – Villas was $0 on 31 December 2008 and 2009.

2.  On page 4 of the Adjusted Trial Balance re: Accounts #5423 SEASONAL FLOWERS and #5425 SEASONAL FLOWERS: The 2008 amount in account #5425, $5,774.50, and the 2009 amount in account #5423, $5,653.62, were both for seasonal flowers and should be in the same account, labeled SEASONAL FLOWERS, for both years.  The 2009 amount shown in account #5425, $195.00, was for washing streets to get rid of the winter sand.  It should be in an account all by itself with no comparable entry for 2008.  This account should be labeled “STREET WASHING” or something similar.  IN ADDITION, under EXPENSES on page 3 of the audit, the $195.00 for washing streets is not a “Grounds” item but is a “Common Area Maintenance” item.  Therefore, the EXPENSES entry for Grounds should be decreased by $195 to $192,589 and the entry for Common Area maintenance should be increased by $195 to $64,918.

3.  NOTE 5 – CASH AND INTEREST-BEARING DEPOSITS:  The amounts for B B & T checking and Union Bank & Trust checking are switched.  B B & T should be $2,334 and Union Bank should be $4,804. 

Should be changed:

1.  NOTE 1 – NATURE OF OPERATIONS:  Falls Run is actually located in the County of Stafford, not Fredericksburg.  There may be differences in applicable law, so I believe it would be good to make this change.

Question:

1.       In the cover letter and in two places on page 1 of the Independent Auditor’s Report, it notes that this draft audit is for the years ended “December 31, 2009 and 2008”.  To me, this implies that FRCA failed to have an audit for 2008 during 2009 and is catching up by doing the 2008 and 2009 audits at the same time.  FRCA did have a 2008 audit done in early 2009.  Could this be reworded to remove the possible implication that a 2008 audit was not performed at the proper time?

Based on this review, Bill Barnes agreed to forward the requested changes to the auditing firm.

Concrete Proposal

Debbie Sutton presented a proposal from Murphy Concrete and Asphalt in the amount of $29,280. Murphy won the initial round of concrete repairs in 2009 over two other firms. This is a rather extensive list of repairs to be completed this summer (2010) using Reserve Funds. It includes repairs on 56 ramps; replacement of 14 ramps; replacement of 72 pieces of sidewalk and replacement of 12 pieces of gutter. These repairs span more than one risk pool from the Reserve Study. Here are the details on the relevant risk pools

 Clearly, sufficient funds are available to cover the scope of this work. Taken together, it would appear that $19, 176 remain in these risk pools. This balance, it appears, is available for unforeseen contingencies.

Asphalt Rejuvenation Project

Debbie Sutton also presented a complex proposal from Asphalt Restoration Technologies, Inc. The committee determined that this proposal was worthy of further study, notwithstanding the costs of $26, 704 and $37,409 ($64,113 = total cost).

The committee observed that current funding is not available for this project, but it might merit a hard look. I appeared that there was a strong likelihood of downstream cost savings if this project were undertaken.

The Finance Committee observed that no committee is an “advocate” for this proposal at the moment. The committee recommends that the Board assign an “advocate” to research the potential of downstream economies, should we award these two proposals. Meanwhile, the Finance Committee will look at some approaches to funding if the Board determines this project has merit. We note, for example that Pool R.1.6 has a 2010 program balance of $11,105 for asphalt. Furthermore, we just documented $19,176 for concrete work that is not yet earmarked. That’s still a long way from $64,000, but there are ways to find that money if a strong enough case is made by an appointed “advocate” for this project.

Adjournment: 3:45 pm.

Casey Naatjes

Chair