CRESTONE— In the summer of 2014, a financial/audit committee was appointed to make recommendations concerning financial irregularities in Baca Grande Property Owner’s Association (BGPOA) accounts, to pinpoint what appeared to be financial discrepancies.
The committee consisted of Board President Bob Garnett, Lisa Cyriacks and board member Janie Thomas. The board’s appointed auditors, Fleming and Associates, LLC, recommended in April 2014 that the board conduct a fraud risk analysis prior to their final audit to examine the association’s internal controls, something most auditors today evaluate as part of their services to communities.
The board subsequently engaged Del Norte auditor Dennis Crown, certified fraud examiner, to conduct the investigation. But the committee ran into difficulties implementing the plan suggested by Fleming and Assoc. when the current management company for the POA, Hammersmith Management Inc. (HMI), failed to provide access to necessary POA information.
To further complicate matters, HMI Community Manager Kristin Ecklund later left the POA as its community manager. Prior to her departure, Ecklund sent an email to Crown and Cyriacks detailing a discussion with attorney Erich Schweisow about the feasibility of destroying certain “outdated” records in order to prevent them from being obtained by outside agencies. She recommended getting back to Schweisow concerning this.
For a short time, Ecklund also served as the town clerk for Moffat, having recently resigned. During her tenure the, questions were raised by Moffat property owners Bob and Virgil Tafoya regarding the town’s finances, and although Ecklund received requests for budget information from the Tafoyas they say their questions were never satisfactorily answered. Robert Tafoya said last week that the budget information he received form the town is incomplete.
Currently Ecklund is once again working at the BGPOA. The budget discrepancies the audit committee tried to address three years ago were never resolved. Because financial inconsistencies continue to be a problem at the POA, BGPOA property owner Lisa Cyriacks continues to monitor the financial situation at the POA.
In an open letter to the Baca Grande POA board and its members, Cyriacks laid out her current concerns last week as follows:
“My thanks to Bill Strathern for the attached explanation of how the discrepancy in the reported “Excess Revenue over Expenditures” occurred and why the auditors reported a significantly different bottom line for BGPOA operations.
“I have to respectfully disagree that the financial statements prepared in-house for BGPOA are prepared to the standard of generally accepted accounting practices (aka GAAP). If they were, the auditors would not have had to adjust them for the $255,000 of “over-estimated” bad debt. Typically the statement by the auditors refers to the financial statements included in the audit itself.
“How to prepare statements to GAAP standards can be easily resolved with training.
“I am more concerned about the consequences of misstating items like Bad Debt. GAAP has specific rules in particular on how bad debt should be reported in order to accurately report the cash position of the organization.
“The auditor’s adjustment identifies that the loss of $51,855 reported on the in-house financial statements for 2016 is incorrect and actually there is excess revenue of $234,627 in net operating income for 2016. I am confident that the auditor did a proper accounting of the revenue and the uses of the association’s money, and that for the year of 2016 the association ended the year in the black, rather than with the loss as reported by staff.
“In the 2018 budget options document prepared by staff, buried in the Operating Expenses is a line item for bad debt – the same item the auditors reported as over-estimated and misstated. Below is a breakdown of how bad debt is being used to inflate expenditures and create the misperception of BGPOA “losing” money every year.
2016 Budget – bad debt estimated at $284,742 (reduced by $255,000 by auditors)
2017 Budget – bad debt estimated at $390,835
2018 Budget – bad debt estimated at $360,928
“Will 2017 and 2018 be adjusted at the same rate resulting in more excess revenue than estimated by BGPOA staff and corresponding increases in cash available? It would be good for the board to ask the auditors to evaluate those estimated before the next audit.
“As far as the Board’s obligations to transfer surplus funds to reserves, I maintain that there are legal reasons why they should. See the following Colorado statute from the Colorado Common Interest Ownership Act that governs all HOAs and POAs.
Colorado Revised Statutes. 38-33.3-314. Surplus funds. Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of or provision for reserves shall be paid to the unit owners in proportion to their common expense liabilities or credited to them to reduce their future common expense assessments.
“Furthermore, property owner associations are not meant to make a profit, hence why a preferred tax-exempt status with the IRS. [501c4] I have been told that means that any excess revenue not used to cover current year expenditures either has to be transferred to reserves for future expenditures or returned and/or credited to each member’s account.
“For example, there were 2,806 members in good standing used at the 2016 annual meeting to establish a quorum. Those members have contributed to the excess revenues over expenditures and should expect a credit of about $83 on their accounts should the Board decide to not use the surplus funds to fund reserves as required by the Colorado statute referenced above, and IRS guidance.
Simple math tells me that
$234,627 [surplus funds after operating expenses are paid]
+ $788,844 (reserve fund balance as of 12/31/2016)
= $1,023,471 Beginning reserve fund balance 1/1/2017]
“This is more than adequate funds to be held in reserve for emergencies and replacements.
“In the absence of a formal policy addressing the formation of reserves, uses of reserve monies, how those funds are sequestered, and who has the authority to authorize the expenditure, I continue to question the validity of how these funds are managed. Just calling a bank account “Reserves” has not proven to enough to adequately account for these funds.
“In the recent vote held at the October 20, 2017, the membership voted overwhelming for any surplus funds to be transferred to Reserves. I do not think I was alone in believing that voting for increasing reserves would stem the unreasonable increases we have experienced in the past few years. ($47 increase in 2017, and $41 increase in 2018). That the Board will now not honor that membership vote explains why an increasing number of members believe that the Board is not acting in good faith.
‘These funds need to be accounted for. State law and the IRS provide guidance for how that should be done.
“In the interest of transparency, the members are owed a truthful accounting of what is being done with our money. Transparency would be having this discussion in a public meeting, announcing any changes and the justification for why.
“Please respond to me with the date of when the board will make the decision to either abide by the wishes of the membership and fund the reserves or not. I look forward to a notification of the date of the meeting when that decision will be discussed.”
Cyriacks received one response from a BGPOA board member. The email sent simply said: “No comment.”