Welcome MVF Finances-Just the Facts m'am!

Welcome MVF Finances-Just the Facts m’am!

MVF Chief Financial Officer, Greg Snellings, CPA, recently launched his MVF Finances-Just the Facts m’am blog to “provide accurately stated financial information for (and about) the Montgomery Village Foundation”. In his November 2013 initial blog posting Establishing a baseline Greg stated the best way to explain the Foundation’s “five-year financial and operational turnaround” during the Humpton-Snellings Era (2008 to 2013), is to compare “some facts relative to the 2007 vs. 2012 audited financial reports” prepared by Regardie, Brooks & Lewis (RB&L) with the Zakian-Campbell Era (2004 to 2007) audited financial reports prepared by Draper & McKinley (D&M).  Mr. Snellings concluded with “The improved state of the financials is clearly demonstrated on each successive audited financial report form (from) 2007 to 2012”.

Really? Greg’s establishing a baseline blog is void of any “accurately stated” or understandable comparable financial facts from either the Zakian-Campbell or the Humpton-Snellings Eras. Only two comparisons, Cash & Investments (C&I) and Wages & Benefits (W&B), are the dollar amounts correctly stated, C&I increased from 4.1 million in 2007 to 4.3 million in 2012 an increase of 4.7 percent while W&B for non-MAF operating funds increased $449,000 or 12 percent from $3,712,000 in 2007 to $4,161,300 in 2012. It would seem C&I would have grown substantially more than less than one percent a year and a W&B increase of $449,000 doesn’t in any way demonstrate an “improved state of (MVF’s) financials”.

Comparison 3 Operating Fund Balance The total fiscal year end Fund Balances is comprised six Operating Funds and the Reserve Fund. The Operating Fund Balance is the sum of the accumulated surplus/ deficits for each Operating Fund since the Foundation became an operating entity and is referred to as Undesignated Operating Reserve Surplus/Deficit. The sum of Operating Fund Balance and Reserve Fund Balance as shown on the fiscal year audited financial reports Balance Sheets is the MVF’s Equity, Net Worth or Net Assets.  Operating Fund Balance should not be confused with the Operating Funds Cash and Cash Equivalents checking accounts, money market, saving accounts and other short-term investments used to pay Operating Funds obligations. (See Year-End Balance Sheets 2004 to 2012 pdf attachment)

An operations the size and nature of MVF needs to have sufficient working capital reflected in the Operating Fund Cash and Investment (Current Assets) and Operating Fund Balance (Net Worth) to allow the association to pay its operating expenditures on a current basis, fund the Contributions to Reserves (CTR) from Assessments and Reserve Interest during each fiscal year and absorb unanticipated operating deficits, equal to 7 to 10 percent of the annual Operating Budget. In the case of MVF this would range from $500,000 to $700,000.

Because of the seasonal nature of MVF expenditures and timing of the quarterly assessment payments from Homes Corporations property owners Operating Funds Cash balances can fluctuate from $605,500 as did in April 2013 to a minus ($36,081) in August 2013 as shown on the respective end of period MVF Balance Sheets. Based on the 2013 Operating Budget the estimated monthly cash revenue will be $1,254,000 for January, April, July, October, and $133,500 for the other nine months, while the estimated operating expenses from January to March and September to December will average $500,000 and $666,000 from October to April.  

The establishing a baseline compared the 2007 Operating Fund Balance deficit ($322,139) with the beginning April 2012 operating cash account $1,597,000 alleging an improvement of $1,919,000 in Operating Equity. The 2012 year-end Operating Fund Balance was a deficit ($243,958) a “debt reduction” of $78,200 but in no way a $2,000,000 “improved state of the financials” for the Humpton-Snellings team. The RB&L audited financial reports 2004 to 2008 and the D&M reports 2009 to 2012 identified significant operating deficits in the MVF, DU, CM, MA funds resulting in cumulative Undesignated Operating Deficits from 2004 to 2012. Since 2009, MVF’s CFO has confused the MVF the operating cash balance for the months of January, April and July with an improvement in the state of (MVF’s) financial affairs.

The November 1 2013 MV News Treasurer’s Report summaries establishing a baseline misstatements of MVF financial condition,” The Balance Sheet shows that over $8.2 solid in Cash and Investments, $1.6 million of MVF’s Undesignated Operating Reserves and $6.9 Designated Reserves”.

MVF has engaged the auditing firm of Malvin Riggins & Company (MR&C) as its audit firm for the next three to five years. Greg, there is no need to respond in your MVF Finances-Just the Facts m’am blog, we should all wait for MR&C MVF 2013 audit report draft scheduled for presentation next month to a joint meeting of the board of directors and the audit committee.

Comparison 4 Contributions made to fund future reserves As outlined in comparison 3, each month during a fiscal year a check equal to one-twelfth of the annual Reserve Fund Assessment is required to be transferred and deposited into reserve bank and investment accounts. The required Contribution to Reserves (CTR) from Assessments and reserve investment interest in 2007 was $694,000 and $835,000 in 2012. Establishing a baseline reports $15,000 was contributed to reserves in 2007 and $725,000 in 2012 claiming an improvement of $710,000. The auditor’s financial statements identified that zero cash contributions to reserves (Income account reference 6650) in 2006 and 2007 and $301,515 in 2012. From to 2004 to 2007 the Contribution to Reserves (CTR) from Assessments and Interest earned on Reserve Fund Investments revenue totaled $2,868,848, of which only $52,404 was transferred to Reserve Fund investments, an underfunding shortfall of $2,815,814. From 2008 to 2012 CTRs from Assessments and Interest was $4,587,533 of which $1,143,843 was transferred to Reserve investments a shortfall of $3,443,688. (See Summary of Replacement Reserves 1994 to 2012 pdf Attachment)  

Comparison 5 Accounts Receivable establishing a baseline identified the Total Accounts Receivable from all sources of as $431,471 including $185,081 Accounts Receivable from Homes Corporations compared to 2012 Accounts Receivable from Homes Corporation of $627,814, an increase of $504,345 or 274 percent. The 13 Condominium and 5 Rental Apartment communities pay their assessments monthly on time so the only assessment accounts receivable recorded in the annual fiscal year audited financial reports are Homes Corporations delinquencies. The MVF Financial Reports for October 2013 published in the December 20 2013 MV News page 8, the MVF Balance Sheet shows Assessment Receivable as $991,700, an increase of 436 percent during the Humpton-Snellings Era. In addition, legal and bad debt operating expenses increased from $218,000 in 2007 to $333,200 in 2012 an increase in 53 percent not including the addition of a MVF staff legal counsel in 2013 assigned assessment collection matters. On January 3 2014 NBC channel 4 investigations on “Maryland’s Skyrocketing Foreclosures reported Montgomery County had an 119 percentage increase in foreclosures between autumn 2012 and autumn 2013. Realty Trac reports since November 2012 to January 6 2014, 60 Montgomery Village homes were scheduled for foreclosure auction of which 19 were sold in December and January. (See Financial Comparisons 2007 to 2012 pdf Attachment)

Comparison 6 Eliminating the Maintenance Activity Fund (MAF) establishing a baseline claims $845,400 savings in labor cost by hiring the Brickman Group in 2012 to a fixed price common property landscaping grounds maintenance contract for $320,000. What establishing a baseline failed to mention is that In the Maintenance Activity fund lost $839,700 in 2007.  From 2008 to 2011 during the first four-year of the Humpton-Snellings Era the MAF lost $2,238,600. The MVF 2012 budget for landscape and grounds care, green space repairs; tree care, maintenance and replacement; snow removal and lake, stream and pond care and upkeep including the Brickman Group contract was $535,100. The D&M 2012 audit cost for Landscaping and Maintenance totaled  $839,400 an unfavorable budget variance of $303,300. (See Summary of Operations 2010 to 2013 pdf Attachment).

During the Humpton-Snellings Era the Village’s maintenance and care of the Village’s 330 acres of parks, lakes, streams, landscaping, trees and drainage systems has been neglected including erosion, shoreline stabilization, damage repair, sediment runoff, water quality and environmental concerns. This neglect is especially evident at “Jewels of the Village” Lake Whetstone Park & Lake. The D&M 2012 audit identified Landscape and Maintenance operating expenditures were used to manicured median strip and the ever-changing floral images along Montgomery Village Avenue.

MVF Financial Summary 2013

The Summary of the 2013 Proposed Budget stated “With the recent years’ accumulation of operating reserves resulting numerous cost saving efforts, organizational changes and revenue surpluses, the budget proposes to continue to utilize a portion of these operating reserves to help fund programs and capital improvements and cover general operating cost increases in lieu of raising assessments…the plan incorporates the use of ($803,154) undesignated reserves and capital contribution to fund capital project selected from the Long-Range Facilities Plan”.

The Montgomery Village Foundation did not possess during 2013 any “accumulation of operating reserves” that can absorb over $800,000 planned and projected operating deficit. During the last quarter of 2013 MVF must have struggled to meet its financial obligations with operating and reserve funds restricted with risky and unsafe long term investment not available until 2015 and beyond, and over $1,000,000 working capital tied up in delinquent assessments. (See MVF Summary of Operations 1994 to 2012 pdf Attachment.