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Where did all the money go? Unaswered Questions? - Part 1

Where did all the money go? Unanswered questions? Part 1

Powers & Duties of the Board of Directors Article IX MVF By-Laws           

Provide for maintenance of all Common Property section 1

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Supervise all officers, agents & employees of the Foundation and that their duties are properly preformed section 2 (b)

Adopt standard of conduct, which includes conflict of interest and fiduciary responsibilities preformed as board and committee members.

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Officers and their duties Article IX of the MVF By-Laws.

The treasurer shall oversee all accounting and treasury functions of the Foundation including application and implementation of accounting policies and procedures to properly safeguard the assets of the Foundation. Section 8

The treasurer shall make the investment decisions in accordance with the policies of the Foundation. Section 9

Committees Article XII of the MVF By-Laws.

The Audit Committee shall advise the Board of Directors regarding the financial affairs of the Foundation. In addition, it shall review and recommend for approval the annual budget and annual audited financial statements, and recommend an accounting firm to perform the annual audit of the Foundation's books, accounts and records. The treasurer shall be an ex officio member of the Audit committee Section 6

Protecting the Reserve Funds The board of directors has a fiduciary responsibility to all owners to make sure reserve funds are invested properly. Certain types are appropriate and others are not. The board of directors is obligated to establish an Investment policy to insure, in order of importance, 1st funds are safe, 2nd available when needed, and 3rd grow over time. “An investment strategy for Investing in Reserve Funds is considered “risky” if there is any significant risk of fluctuation over the life of the investment. Investments should be free from loss or risk, price fluctuations and should be marketable securities so that funds can be available when needed. Losses from investments in riskier or speculative securities could be personally charged to the individual Board members who authorized those investments” * Article B.J. Hong Esq. Download PDF

Safety As of June 30 2013 $1.8 million (27%) of the $6.6 million Replacement Reserve investments are in unsafe and risky Common Stock, Mutual Funds and Corporate Bonds which are prohibited investments under the MVF Reserve Policy Resolution. $960 thousand is invested in Wilmington Short Term Duration Government Bond Fund and $790 thousand in 15 long-term corporate debt instruments.

Availability Maturity dates by investment category are, US Treasury Instruments $1.4 million (21%) 2014 to 2024, FDIC insured banking institutions CDs $1.8 million (27%) 2013-2024, Government Mortgage Corporations bonds (Freddie Mac) (Freddie Mac) $803,000 (12%) 2016 to 2041, Resolution Trust Corporation $670,000 (9%) 2014 -2018, and FGA Federal Government Agency Tennessee Value Authority bonds $112,756 2018 and Corporate Bonds (12%) 2014 to 2017).

Only $951,000 (14%) is available for Replacement Reserve expenditures over the next 15 months, 2013 $262,000, (4%), 2014 $689,000 (10%), 2015 (11%), 2016 $1,105,000 (17%), 2017 (15%) and from 2018 to 2041 $2,894,000 (43%). Board of Directors should understand and accept the fact that if securities are sold before maturity a loss of principal and interest could result.

Investment Yield The MVF Statement of Revenue and Expenses for June 30 2013-Current Month “Reserve Investment Income” was a negative ($21,642). Year-to-Date through June 30 2013 Reserve Investment Income was a positive $8,376 and reflected the $13,571 loss in value from unauthorized and prohibited equity investment activity. Based upon the six-month investment portfolio performance a conservative year-end estimate of MVF investment yield for 2013 would range between $15,000 to $20,000 or 3/10th of one percent.

Comments of Safety-Availability-Yield of MVF Investments The $6.6 million MVF reserve fund investment portfolio is not safe, available when need and diminishing over time. See MVF Summary of Investments 2011 to 2013 PDF

The MVF By-Laws states “The treasurer shall oversee all accounting and treasury functions of the Foundation including application and implementation of accounting policies and procedures to properly safeguard the assets of the Foundation.

The Reserve Fund Investment Policy requires the Treasurer at each regularly scheduled meeting of the board to report any portfolio transaction that have taken place since the previous meeting.

The internal control procedures of the Foundation state that the bank and account reconciliation will be completed and reviewed by the 20th day of the following month. The bank and investment statement reconciliations, when properly performed, balance these statements to the MVF financial reports such as Schedule of Revenue and Expenses, Balance Sheet and Schedule of Investments.

The Treasurer's Report summary under Investment Activity for every month in 2013 reported “No investment activity for the month”. The last “Fair Market Value” schedule of investments was the “Schedule of Investment” in the MVF 2012 Audit, included in the March 2013 Board Meeting package. The “Reserve Investment balance on the Balance Sheet in the Monthly Treasurer’s Report is the investment “Value at Maturity” and not “The Market Value” as of the date of the report.

The following Investment Activities in 2013 affected the status and value of MVF Reserve Investment portfolio.

January 14 2013 The Board of Directors approved the investment committee recommendation to sell the holding in the Vanguard Fund and purchase approximately $2.8M in various fixed income securities, Treasury notes, Federal Agency Bonds, Corporate Bonds and Certificates of Deposit 74.3%, Equities 22.7%, and Inflation linked bond funds 3.0%.

March 26 2013 J.P. Morgan CD matured at $100,740

May 20 2013 Sallie May Bank CD matured at $100,107

August 2013 Capital Expenditure Summary Treasurer’s Report Designated Users $382,691, MVF $100,994 Total $489,085 in 2013.

Paying Capital Reserve Expenditures The MVF board authorized $2,953,000 replacement reserve expenditures in 2013. The MVF 2014 fiscal year proposed operating and reserve budget details an additional $1,262,000 replacement reserve expenditures. A total of $4,215,000 capital projects are schedule to be completed over the next 15 months. However, only $951,000 (23%) will be available through December 2014 while cash operating accounts are in a negative position with no available accumulated undesignated reserves from prior periods.

The Foundations financial reporting continues to be opaque, misleading and depicts a false positive improved state of the Village’s financial affairs as well as the condition of its buildings, parks, lakes and recreation facilities. The assets of the Foundation have been allowed to deteriorate. Instead of the board setting policy and supervising staff and officers, the board passively and without question takes orders from the staff.

Keep posted for “Where did the money? Unanswered Questions? Part 2” when the Montgomery Village Observer examines the $4,215,000 of capital projects MVF has scheduled to complete over the next 15 months.

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