September 16, 2016

Today's topic primarily covers the financial report issued by Resource for the month of August but also touches on a couple of other issues.

August Financial Report - Unbudgeted Maintenance

This is about the Unbudgeted Maintenance Repair budget item invented by Resource and reported in my last Blog posting.  The amount that is shown in this account has risen exponentially.  Last month there was a total of $2,195.50 in that account.  This month, the balance is $19,755.44.   Certainly caught my eye!

We discussed this item in the last topic as it arose as a new budget account invented for god-only-knows what purpose.  To me, any payment made of a maintenance nature ought to be put in the Common Maintenance account.  What's gained by breaking the maintenance items into two???

Her are the issues that I found in the Unbudgeted Maintenance:

• Two payments were made to Thunder Bay, our roofer, totaling $4,943.50.  Now I doubt that Thunder Bay was running around washing windows or doing other maintenance type things.  So what is it doing here?  That company is a roofer.  This item should have been placed in the Common Roof Reserve account.   

• Two payments totaling $1,235 were made to Land Design, our landscaper.  This money was transferred out of the budget item: Tree Trimming/Plants.  What does this accomplish?  This isn't just a budget error that Resource is prone to make.  There had to be some thought in this action to transfer an item, placed somewhat legitimately in it's appropriate slot, to the Unbudgeted Maintenance account.  It  defies explanation. 

• You'll be happy to know that the money that Resource paid to our clubhouse cleaner, J W Services, $158,  and put into Unbudgeted Maintenance, has now been  placed in it's proper slot.

The rest of the payments that appear in this budget item seem to be of a legitimate maintenance type.  But some were re-coded and removed from Common Maintenance.  This little switcheroo has reduced the balance in Common Maintenance from $20,849.95 to $4,366.91. Now instead of being way over budget in this account, we are now under budget to the tune of $2,633.09.  Amazing what budget gimmicks can do!

What constitutes an Unbudgeted item anyway?  Our budget for this fiscal year included $12,000 for common maintenance, obviously not enough.   Looking at the items that appear this month, there is no rhyme or reason, that I can tell, for some of them to be placed in the Unbudgeted Maintenance category and others to appear in the Common Maintenance.  Just what has that accomplished?  Curious minds would like to know.

The Deficit

Looking at the August Financial Report, one would think that the Circle is doing well.  The net positive balance reported between income and disbursements is $27,990.24 on the positive side.  The operating cash is reported at $55,212.65.  Pretty good right?  No!  there is a big elephant in the (financial) room.  It's called flood insurance!

We've budgeted $56,000 for flood insurance and we better hope that will be enough.  Because the payment must be made in November!  Our Hazard insurance payment is due also in November, at about $15,000.  A combined total of $71,000.  There's a reason Betty reports the cash on hand and says that may seem like a lot, but really isn't.  Because that cash isn't sufficient to cover the flood insurance payment and the hazard insurance payment and usual monthly expenses of about $10,000.  Not even close!  We still have the months of September and October to accumulate sufficient cash to get us through November but that ain't happening.  Why?  Because our income already  includes the prepayments of some of our owners, thus reducing the normal monthly income flow.  And because there is at least 1 payment out there still to be made:  the painting of the exterior of 113 and 213 @ $3,800.

We show a positive balance because of a screwy accounting method that Resource uses for flood and hazard insurance.  They put a big fat zero in those categories each month because they figure it isn't an expense unless it has been paid.  As a result, you can look at the balance sheet and get the skewed numbers that indicates a positive balance when, in fact, that balance is really far out of whack.  Because the flood and hazard insurance expenses are not counted!

The Circle, pre-Resource, used to handle this little bookkeeping problem by referring to the Flood Insurance as a "deferred expense".  They plugged in the budgeted amount each month and it accumulated.  That way you can look at the flood insurance account and see what moneys should be available and you don't get the skewed balance.  Sounds reasonable right?  Nope! I requested that Resource make that change.  But as with all things Resource, it wasn't done despite the fact that it would make our Board's job just a bit easier.  Is it Resource arrogance or are they just too big to make small adjustments to meet our needs?

This budget screw-up also effects our bottom line at the end of January.  Instead of the money accumulated in December and January, being treated as an expense, it isn't.  Therefore, that entry reduces expenses and inflates the net balance.  If that money was counted as a deferred expense, then that expense would be counted and a true balance would be reported!

When all is said and done, I would suggest that our deficit is somewhere in the neighborhood north of $20,000.  That needs to be made up if we have any hope of achieving a balanced budget at the end of the fiscal year.  That also assumes no further "unbudgeted maintenance expenses" between now and the end of January.

So the question is, what are we going to do about it?  There will have to be a budget adjustment or assessment at some point in the future.  It will be coming and we will again be asked to pony up.  Perhaps we will get some answers to be the fiscal mess - or perhaps not!

Roof C Contract again.

First of all, I would like to make a correction of a statement I made regarding the roof C contract in my initial writing.  I corrected my mistake in a subsequent writing but likely as not, that correction will not be noticed by our readers, except the very discerning ones.  What I said was that the area to be covered by the foam on the roof in their contract proposal is the same as the proposal that ThunderBay (TB) originally gave to me a year earlier.  That was wrong and Kimberly was quite correct in her statement that the contract language called for an increased area to be foamed.  This was negotiated in the second incarnation of that proposal.
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But what of it?  That does not change the fact that was a repair proposal.  Period.  The differences between the Martin full roof proposal and the TB repair proposal are enormous: contract price, warranty coverage, lifespan of the roofs and, yes,the area of the roof to be covered (full vs. partial).  The Martin contract proposal is the obvious pick when all is considered. The only positive factor for TB in the decision, is that they apply 2 top coats to the roof after spraying.  If  that makes such a difference, then have Martin give a quote with an extra coat.  It still would be a better value.

I am still trying to understand the dynamics that went into the approval of the ThunderBay contract proposal..   Who buys a roof repair option with a 10 year life span when a full roof replacement with a 20 year option is available?  Nobody!  So why did that happen?

My theory is that it may be due the sentiment, among our Board Members, that we should only have 1 roofer.  That having more than 1 roofer would, in effect "spoil the broth" or whatever.  Now if we were talking about having 3 or 4 different roofers, that might be the case.  But here, we were talking about only 2 roofers.  Each with different strengths.   TB is excellent in maintenance, as their record over the past year and a half proves; that's their strength!  Martin appears to be very good with foam roofs as Buttonwood has decided; foam roofs are their strength!  So to say that the 2 of them could not coexist as our roofers is ridiculous.   Both roofing company's could have been utilized, each with their respective strengths.

And this may well have entered into the thinking that went into the approval of the TB contract.  As I recall, Kimberly held up the processing of both the maintenance and the roof proposals, as she wanted to get a proposal for maintenance from Martin.  When Martin opted not to give her a proposal for maintenance, I believe the die was cast.  TB would be given both the maintenance contract and the roof repair contract and we would have only 1 roofing company.   It seems likely that if Martin had given her a maintenance proposal, Martin's C roof proposal might have been approved.  Just to keep to the fallacious idea that we should have only 1 roofer.  And the Circle is $10,000 poorer.

Why a Blog?

I've been asked, why am I doing the Blog?  I've been accused of doing this due to sour grapes on my part or the Monday Morning Quarterback stuff.  I am no egotist and my name does not have to be in the limelight.  I certainly wouldn't be doing this Blog if everything was going well.

But the 1st Board Meeting of any substance, the July Meeting, suggested to me that we were going down the road once traveled and led by the Property Manager, Marilee from Ameritech.  She put her strong imprint on the Circle when the President resigned.  She and that Board were responsible for running up a $23,000 budget deficit and for decisions that contributed to really poor morale within the Circle.  That Board also went the emergency route to sign a contract without Board approval to repair the water intrusion issues in 104 and 213 for $5,200 - we're still having the same issues with those 2 units today!  And nobody, including me, called them out!

I saw the same pattern emerging here in that July meeting.  Kimberly ramming a roof contract through the Board without proper debate.  Contracts being let without Board Approval.  Important issues being overlooked (see foreclosure of 214) while dubious projects are undertaken (see the Paint Project).  Kimberly running the meeting while our President was unavailable (one of the reasons to elect only a President that will be on-site).  This was all too familiar and reminiscent of that past Board that was a failure.

So this time, I am trying to make a difference and make the Board President and Property Manager accountable to our owners.  The Blog was the answer as I was able to reach out to our snowbird owners as well as those here at home.  That's the wonder of the new electronic age!

Frankly, I would rather not be doing this Blog.  I've got more important things to do (like take a nap).  But I do believe this Blog is necessary, given the situation that the Circle finds itself in and the fact that our Board and Property Manager needs to be reined in.  I take no pleasure in doing this but if it makes the Board and Manager more accountable, mission accomplished!   At this point we still have work to do.

Just my opinion,
Andy Johnson