Budget Crash of 2008!

The Foundation’s Goals and Community Standards

Budgets are the money expression of the goals and objectives of a Common Interest Realty Association (CIRA). The board of directors’ responsibility to approve the annual budget and establish assessment levels places special emphasis on the board’s stewardship duty to allocate control and wisely utilize community resources.

The budget’s effectiveness depends on the board’s willingness to take prompt corrective action on unfavorable variations from the budget as indicated by the monthly financial reporting system, the on going monitoring of property conditions and feed back from the community.

Roles and Duties in the Budget Process

Staff and Management

Based on based predetermine goals, standards and policy the staff and management must prepare, present, defend and be held accountable for the budget it prepares and presents for consideration and approval.

Every major category and classification of income and expenditures has a standard time tested proven method of measuring and determining budget line item amounts. As a minimum, backup budget preparation schedules should be used to calculate personnel, utility, contract, supply and capital reserve cost.

Presentations of the budget for board and community’s approval and consideration has to be professional prepared and include a comparative analysis of historical, current and future revenue and expenditures. The budget must include rational and reasonable explanations and justifications of program recommendations, income and expenses calculations and analysis of trends, variances and conditions affecting costs.

Board of Directors

The Board of Directors is responsible and accountable for the assets, operations and finances of the Village’s. The budget is the financial plan and the primary tool that allows the board to effectively meet these obligations.

Each board member should:

• Understand his or her financial duties and obligation; the requirements, standards and community goals address in the budget and how the budget is prepared.
• Be willing to challenge and questions all aspects of the budget.
• Hold the staff and management accountable for results and
• Openly, effectively and truthfully communicate and engage in a two way dialog and communication with the community on the merit of the budget.

The Membership

Only then can the property owner members in the Village have a level of confidence in the budget preparation and communication process to judge whether those with power, duty, obligation and influence are:

• Preserving, maintaining and enhancing its property and assets.
• Providing maximum value from the assessment dollars.
• Enhancing and contributing to the Village’s quality of life.
• Effectively delivering customer services to the members and
• Impacting positively on the equity value of common and individual property.

The Approval of the Empty MVF 2008 Budget Package

The MVF Board of Directors and staff should feel an under whelming sense of failure, shame and regret for preparing, presenting, communicating, adopting and approving the MVF 2008 budget and assessments at the October 25^th board meeting.

The only community goals and standards articulated were “no new initiatives” and to “raise the assessment ceiling”. The budget did not address plans to improve customer service delivery or a strategy to restore the function, structure and aesthetics to the Village’s neglected common facilities, landscaping, shore lines, paths and lighting to a community standard of maintenance, care and management.

Missing was a sense of urgency, commitment and capital plan that would restore life to the Village’s crumbling infra structure.

The MVF staff’s2008 budget preparation, presentation and performance lacked supporting schedules, understandable calculations, meaningful explanations, valid comparisons, intelligent analysis or valid rational.

The proposed budget was published without any apparent aspect being questioned or challenged internally by staff, the Audit Committee, or individual boar members.

For the last 6 months Interim Director of Finance and Administration and now “Consultant” Lois Campbell in her role as MVF’s chief financial spokesperson mobilized the public relations misinformation surge, not about the merits of the proposed budget, but to promote a campaign to “raise the assessment ceiling”.

Raising the assessment ceiling has always been the only mission of the MVF village leaders and foundation staff. Open, effective and truthful communication in which all parties engaged in a two way dialog with the community on the merit of the budget was never a consideration.

Lois, in her assumed capacity of MVF Communications Czar, authorized unlimited space the Village News’ September, October and November editions to promote a raise in the assessment ceiling to the over 10,000 Village households.

A willing force of contributors from The Village News editorial staff, former Interim EVP Pat Huson, as well as tenured board members Keith Silliman, Richard Wright and Gerald Donovan contributed articles skillful avoiding the details of the proposed budget.

Questions and concerns raised by those in attendance of the September 25^th budget information meeting and the October 18^th meeting of MVF representatives were dismissed as not germane to the vote to raise the assessment ceiling. The questions covered:

• A comprehensive examination of the budget by line item,
• A plan to contain cost,
• MVF existing budgeting and spending philosophy,
• Accounting and reporting credibility,
• Cost effectiveness of Village wide spending programs

“Letters to the Editor” of The Gazette from Jane Hatch, President of the Board of Northgate Homes Corporation, and The Village News from Eileen Fishman a resident of Northgate, Michael Sheib a resident of Normandie on the Lake II and Mark j. Firley, President of Board of South Village Homes Corporation cried out for :

• Greater accountability and efficiency from MVF operations
• Stopping the abuse to those who dare to question the accelerating demand for money by the Foundation and,
• The abusive comments to those who express a contrary opinion.
• A need for civility and a cease to neighbor to neighbor hostility.
• Current year actual to budget results and detailed line item budget justification before budget decision can be made.
• A reexamination of 2007 results and the 2008 budget assumptions early in 2008.
• Accountability and explanation to residents of condominium communities of the cost of Village wide spending programs.

All the letters were received with silent indifference except to Michael Shieb’s letter in which then Interim EVP Pat Huson’s responded “When people do not acknowledge and support the efforts of the Foundation, they not only do a disservice to MVF, but to themselves and the community as well.”

Mr. Shieb you must realize that there is a long standing MVF board approved policy that when any person publicly express a comment, opinion and/or concern or asked a question about MVF financial matters or services preformed they will be ignored, deionized, patronized, judged unworthy, treated rudely and declared a disloyal enemy of the Foundation.

Relying on the staff prepared and presented 2008 fiscal year budget with the endorsement of the Audit Committee, the board with only Katherine Gray and Scott Johnson voting against, approved a defective financial non plan destined to follow the rocky road to “The MVF Budget Crash of 2008”.

Financial transparency and public comment and approval had been successfully hi jacked and held hostage as ransom in return for a raise in the assessment ceiling.

Budget Crash 2008 The Observers’ Projections and Predictions

Despite the refreshing and open leadership of Bob Hydorn, the good intension and efforts of Hydorn and fellow board members Scott Johnson, Katherine Gray and Bob King to effect financial reform and the hiring an Executive Vice President and Director of Finance and Administration the approval of the 2008 fiscal year budget indicates little progress has been made.

The events over the past 90 days were a series of missed opportunities. The hold over board members from the Wright-Silliman-Zakian-Huson-Campbell regime are still in control promoting the corrupted MVF financial, operating and governing policies and practices of the past quarter of a century.

The most amazing revelation is that Lois Campbell, 3 months after William Blum became the Director of Finance and Administration and 2 months after Dave Humpton was hired as Executive Vice President, in her new capacity as “Consultant” is still in control of Foundation’s communications and financial operations and exercise unchallenged influence over board and committee deliberations. John Zakian, as much of a control freak as he was, exercised less power and control and in The Observer’s view, wasn’t not nearly as dangerous.

If the Foundation embraces the MVF 2008 fiscal budget and continues its past financial policies and practices The Observer predicts the following will happen:

1. There will be a shortfall in non-assessment income of $1,439,549. The assessments only account for 56% the $ 8,585,527 expenses and reserve contribution budget. The Foundation has a history of substantially under estimating non-assessment income and 2008 will be no different. (See schedule C)

2. The Foundation will end up the 2007 fiscal year with a financial deficit in excess of a million dollars, and if the Board of Directors does not take appropriate action the 2008 fiscal year deficit is project to be $ 1,532,636.(See schedule A)

3. The combined deficits from the Community Management and Maintenance Activity Funds will be $$1,415,594 in fiscal year 2007 and $1,533,636 in fiscal year 2008. (See schedule J)

4. These deficits will be funded, as in the past, from funds intended as contributions to the Reserve Fund and curtailing spending common property maintenance and capital expenditures.

5. At the urging of the Audit Committee and influential board members Lois Campbell will be continue to retained as a paid financial consultant to further educate Bill Blum, Dave Humpton and newly appoint Treasurer Darcy Bingham on MVF financial policies, traditions, accounting and reporting practices, produce the November and December 2007 financial reports and work with Regardie, Brooks & Lewis on another “Clean Audit” for the 2007 fiscal year.

Budget - Just say no to a raise in the assessment ceiling!

Just say no to a raise in the assessment ceiling!

It’s the budget first It is the board’s responsibility in approving the budget to exercise due diligence in such a way as to ensure it effectively allocates, controls and uses the community’s resources. Only when that is accomplished can or should the board establish assessments levels. However, a deliberate and careful budget process on the merits of budget has been ignored to engage in a public relations campaign to raise the assessment ceiling.

The proposed ceiling increase won’t work As has been the practice over the years the 2008 budget includes 2 income line items that are not recognized as revenue in the annual audits. “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” are accounts which are offsetting income and expenses transactions are not income. These are bookkeeping entries and not actual MVF revenue.

When these budget transactions are included as income in any budget draft or financial statements, the total income is inflated and misrepresented. When adjustment are made to the 2008 budget proposal eliminating these non revenue bookkeeping entries and not changing the expense budget a projected deficit of $1,363,419 is created. Consequently, to balance the 2008 budget $1,363,419 in reduced expenses must be identified.

The expense budget for 2008 of $8,585,527 is $1,753,265 greater than the 2006 audited expenses. The 2008 proposed budget assessments of $4,825,785 is only $750,030 over the 2007 $4,075,755 assessments. To be preoccupied with the assessment ceiling and not the merits of the proposed budget makes no sense. And off course, neither does the 2008 proposed budget. (See schedule C)

History of Over Estimate Expenses and Underestimating Income The Board of Directors of the Foundation has a history of approving annual budgets that substantially over estimates non assessment income and under estimate operating expenses creating a severe cumulative budget deficit condition. (See schedule N)

Unfortunately, the board and senior staff live in the state of permanent denial, stubbornly pursue inadequate and poorly administered remedies, have not been forthcoming with the financial and property condition realities and are unwillingness to take prompt corrective action on any of the adverse financial and facilities condition problems facing the Village.

History of Loss in CM and MA Funds There has been history of losses and deficits over the years in the Community Management (CMF) and the Maintenance Activity (MAF) funds. These deficits were funded using money designated for capital reserves while neglecting maintenance and landscaping services to the public areas. (See schedule Q)

Arguments for Raising the Assessment Ceiling

Quality services will not be provided – When has the Village ever had quality service? For decades there has been general deterioration of the Villages’ parks, streams, and lakes’ natural resources. Can “Those people who are close to the organization and who appreciate its value” see the crumbing walkways; dying, crippled and diseased tree life; eroding and inadequate turf coverage being conquered by invasive and wild plants? Have they not noticed eroding soil washing into the adjacent lake and streams? Have they been aware of the temporary and inadequate stop gap shore line repair measures Lake Whetstone has endured for years? Have the not observe the neglected physical structures, the absence of normal care and maintenance routines and the ever growing backlog of capital needs?

It’s not about the ability to continue providing quality services it is about why these conditions exists, what happened to the millions of dollars collected from past assessments to maintain and preserve Village assets and how to create awareness of these conditions on the part of the board and senior staff so we take corrective action and do a much better in the future.

Reserve funds will not be available for need capital “Reserve Contributions from Assessments” (The board of director’s approved policy mandates it be equal to the annual depreciation cost) and “Reserve Interest” (Interest on reserve investments) are required budget line items that equal the annual funding source for the Reserve Fund. A small fraction of assessment and interest income budget for capital reserves has been credited to the Reserve Fund.

In addition, other than capital expenditures on Landscaping and Public Works equipment, there is little evidence that capital expenditure from reserves were ever spent to improve common property assets. Assessments and interest income designated for capital reserve have funded deficits in other fund types.

The embezzled funds don’t count The June 6^th edition of The Gazette reported “There were 21 other fraudulent transactions from the summers of 2004 and 2005 ranging between $75 to $3,500 for 7 employees, for whom Buttry created false payroll accounts in years when those employees did not work and deposited the wages into her personal account. A former lifeguard who was being audited by the IRS for wages supposedly paid to her in 2005-a year she did not work put investigators on the path that led to the $86,000 theft-scheme charge”.

In managing and operating a multi pool facility department it is incredible that MVF has never had a workable and effective payroll administrative control system. The ease, consistency and skill which Laura Buttry could steal substantial funds from the payroll system and go undeterred for so long a period is just one example of MVF’s long standing and continuing out of control financial and personnel staffing operations.

If you don’t favor the increase; good governance, Village activities, effective management control systems and the appearance of the public areas are unimportant to you and Montgomery Village is not the place for you to live. So move!

No Lois, Pat, Gerald, Richard and Keith, it’s not those who oppose the raising of the assessment ceiling who should go. We need to stay to clean up the mess!

Financial Report - The truth about The August 3, 2007 MVF Financial Reports - It's not good news!

The Village News Has Arrived!

Lois Campbell in the Village News “Money Matters” feature (October 12^th edition) reports in her signature euphemistic “Lois speak” the latest MVF financial good news. Rivaling Alan Greenspan’s secret language of opaque and convoluted dialect Lois writes that “Through eight months, the performance is essentially on track; …Expenses are over budget by $247,000…however, the expenses profile for the remaining months of the year has some uncertainties”.

Follow is the Observer’s restatement of MVF financial statements through August 31, 2007. Although both reports used the exact same income-expense general ledger accounts and cumulative line item amounts, the Observer’s rendition leads to a much different conclusion about the state of MVF’s financial health.

The following are the differences in the 2 versions.

Overhead Expense Allocation The overhead expenses allocated the various accounting funds equals between 20 to 23 % of the total expenses. For this year the budgeted allocation cost is $1,508,605 and $1,804,561 proposed for 2008. These overhead costs are not allocated prior to the preparation of the monthly financial statements.

Consequently, the MVF financial statements do not include detailed comparative reports of expenses and income categories, individual line items or fund types. The Observer has made the cost allocation and has reported by operational groups within each fund type.

Unrecognized Income “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” are income accounts which are offsetting income and expenses transactions not recognized as revenue in the annual audits.

When these budget transactions are included as income in any budget draft or financial statements, the total income is inflated and misrepresented. The Observer has excluded “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” from its version explaining the $498,787 variation in income between the 2 versions.

Summary Reporting The “Income/Expense Summary” and “Balance Sheet as of August 31 2007” as reported on page 12 of the current Village News only displays total income ($5,345,936) and expenses ($5,300,098).

The Observer’s Income - Expenses comparison report presents a detailed comparative of expenses and income categories and fund types and comparison of the MVF balance sheet information with the December 31, 2006 audit balance sheet.

Financial Analysis Narrative There is no factual basis for the MVF narrative analysis and conclusions that are printed in the Village News and the financial statements provided MVF board members in advance of monthly MVF board meetings.

The “Money Matters” columns only publish a total summary “Income/ Expense” and “Balance Sheet” and does not include a detail of sub categories, fund types and income-expenses categories for the periods being compared and analyzed. However, the oral and published narrative and explanations refers to and compares unrevealed financial data.

Consequently, you either accept the staff’s analysis and conclusions on blind faith or assume what is being presented is fiction, fantasy or fraud.

Income and Expenses

Expenses exceed revenue by $495,271. The Community Management (CMF) ($74,117) and Maintenance Activity Fund (MAF) ($306,377) deficits account for 76.8% of the operating deficit through August 2007. The 2007 year end projections indicate a possible MVF 2007 fiscal year deficit of $1,224,637, CMF a $76,306 deficit and the MAF a $1, 3281,175 deficit.

Revenue

Projected income for 2007 fiscal year is $960,222 lower than the approved 2007 budget. “Assessment Collection Fees” ($132,000), “Disclosure Income” ($64,500), “Class and Courses” ($25,200) and “Fixed Maintenance MVF Maintenance Contract Income” ($724,500) account for this revenue variance.

Expenses

Projected expenses for 2007 fiscal year are $239,418 higher than the approved 2007 budget. Payroll expenses ($246,622), Utilities ($39,974), and “Audit” ($35,268) account for this expense variance.

There are many confusing aspects of the MVF financial budgeting, accounting and reporting system. The most confusing and difficult to explain or understand is the treatment of direct expenses incidental maintenance, landscaping and snow removal services on common property provided by the Maintenance Facility and Public Works department.

The individual line item direct expenses budget amounts for current, year to date and 2007 budget displayed for directed expenses are substantially different than the approved budget. Each month $50,572 is charged as a direct expense to account 5590 Fixed Price Maintenance. Under this different schedule of budget expenses the annual budgeted amount for account 5590 is $606,861. (See schedule I)

Consequently, when the current through August expenses are projected through the end of the year “Grounds, Landscaping, Lakes and Streams” is under budget by $427,755 while “Maintenance, Repairs and Supplies” will be over budget by $603,218.

Balance Sheet

The balance sheet does not show an amount in a number of account classifications. Balance sheet accounts such as “Accounts Receivable” and “Accounts Payable” are normally updated to the last day of the reporting period as part of a standard accounting “close out” preformed to the books and records prior to producing the financial reports. This raises questions to the accuracy of the published financial reports.

The balance sheet shows a reduction of “Cash & Equilvants” of $339,433, $471,717 in “Total Assets”, $501,913 in “Current Liabilities and $232,665 in “Reserve Funds from the 2006 Audit balance sheet reports as of December 31, 2006. (See schedule P)

Please stay posted to the Montgomery Village Observer’s Blog and website for more bad news about the MVF 2008 proposed budget and the awful truth about raising the assessment ceiling.