Elections - Campaign 2008 - 7 Questions to Ask the Candidates!

Campaign 2008- 7 Unanswered Questions for the MVF Board Candidates

For two (2) hours on Wednesday evening, January 23, 2008, nine (9) of the eleven (11) announced candidates for the 3 open positions to the Montgomery Village Foundation Board of Directors made their statements of candidacy and answered questions from the 20 or so Village residents and homeowners who braved the cold weather to attend the Candidates’ Forum at the Whetstone Community Center.

The candidates’ written statements as published in the January 18, 2008 edition of The Village News and the responses given by those candidates in attendance at the Forum were extremely informative. However, up to this point there are still a number of core issues facing the Foundation Board that haven’t been adequately and completely addressed by each candidate.

The Observer invites each candidate to log onto http://www.s24c.com/mvo13.htm and give their answers to the following 7 unanswered questions.

1-Financial Reporting. The MVF monthly financial statements lack detail and only display total income and expenses. Missing are detailed comparative reports of expenses and income categories, individual line items or fund types.

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

This results in a distorted and misleading presentation of revenue, expenses, assets, liabilities and equity accounts.

Limited selected financial information is only communicated to create an illusion of favorable financial conditions and excellent staff performance as well as to justify past and current board decisions and actions

Question 1: Do you believe there is transparency in the MVF financial reporting? Do the monthly financial reports reflect the true financial condition of the Foundation? What is your assessment of the financial health of the Foundation? If you are elected to the Board, what would you change and what would you maintain about the Foundation’s finances and financial reporting?

2-The Audit. From 1999 to 2005, there were over 30 acts of theft and embezzlement of funds entrusted to the Foundation. There were nine (9) annual fiscal year audits (1999 to 2007) and several special examinations of the records incidental to the embezzlement conducted by the auditing firm of Regardie, Brooks & Lewis costing $385,000 including $65,300 paid in 2007. RB&L was only able to uncover one (1) of these acts.

The Village News has continually quoted the annual fiscal year audit report as evidence of the Foundation’s alleged favorable financial condition and as validation of its corrupted accounting and financial reporting practices.

Question 2: Do you believe the money paid RB&L was well spent? Are they best qualified firm to perform the 2007 fiscal year audit? If the MVF Board was to vote on a motion to hire a qualified auditing firm other than Regardie, Brooks and Lewis to conduct the 2007 fiscal year audit, would you support such a motion? If not, why not?

3-Lake Whetstone. For decades there has been general deterioration of the Village’s parks, streams, and lakes. Lake Whetstone Park and surrounding parkland, turf, ground cover, landscaping and shore line maintained by the Foundation has fallen into disrepair causing a migration of eroded materials into the lake and connected streams, lakes and ponds.

The duty to maintain and fund the lake and surrounding property elements including shore line maintenance and restoration is divided between the Foundation and Whetstone Homes Corporation. The maintenance of the lake (shoreline to shoreline) will be maintained and funded by the Montgomery County’s storm water management program.

According to published reports in The Gazette, “The Foundation received a $25,000 state grant to refurbish the boathouse and south dock at Lake Whetstone. They money was for early steps only and to study the scope of what is possible and how much it would cost”.

The Reserve Analysis report of July 7, 2007 by Advanced Reserve Solutions identified 4 critical Lake Whetstone capital items:

#	Description	Remaining Life	Current Cost
1	Check dams	0	$24,280
2	Dock Restoration	0	$268,050
3	Lake Dredging	3	$134,730
4	Lake Bank Stabilization	0	$29,000
Total			$457,010

Question 3: What is your assessment of the condition of the park, lake and stream property elements encompassed by Lake Whetstone? What remedies if any do you support? Do you support or oppose the restoration of the dock? Should the Foundation request an additional state grant to pay for the restoration? If not, should the $25,000 be returned to the state?

4-The 2008 Budget. North Village Homes Corporation stated in its North Village View column in the November 2, 2007 edition of The Village News. “The 2008 budget information provided was very limited, whereby no expenditures data was provided for fiscal years 2006 and 2007 in order to generate a more accurate comparison with the requested fiscal year 2008 budget increase. In addition, there was no breakdown of capital projects provided, including no strategic plan for future year guidance on capital projects. “

The lead front page story in the November 2, 2007 edition of The Village News headlined “Reps Vote on $3.14 Assessment Ceiling Increase to Cover 2008” announced “Newly appointed EVP Dave Humpton is pleased that the representatives voted to cover the 2008 budget with the assessment ceiling increase.

“He and the MVF Board will focus on the 2009 budget in December and January to map out the potential budget increases and define the assessment ceiling needs for the next 5 years. Then, from January to March, residents will receive more information about the need to raise the assessment ceiling further, with a vote on another increase tentatively scheduled for the end of March.

“The Foundation must have the ceiling increase decided before 2009 guidelines are set in May. Two information sessions will take place for residents before the next assessment ceiling vote.”

Question 4: Do you believe the 2008 budget was adequately and properly prepared or should it be re-examined and restructured to include a strategic plan for future guidance on capital projects? Or do you believe we should focus on the 2009 budget to map out the potential budget increases and define the assessment ceiling for the next 5 years?

5-Community Management Fund and Maintenance Activity Fund Deficits. Fixed Price Contract Income for both management and maintenance has been in decline for the last decade. The Foundation has not been able to compete on price and service which has created accumulated deficits in the Community Management and Maintenance Activity Funds.

There has been a 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.

Question 5: What is your plan for ensuring the Community Management and Maintenance Activity funds do not generate deficits in 2008? What is your proposal to make up for the accumulated deficits in these funds? What fundamental changes should be made to the Community Management and Public Works and Landscaping departments so they can cost-effectively compete on price and service in the market place? Considering its high cost and the growing deficits in the Maintenance Activity fund, do you favor eliminating the landscaping and grounds service fixed price contracts as a service?

6-Capital Reserve Funding. The Foundation’s initial reserve funding policy mandates that the annual contribution to the reserve fund be from two sources: One, “Reserve Contributions from Assessments” (equal to the annual depreciation cost) and two, “Reserve Interest” (Interest on reserve investments) However, through a series of policy decisions and accounting - financial reporting practices, recommended by the Audit Committee, understood by members of the Board and validated by the auditors, only a small fraction of assessment and interest income budget for capital reserves has been credited as income to the Reserve Fund.

Assessments and interest income designated for capital reserve have funded deficits in other fund types.

Question 6: Do you approve of the present Foundation policies and accounting-bookkeeping –audit practices that divert assessment income designated for reserve funds to hidden Fixed Assets accounts? In your opinion what are the critical capital infrastructure needs of the Foundation and what would be your plan to address these needs?

7-The Village News. The Village News is not trusted by many as a source of accurate, fair, useful and critical information about the Village including the Foundation, the various community groups, Homes Corporations, Condominiums, rental and business communities.

There is a feeling that The Village News’s editorial, reporting and communication policies are geared to self promotion over effective communication. Its news and features, more than likely, attempt to create an illusion of favorable property conditions, superior service performance by the Foundation’s staff and contractors or to justify past and current board decisions and actions.

Standard features and summary information of Homes Corporations such as annual meeting and approved annual budgets only report on or include Homes Corporations which are managed by the Foundation.

Major Village-wide news events and happenings, especially bad news, are reported first and much more accurately by The Gazette.

The Village News’s advertising revenue is declining and does not cover printing, staff and overhead costs.

Question 7: What is your opinion of The Village News? What editorial, reporting and communication policies and practices, if any, would you change if you are elected to the Board? Would you be in favor of converting to an improved Village News version published monthly plus occasional special editions such as an election or summer activity edition?

The Observer invites each candidate to log onto http://www.s24c.com/mvo13.htm and give your answers to the following 7 unanswered questions.

Hiring of a New EVP & DFS Good Job! We were lucky!

The hiring of Dave Humpton and Bill Blum Now the Story Can Be Told

Congratulations are in order!

The Montgomery Village community enters 2008 with a collective upbeat sense of relieve, hope and optimism with the experienced and capable leadership team of Dave Humpton and Bill Blum on board, in place and in charge as the Foundation’s Executive Vice President and Director of Finance and Administration. Congratulations and acknowledgments are in order.

Thanks!

To the ad hoc Personnel Selection Committee, for their time, effort and personal sacrifice that brought about such a successful outcome. The committee was able to perform despite distracting challenges to its legitimacy, make up and competency.

To Bob Hydorn in his second meeting as MVF board president calling for board approval of the appointment of the ad hoc Personnel Selection Committee after 288 days or 9 ½ of inaction after Zakian and Barber’s resignations. 9 ½ months is more than enough time to make a baby and fill a key position. But in both situations, someone has to start the process. Although it wasn’t pretty Bob Hydorn’s courageous leadership got the process started.

To Katherine Gray, Jim King and Scott Johnson elected to board in March of 2007 for delivering on their promise to “restoring confidence in Montgomery Village by hiring the best executives we can recruit to be the next MVF executive vice president and a new director of finance”. In their role as members of the board and the Personnel Search Committee they made the difference.

No Thanks!

To the hold over members of the Board of Directors of the Silliman-Wright-Zakian-Campbell era, who after the passage of the motion to establish and authorize the ad hoc search committee to move forward with the search, publicly criticized and questioned the judgment and legitimacy of the board’s actions. As in the past they have contributed little while taking credit for a lot.

And no thanks as well to those Homes Corporations’ tribal leaders whose childish attempt to bully their way to an undeserved seat of power at the search table.

How it happened - Now the Story Can Be Told.

While we celebrate the favorable results now, during its 6 months of intense deliberation, the committee experienced a continuing series of disappointments and set backs. The silent consensus among its members was that a favorable result was very much in doubt.

The Search Begins

At the initial organization meeting of the search committee Pat Huson provided the Executive Vice President’s position descriptions and a status update.

The recently elected members of the board and the home owner representatives on the search committee silently wondered why after almost 10 months there appeared to be little evidence of preliminary staff work, preparation, planning and off course progress made on these 2 important positions.

It was assumed the Foundation would have in place an automatic standard employment process for identifying, attracting, screening, qualifying and evaluating each job classification group when a vacancy occurred. This would be especially true for supervisory and management level staff openings.

Pat assured the committee that indeed was the case. There were already many experienced and qualified applicants for the Director of Administration and Finance position. Lois Campbell was keeping Treasurer Katherine Gray apprised. The Executive Vice President opening had for sometime been made know through trade and executive personnel placement contacts and sources.

Through the spring and summer the committee met frequently to review and discuss applicants and conduct group telephone interviews with candidates. In August the committee presented for board consideration 3 candidates.

Headlines in The Gazette’s September 19^th edition trumpeted the board’s responses “MVF lingers without leader – One board member’s refused to vote leaves hired in 4-4 tie”. The ensuring articles printed Pat Huson’s assessment of the situation “As far as I know they’re still deadlocked. I honestly do not see at this point how it will be resolved. But I’m sure that it will be”.

As the Village enjoyed the Labor Day holiday weekend there the silence on the Director of Finance and Administration opening signaled more disappointment.

What was going on?

As in so many events that don’t happen in the Village the Foundation had once again put into play its policy mandated practice of passive personnel, program and problem solving management style in filling these 2 key positions. That’s right nothing had been done or accomplished.

The application files for the DF&A position lay dormant in Lois Campbell‘s possession including Bill Blum’s impressive resume, his frequent follow up faxes and telephone inquiries.

Other than advertising the position in The Village News there was little evidence that either job was advertised and posted on line in any local, metropolitan, national, trade or employment newspapers or publications. Shortly after the ad hoc search committee membership was determined the EVP opening was posted on the Community Associations Institute “CAI Job Market” internet job bank. This produced the 15 applicants the committee considered and the 3 candidates submitted to the board consideration.

A carefully targeted and managed executive job search for comparable positions, utilizing advertising in the employment sections of metropolitan, national, business, HR and trade journal newspapers and publications and corresponding web postings would normally produce several hundred responses.

How did we avoid the train wreck?

We got lucky, 3 times. First, board member and Treasurer at the time, Katherine Grey had reviewed the initial DF&A applications and resumes received and was particular impressed with the Bill Blum’s experience, background and credentials. Not satisfied with the answers and delays to her frequent inquires and requests, Katherine contacted Bill directly, set up meetings and interviews that lead to his hiring.

The second lucky event was the board dead-locked vote. First it prevented the hiring of yet another MVF EVP selection mismatch. In all probability the rendition of the Village’s pathetic plight as described in The Gazette’s September 19^th edition must have inspired Dave Humpton to say “I think I can help these guys”.

The third component of the perfect storm of luck was Dave’s availability and interest at the Village’s most desperate hour of need.

Financial Report - Mr. Wright you're wrong again!

Mr. Wright is wrong again!

The Village News November 1^st “ Money Matters column by Interim Treasurer Richard Wright reported that “Through 9 months the (financial) performance is essentially on track…with income $301,000 better and expenses $264,000 worse than budget. However, the expenses profile…will wind up slightly negative”.

The remaining narrative was a series of un-intelligible explanations of the alleged income and expenses categories line item amounts and anticipated 2007 year end budget variances. While attributed to Wright, the report was written in the familiar unreliable financial “Lois speak” style prose of Lois Campbell.

The Observer has restated the MVF financial statements through September 30, 2007. While both versions 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. (See schedule p4)

Financial Reporting Goals

The effectiveness of the of the financial management budget reporting systems depends on the board’s confidence and willingness to take prompt corrective action and make good financial decisions on unfavorable variations from the budget as indicated by the monthly financial reporting system.

All that said it seem reasonable that the primary goal of the budget and financial reporting system is to produce an accurate, complete, timely, understandable income-expenses budget comparison and balance sheet statements each month.

Inherent in all successful business, non profit and community association organizations is an intuitive sense of urgency about financial reporting, that mandates complete accurate financial reporting communicated thought out the organization normally within days of the end of the reporting period.

MVF Financial Reporting Traditions

In addition to a well planned and deliberate misleading, confusing and convoluted reporting system, the Foundation has developed to a fine art of time stretching from the end of the reporting period to when the MV Village News Money Matters feature fictionalizes the MVF financial highlights.

Because the staff driven bureaucracy has no sense of urgency about completing and distributing MVF’s inaccurate, improperly prepared and misleading financial reports until a few days before the monthly board meeting, any meaningful communications is already 2 to 3 month old.

The Realities of the MVF Financial Report System

The MVF financial statements and reports prepared by staff, presented to members of the Board of Directors in advance of meetings, summarized and reported by the MVF Treasurer at the MVF monthly board meetings and reported in the MV News deliveries an empty message. This results in a distorted and misleading accounting presentation of revenue, expenses, assets, liabilities and equity accounts.

By all indications reporting accurate, complete, timely, financial information is not intended purpose or desire of the senior staff, the Board of Directors and the Audit Committee.

Limited selected financial information is only communicated to create an illusion of favorable financial condition and excellent staff performance as well as to justify past and current board decisions and actions.

Mr. Wright, Prove Me Wrong!

Dick, you may take exception and disagree. If so please set the record straight when you give the Treasurer’s Report Thursday at the December 6^th Board meeting.

Make sure when you report “It (year end budget to actual variance) is expected that the year will wind up slightly negative” discuss and refute The Observer’s projection of a deficit of ($1,002,479) in 2007. (See schedule p4)

When you explain that the Maintenance Activity Fund (MAF) only has a ($42,122) deficit for the first 10 months of the fiscal year please mention that MAF income includes contract income of $603,750 “Fixed Price & ala Carte for Administrative Facility” which isn’t really income but an internal bookkeeping entry . . (See schedule v)

When “Fixed Price & ala Carte for Administrative Facility” is excluded on the 2007 audit report the projected MAF deficit in 2007 will be $1,231,553. (See schedule c)

When you state “Expenses are worse than budget by ($171,016) explain the budgeted line item amounts for “Direct Expenses” accounts used in the budget to actual comparison report are not the amounts approved and published for the 2007 budget.

As you know $674,290 of the direct operating expenses for the first 10 month of the fiscal year was charged to “Fixed Price – Maintenance 5590” which off course is only another bookkeeping entry so no one is really sure if money was actually paid, services preformed or what direct expenses were actually charged. (See schedule i)

When you report that “Through October Reserve spending was $422,000 and Reserve contribution and reserve interest income totaled $276,000” it would be helpful mention the $422,000 “Reserve spending” was not really spent on capital improvement projects but transferred to “Fixed Assets” account under “Fund Balances” , (another bookkeeping transaction off course) .

Also remind everyone that $276,000 “Reserve contribution and interest” isn’t really contributed to the “Reserve Fund” because the Designated Reserves fund is no long is classified as a MVF fund type. Why don’t you, Lois, Keith or someone from the Audit Committee explain how the majority of funds budget for “Reserve Contribution”, “Reserve Interest” and “Reserve spending” (via the “Fixed Asset” account) is used to fund the on going annual deficits of the Community Management and Maintenance Activity Fund.

Dick, if you don't feel comfortable commenting in your Treasurer’s report at the meeting please feel free to post your comments on The Observers blog

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.

Budget - The MVF 2008 Budget Process - Let the Games Begin!

6/28/2007 Approval of the 2008 Budget Preparation Guidelines

At the June 28^th MVF board meeting the board officially kicked off of the MVF 2008 fiscal year budget countdown. As reported in the July 13^th Village News in its “In the News” column staff reporter Mike Conroy reported under Money Business “On the heels of the positive balance for the 2007 budget, Lois Campbell presented the Board with the 2008 Budget Guidelines, as the time to start the budgeting process is right around the corner.”

At the meeting the board acted on 3 staff recommendations necessary to move the budget process forward. First, the board approved the 2008 budget preparation guidelines after agreeing to fund the reserve contribution assessment to a 75 percent level (as recommended by the reserve study report) by a 4 to 2 vote, agreed to consider a raise in the assessment ceiling and third, it set the 2008 budget timeline as follows.

Thursday June 28^th - Set guidelines and authorize preparation for ceiling increase.

Thursday August 16^th - Joint Board and Audit Committee draft review meeting.

Thursday August 23^rd – Board of Directors meeting – Approve draft budget for publication.

Thursday August 31 - Publish draft budget the Village News.

September 1^st to 27^th – Public Commentary period.

Thursday September 27 - Board of Directors meeting – Approve assessment rate and adopt budget for 2008.

Using the 2007 budget as a starting base for calculating the 2008 budget, the guidelines methodology consisted of only 4 steps:

1. Add to “Wages and Benefits”, per the Personnel Committee’s recommendations, 3% for merit raises and $144,000 for new staff positions not included in the 2007 budget.

2. Increase non personnel related operating expenses 3.5% to compensate for inflation

3. Increase “Inter Company” expenses from $724,000 to $900,000

4. Budget $715,000 as “Contribution to Reserves” (Note: this is 75% funding of the amount recommended by Advance Reserve Solutions in its July 2007 reserve study report).

The guidelines present more questions than answers.

Budget to Actual Comparison Is it reasonable to use the 2007 approved MVF budget as the foundation for the 2008 budget? How is the 2007 budget matching up in the monthly financial statements when compared to the actual income and expenditures by fund type and ledger accounts against the budget? In her July 13^th 2007 “Money Matters” column :Preparing for budget season” Lois Campbell wrote “A well-developed budget enables management to measure performance during the year and to make adjustments as needed. The “traditional budget vs. actual” is the gold standard for management success or failure.”

Based on what has been communicated by senior foundation staff, reported in the Village News and shown in the monthly financial reports made available to the board members each month, the 2007 actual expenditures through July compare favorably to the approved budget.

At the June board meeting Lois Campbell was quoted “that the Foundation continued its (favorable) trend from April …the budget still looks to be on track to stay balanced.” After hearing the positive outlook, Board member Jerry Donegan was “encouraged by our bright future.”

However, when budget and actual expenses and income operating categories are organized and compared by fund type a somewhat different picture appears. Using the July 2007 monthly financial statement provided board, the differences emerge:

• Substantial over estimating of income and under estimating of expenses.
• Widespread line item variation between published 2007 budget amounts and what is shown as the annual budget in the monthly financial statements report to the board
• Inclusions of inter fund income fees that record no corresponding expense or negative income offsetting from other fund types. These types of transactions have not been recognized as revenue in the annual audits
• Inter-Company Expenses” equal to the total foundation maintenance and landscaping cost is included as income to the maintenance activity fund. Income from these type sources have not been recognized as revenue in the annual fiscal year audits.
• As has been the pattern for the past several years, there have been significant losses in the community management and maintenance activity funds.

In the opinion of the MV Observer, building next year’s budget solely on this year’s numbers as presented to the Board is burying MVF’s fiscal future on a foundation of quick sand.

Budget Preparation Policy Will the 2008 guidelines as presented supersede the existing established board policy that outline the methodology for preparation of the annual budget and establishing assessment levels?

In a series of articles on the budget process was published in the Village News in the spring and summer of 2006, John Zakian in one of his Executive Vice President’s Message column discussed at length the principles and concept of Zero Based Budgeting (ZBB) as the basis of MVF’s budget preparation policy.

In the June 16^th 2006 Montgomery Village News front page story headlined “Work to begin on Drafting 2007 budget” it was stated that “Zero-based budgeting principles will be in use for drafting the 2007 budget, which means that all programs, services, activities, and staffing levels will be reviewed top to bottom as to need, purpose, justification and appropriate level of financial support.” In Lois Campbell’s July 13^th “Money Matters” column referenced earlier she stated “In short a well-articulated (budget preparation )concept prepared with care results in the ability to exercise management controls over the corporation by measuring progress against financial bench marks and corporate goals”.

An effective resolution that establishes, defines and implements the community’s board approved policy should do the following:

• Set forth in a public statement the community’s commitment that becomes an integral part of the association’s governing documents
• Establish this commitment in a framework that will ensure compliance with the law, the association’s governing documents and the association’s unique and specific requirements and the board’s fiduciary duty
• Allow for consistency in purpose, procedures, best practices and principles
• Insulate and protects against short-term pressures, conditions and occurrences that should not affect future related decisions and attitudes.
• Protect the policy from erosion and poor practices over time as the board, management, vendors and staff membership and viewpoint change.
• Ensure continuing, effective, reasonable and professionally performed practices.

In our view, it was not wise for the board to agree to use the “2008 Budget Guidelines” as budget policy rather than one based on Zero Based Budgeting (ZBB) as John Zakian inferred was policy in 2006 and which Lois Campbell intimated in July of this year was to continue to be the 2008 policy.

8/10/2007 2008 MVF Draft Budget Delivered

Although the board members waited with great anticipation for the arrival of the staff proposed 2008 budget their attention during the interim 7 week period following the board’s approval of the 2008 budget guidelines the board was very much occupied with other matters.

There was a protest from the residents of the partitioned community of Picton directed towards the independent kingdom of EVHC “to tear down that wall”. In attendance at the July 28^th MVF board meeting were District 14 representatives of the Maryland General Assembly.

On July 30 a Dispute Resolution Hearing was held concerning the board’s actions in appointing a treasurer and the composition of the EVP Search Committee. After meeting for more than a dozen times the EVP Search Committee became deadlocked over a final selection.

On Friday August 10^th the MVF 2008 budget draft was delivered in a hand addressed plain brown envelope propped between the screen and front entrance doors of MVF board members. The envelope contained the proposed budget in a 3 ring binder together with an explanatory covering letter.

With only one week to study the document before the August 17^th joint meeting of the board and the audit committee time was essence. The budget was quite a homework assignment for even the most knowledgeable and experienced MVF budgeters.

The joint meeting of the board and the audit committee was held as scheduled with no changes recommended.

8/16/2007 Presentation of the MVF 2008 Fiscal Year Budget

The August 17^th edition of the Village News “Money Matters” feature by Lois Campbell contained an edited version of the summary cover letter of explanation to the 2008 Draft Budget delivered one week earlier to the board members. Following are the direct quotes from both sources.

Balancing the Budget

“This budget is balanced and includes assessment increases for both the MVF and a Designated User (DU) funds…every line item in every department has been examined for excess. No new initiatives have been added and no services have been cut. However the assessment ceiling must be raised in order to avoid a deficit budget. Community Management and Landscaping and Public Works are at breakeven in this budget. Income is estimated conservatively and expenses have been carefully examined.”

“The current year (2007) budget is a balanced budget after two years of deficit budgets. Years 2005 and 2006 were back to back deficit budget year that were made worse by poor accounting practices and inadequate financial oversight. Primarily, the cause was the reduction of assessments in 2005 followed by no increase in 2006. If the CPI and cost of living increase had been applied to the 2005 and 2006 budgets and the assessment ceiling had been raised, many of the current difficulties with budgeting would not exist today. It will take time and effort to recover financially from the mistakes of fiscal years 2005 and 2006.”

“This 2008 budget will either be a deficit budget once again, or the ceiling must be raised. Both the MVF and the DU rates must be increased.”

Mistakes of the Past

“In addition, commitments to services clients were added, often without a thorough understanding of the cost and without receiving sufficient income to cover the cost. Furthermore, there was little financial oversight until late in the year.”

Contribution to Reserves

“The 2007 budget was balanced by including a reduced contribution to reserves. In 2006 there was no contribution to reserves as there were no funds available to make that contribution. For 2007, a MVF assessment ceiling and a responsibility to MVF members and Designated Users rightfully limited corrective action. Thus, the 2007 budget was balanced by limiting the contribution to reserves to $118,000."

“The assessment ceiling cap on the MVF Fund was reached in the 2007 budget. This was not sufficient to cover the full contribution to reserves. Had the contribution to reserves not been reduced, it would have been a deficit budget for a third year.”

Longer Term Issues

“The future has its challenges; the assessment ceiling has been reached and specific plans for financial revitalization have not been drawn up. These challenges deserve some further discussion. Financial resurgence requires the Board to take action. This action not only includes raising the assessment ceiling, but restoring the operating fund balances to positive territory. Financial health will not occur without intervention. Efficiencies in management and services are being sought throughout the organization and can be foreseen in the future but not until existing structural problems that have been developed over the last three years are corrected”.

“A final word on financial health it take time to undo the mistakes of the past. While great strides have been made to restore the accounting system to an acceptable state, this is not sufficient. Sound financial management is required. It cannot be accomplished in just one year, but this draft budget is the first step in the right direction.”

In her Executive Vice President’s Message titled “Reflections on the year” Pat Huson wrote “During this past year a number of tasks involved restoration of former standards and policies, which were by-passed or changed to the detriment of the organization…In the area of finances, an intensive effort has been made over more than a year to bring the financial record keeping and reporting back to excellent condition. Internal controls have been evaluated and updated to an effective level. Several new staff members are in place and are doing an excellent job. Monthly reports are being produced, and a proposed budget for 2008 has been prepared for review by the Audit Committee and the Board of the Directors. An assessment ceiling will need to be raised to fund the budget.”

8/26/2007 Board Considers 2008 Budget

As reported in the Village News August 31 edition “Interim Director of Finance and Administration, Lois Campbell, presented the 2008 draft budget. Campbell noted that although there had been financial problems in the past MVF’s current situation is such that the accounting problems had been corrected by the end of 2006 and proper financial management had been in place since August of 2006 due to her own efforts and those of Pat Huson.”

What was not reported in this edition of the Village News or in the August 29^th edition of the Gaithersburg – Montgomery Village Gazette was that the Foundation Board failed to approve the 2008 Draft Budget by a 4 to 4 deadlock vote. The board did agree however to publish the 2008 draft budget and the remaining budget schedule dates and events.

8/31/2007 Campaign to Raise the Assessment Ceilings

The previously published 2008 timeline approved at the June 28^th board meeting showed September 1^st to 30^th as “Public Comment” period. Now as announced and prominently displayed in a bold border frame on page 5 of the August 31^st edition of the Village News, “Raising the assessment ceiling of is the one and only mission of the MVF village leaders and foundation staff.

Schedule for raising the assessment ceiling

Wednesday, September 5^th - Send notices and information to homes corporations, condominium and multi-family MVF representatives on meeting schedules to vote on the assessment ceiling increase.

September & early October - Board members promote ceiling increase with Homes Corporation and condominium presidents.

Tuesday, September 25^th - at North Creek Community Center (20125 Arrowhead Road) – Village wide meeting to educate MVF representatives and alternates.

Thursday September 27^th – MVF September board meeting.

Thursday October 18^th at Lake Marion Community Center (8821 East Village Avenue) Vote taken on increase in assessment ceiling.

Thursday, October 25^th or Thursday November 8^th at North Creek Board Room (20125 Arrowhead Road) – 2008 Budget approved and MVF and DU assessment set for 2008.

Friday November 2^nd or Friday November 16^th Assessment announcement in Village News and notices sent to owner prior to Saturday December 1^st.

The preparation of the 2008 Draft Budget by the staff is no longer a step in the overall process that allows board members with due diligence and forethought, to carefully craft a board budget for public release.

As Lois Campbell and Pat Huson confirmed in the September 14^th Village News financial transparency and public comment and approval have been hi jacked and are now being held hostage as ransom in return for a raise in the assessment ceiling. There is no indication from anyone on the Board to the contrary.

The question is do we allow the Foundation Board to raise the assessment ceiling or we raise the roof on the MVF financial house of cards?

Keep posted much more to come!