TELFORD HILLS CONDOMINIUM ASSOCIATION, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT FINANCIAL STATEMENTS Balance Sheet... 3 Statement of Revenues, Expenses and Changes in Fund Balances... 4 Statement of Cash Flows... 5 Notes to the Financial Statements SUPPLEMENTARY INFORMATION Schedule of Future Major Repairs and Replacements (Unaudited) Schedule of Total Revenues, Operating Expenses and Allocations to the Replacement Fund - Actual to Budget

3 1000 Courtyard Drive Hillsborough, NJ Tel Fax INDEPENDENT AUDITOR S REPORT TO THE EXECUTIVE BOARD AND UNIT OWNERS OF TELFORD HILLS CONDOMINIUM ASSOCIATION, INC. Report on the Financial Statements We have audited the accompanying financial statements of Telford Hills Condominium Association, Inc., which comprise the balance sheet as of December 31, 2014, and the related statements of revenues, expenses, and changes in fund balances and cash flows for the year then ended and the related notes to the financial statements. Board and Management s Responsibility for the Financial Statements The Board and management are responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (CONTINUED) Page 1

4 Telford Hills Condominium Association, Inc. Independent Auditor s Report (continued) Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Telford Hills Condominium Association, Inc. as of December 31, 2014, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Disclaimer of Opinion on Required Supplementary Information Accounting principles generally accepted in the United States of America require that future major repairs and replacements on pages 9 and 10 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries about the methods of preparing the information and comparing the information for consistency with responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Report on Other Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information on pages 11 through 12 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of the Association and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information, except for the portion marked unaudited, has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The information marked unaudited has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on it. MIRRA & ASSOCIATES, LLC Hillsborough, New Jersey October 27, 2015 Page 2

5 BALANCE SHEET OPERATING REPLACEMENT TOTAL FUND FUND ASSETS Cash and interest bearing deposits $ 13,862 $ 13,862 $ - Money market funds 220, ,777 Assessments receivable, net of allowance for doubtful accounts of $15,600 7,070 7,070 - Prepaid insurance 11,213 11,213 - Due from replacement to operating - 16,076 (16,076) TOTAL ASSETS $ 252,922 $ 48,221 $ 204,701 LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable and accrued expenses $ 2,198 $ 2,198 $ - Assessments received in advance 13,084 13,084 - TOTAL LIABILITIES 15,282 15,282 - COMMITMENT FUND BALANCES 237,640 32, ,701 TOTAL LIABILITIES AND FUND BALANCES $ 252,922 $ 48,221 $ 204,701 The accompanying notes are an integral part of these financial statements. Page 3

6 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED OPERATING REPLACEMENT TOTAL FUND FUND REVENUES Membership assessments $ 201,960 $ 141,286 $ 60,674 Working capital contributions 4,000-4,000 Late fees, legal fees, and fines income Interest income TOTAL REVENUES 207, ,139 65,183 EXPENSES Administrative 76,318 76,318 - Building and grounds maintenance 93,226 93,226 - Roof replacement 68,264-68,264 Engineering and legal fees - soil project 10,000-10,000 Gutter replacement 8,500-8,500 Reserve study update 2,200-2,200 Concrete replacement 1,650-1,650 Asphalt repairs 1,500-1,500 Fence replacement 1,400-1,400 TOTAL EXPENSES 263, ,544 93,514 DEFICIENCY OF REVENUES OVER EXPENSES (55,736) (27,405) (28,331) FUND BALANCES - BEGINNING OF YEAR 293,376 60, ,032 FUND BALANCES - END OF YEAR $ 237,640 $ 32,939 $ 204,701 The accompanying notes are an integral part of these financial statements. Page 4

7 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED CASH FLOWS FROM OPERATING ACTIVITIES OPERATING REPLACEMENT TOTAL FUND FUND Deficiency of revenues over expenses $ (55,736) $ (27,405) $ (28,331) Adjustments to reconcile deficiency of revenues over expenses to net cash used in operations: Bad debt expense 12,015 12,015 - Change in assets and liabilities: Assessments receivable (5,811) (5,811) - Prepaid insurance (1,598) (1,598) - Due from replacement to operating - 25,594 (25,594) Accounts payable and accrued expenses (9,350) (9,350) - Assessments received in advance 1,110 1,110 - NET CASH USED IN OPERATING ACTIVITIES (59,370) (5,445) (53,925) CASH FLOWS FROM INVESTING ACTIVITIES Net activity in money market funds 53,925-53,925 NET DECREASE IN CASH AND INTEREST BEARING DEPOSITS (5,445) (5,445) - CASH AND INTEREST BEARING DEPOSITS - BEGINNING OF YEAR 19,307 19,307 - CASH AND INTEREST BEARING DEPOSITS - END OF YEAR $ 13,862 $ 13,862 $ - SUPPLEMENTAL DISCLOSURE: Federal income taxes paid $ - The accompanying notes are an integral part of these financial statements. Page 5

8 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - NATURE OF ORGANIZATION: Telford Hills Condominium Association, Inc. (the Association ) is a Pennsylvania corporation subject to the provisions of the Condominium Act. The purpose of the Association is to provide for the preservation of the values and amenities in the community and for the operation and maintenance of the common property. Consisting of 102 residential units, the Association is located in Telford, Pennsylvania. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Fund Accounting - The Association's legal documents (i.e., Public Offering Statement, Master Deed, and By-laws) provide certain guidelines for governing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the Association maintains its accounts in accordance with the principles of fund accounting. Financial resources are classified for accounting and reporting purposes in the following funds established according to their nature and purpose: Operating Fund - This fund represents the portion of expendable funds that is available for the general operations of the Association. Replacement Fund - The purpose of the replacement fund is to accumulate funds over the lives of capital assets which are part of the common elements that are the Association's responsibility to replace so that sufficient amounts are available to pay for their eventual replacement. Recognition of Assets - The Association s property and common elements are owned by the unit owners in condominium form pursuant to the Master Deed wherein each of the individual unit owners holds legal title to an undivided interest in property constituting the common elements. Accordingly, no amounts related to these common elements are included on the accompanying balance sheet of the Association. The common elements generally consist of sidewalks, roadways, open areas and portions of the buildings not comprising the individual units. Cash and Interest Bearing Deposits - Cash and interest bearing deposits are held in bank deposit accounts. Money Market Funds - Money market funds are recorded at cost which approximated market value at December 31, Fair value is measured on a recurring basis based on quoted prices in an active market (all Level 1 measurements). (CONTINUED) Page 6

9 NOTES TO THE FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Assessments Receivable and Maintenance Assessments - The Association s members are subject to monthly assessments based upon the annual budget and as determined by the Executive Board. The Association retains excess operating funds at the end of the operating year, if any, for use in future operating periods, or as otherwise specified by the Association s governing documents. A portion of the monthly assessments to owners are allocated to the replacement fund. On a periodic basis, the Board and management evaluate the assessments receivable and estimate an allowance for doubtful accounts, based on the current legal status of past due accounts. Interest Earned - It is the Association s policy to allocate interest earned on all interest bearing deposits and money market funds deposit to their respective fund. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Board to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Subsequent Events - The Board and management have evaluated events and transactions for potential recognition or disclosure through the date of the auditor s report, which is the date the financial statements were available to be issued. NOTE 3 - FEDERAL INCOME TAXES: Under the Internal Revenue Code, associations may be taxed as a condominium association at their election, or as a regular corporation. The Association may select either method in any year and will generally select the method that results in the lowest tax due. A method selected in one year affects only that year and the Association is free to select either method in future years. For the year ended December 31, 2014, the Association expects to be taxed as a corporation. A provision for income taxes was not necessary based on the excess of non-exempt function expenses over non-exempt function income. The Association s income tax returns are subject to examination by the Internal Revenue Service for three years after the returns are filed. In evaluating the Association s tax provisions and accruals, the Association believes that its estimates are appropriate based on current facts and circumstances. The Association is incorporated in the State of Pennsylvania as a membership association under IRC Section 277 and is exempt from Pennsylvania corporation business income tax. Page 7

10 NOTES TO THE FINANCIAL STATEMENTS NOTE 4 - REPLACEMENT FUND: The Association's governing documents require that funds be accumulated for future major repairs and replacements. Accumulated funds are held in a separate account and are generally not available for expenditures for normal operations. USI Commercial, professional engineering consultants, conducted a study effective January 1, 2014 to estimate the remaining useful lives and the replacement costs of the components of common property. Estimates were based on then current estimated replacement costs. The table included in the unaudited supplementary information on future major repairs and replacements is based on this study. For the year ended December 31, 2014, the Board funded approximately 81% of the recommended annual contributions utilizing the full funding method averaged over a thirty year cash flow, including interest income earned on the replacement fund cash account and working capital contributions. The study recommends annual contributions of $80,000 from 2014 through 2029, followed by $45,000. Funds are being accumulated in the replacement fund based upon estimated costs for repairs and replacements of common property components. Actual expenditures may vary from the estimated amounts and the variations may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet all future needs for major repairs and replacements. If additional funds are needed, the Association has the right to increase regular assessments, pass special assessments or delay major repairs and replacements until funds are available, if possible. NOTE 5 - WORKING CAPITAL CONTRIBUTIONS: Upon the acquisition of title to a unit, each new member of the Association is required to contribute a non-refundable working capital contribution of $500. The Association s practice has been to allocate these contributions to the replacement fund in the accompanying financial statements. NOTE 6 - COMMITMENT: During February 2014, the Association entered into a contract with Spear Excavating, LLC for the soil remediation project at a total cost of $35,400. Work did not begin until 2015; therefore, the related project cost will be recorded in the subsequent year s financial statements. Page 8

11 SUPPLEMENTARY INFORMATION SCHEDULE OF FUTURE MAJOR REPAIRS AND REPLACEMENTS (UNAUDITED) USI Commercial, professional engineering consultants, updated the replacement study to be effective January 1, 2014 to estimate the remaining useful lives and the replacement costs of the components of common property. Replacement costs were based on the estimated costs to repair or replace the common property components at the date of the study. The following table is based on the study and presents significant information about the components of common property. COMPONENTS AS OF 2014 STUDY ESTIMATED ESTIMATED CURRENT REMAINING USEFUL REPLACEMENT LIVES (YEARS) COSTS Asphalt Mill and overlay asphalt 0-2 $ 146,335 Seal and stripe asphalt ,778 Localized patch and repair ,194 Building Exterior Surfaces Vinyl siding - buildings ,592 Vinyl siding - buildings ,720 Wood decks - lower level 4 7,272 Cantilevered wood balconies ,520 Roofs, gutters, and downspouts Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 Roof replacement - building ,179 (CONTINUED) Page 9

12 SUPPLEMENTARY INFORMATION SCHEDULE OF FUTURE MAJOR REPAIRS AND REPLACEMENTS (UNAUDITED) (CONTINUED) COMPONENTS AS OF 2014 STUDY ESTIMATED ESTIMATED CURRENT REMAINING USEFUL REPLACEMENT LIVES (YEARS) COSTS Roofs, gutters, and downspouts Gutter/downspout replacement - building 1 5 4,087 Gutter/downspout replacement - building 2 5 4,087 Gutter/downspout replacement - building 3 0 4,087 Gutter/downspout replacement - building 4 0 4,087 Gutter/downspout replacement - building 5 5 4,728 Gutter/downspout replacement - building 6 5 4,449 Gutter/downspout replacement - building 7 5 4,449 Gutter/downspout replacement - building ,449 Gutter/downspout replacement - building ,449 Site Concrete sidewalks, patios, steps 4 14,789 Bridge - rebuild 10 50,000 Community entrance signage 5 5,000 Vinyl fence 24 34,000 Wood privacy fencing at patios 3 12,096 Pole lights ,200 Creek dredging 4 6,000 Stormwater management basin repair 0 5,000 $ 1,045,979 Replacement fund balance as of December 31, 2014 $204,701 Page 10

13 SUPPLEMENTARY INFORMATION SCHEDULE OF TOTAL REVENUES, OPERATING EXPENSES AND ALLOCATIONS TO THE REPLACEMENT FUND - ACTUAL TO BUDGET FOR THE YEAR ENDED ACTUAL (UNAUDITED) BUDGET REVENUES Membership assessments $ 201,960 $ 201,960 Working capital contributions 4,000 - Late fees, legal fees, and fines income Interest income TOTAL REVENUES 207, ,960 EXPENSES ADMINISTRATIVE Insurance 34,811 22,500 Management services 18,360 18,360 Bad debt expense 12, Legal fees 5,566 2,500 Postage and administrative 3,206 1,650 Audit 2,200 3,700 Bank fees and miscellaneous TOTAL ADMINISTRATIVE EXPENSES 76,318 49,285 BUILDING AND GROUNDS MAINTENANCE Landscaping 36,276 35,951 Snow removal 27,499 17,800 Trash removal 21,722 20,050 General repairs and maintenance 6,245 16,500 Electricity 1,484 1,700 TOTAL BUILDING AND GROUNDS MAINTENANCE EXPENSES 93,226 92,001 (CONTINUED) Page 11

14 SUPPLEMENTARY INFORMATION TOTAL REVENUES, OPERATING EXPENSES AND ALLOCATIONS TO THE REPLACEMENT FUND - ACTUAL TO BUDGET FOR THE YEAR ENDED ACTUAL (UNAUDITED) BUDGET EXPENSES (CONTINUED) ALLOCATIONS TO REPLACEMENT FUND: Membership assessments (contributions) 60,674 60,674 Working capital contributions 4,000 - Interest income TOTAL ALLOCATIONS TO THE REPLACEMENT FUND 65,183 60,674 TOTAL EXPENSES AND ALLOCATIONS TO FUNDS 234, ,960 DEFICIENCY OF REVENUES OVER EXPENSES $ (27,405) $ - Page 12