HOMEOWNERS ASSOCIATION, INC. SEPTEMBER 30, 2007

Transcription

1 HERONS GLEN HOMEOWNERS ASSOCIATION, INC. FINANCIAL STATEMENTS

2 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT FINANCIAL BALANCE STATEMENTS SHEET STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND BALANCES STATEMENT OF CASH FLOWS

3 Lars~nAllen LLP CPAs, Consultants & Advisors The Board of Directors Herons Glen Homeowners Association, Inc. Lee County, Florida We have audited the accompanying Balance Sheet of Herons Glen Homeowners Association, Inc., (the "Association"), as of September 30,2007, and the related Statement of Revenues and Expenses and Changes in Fund Balance and Cash Flows for the year then ended. These financial statements are the responsibility of the Association's management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Herons Glen Homeowners Association, Inc. as of September 30, 2007, 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. Fort Myers, Florida March 13, 2008 mil LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.

4 BALANCE SHEET Operating Fund Replacement Fund Cash and cash equivalents Assessments receivable Interfund balances Interfund loan - Note 2 Prepaid expenses Property and equipment, net - Note 6 506,225 $ 498,510 $ 1,004, ,736 32, ,614 (133,974) 133,974 (285,848) 285,848 3,229 3,229 8,783 8, ,151 $ 951,210 $ 1,478,361 LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable $ 136,109 $ $ 136,109 Prepaid assessments 515,191 41, ,646 Due to Herons Glen Recreation District - Note 3 34,860 34,860 Accrued expenses 1, ,556 Working capital deposits - Note 7 296, ,342 Total liabilities 983,636 41,877 1,025,513 FUND BALANCE (DEFICIT) (456,485) 909, ,848 Total liabilities and fund balance $ 527,151 $ 951,210 $ 1,478,361 The accompanying notes are an integral part of these financial statements. (2)

5 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDING Operating Replacement Fund Fund Total REVENUES Member assessments $ 1,853,645 $ 208,886 $ 2,062,531 Interest 11,736 33,459 45,195 Other 161, ,338 EXPENSES Total revenues 2,026, ,345 2,269,064 Landscaping 646,024 75, ,909 Cable television 449, ,965 Wages Irrigation 243, ,402 Management services 65,100 65,100 Interest 18,917 18,917 Professional fees 71,427 71,427 Maintenance Fees 81,375 81,375 Maintenance contract 220, ,821 Repair and maintenance 50,926 50,926 Utilities 42,318 42,318 Depreciation 3,535 3,535 Copier 9,510 9,510 Insurance 13,268 13,268 Postage 2,249 2,249 Income tax 1,604 1,216 2,820 Miscellaneous 14,826 14,826 Chemicals, fertilizer, and supplies 2,609 2,609 Rental equipment and operating leases 1,170 1,170 Bingo Expenses 55,497 55,497 Bad debt expense 8,109 8,109 Total expenses 2,003,135 77,101 2,080,236 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENSES 23, , ,828 FUND BALANCES (DEFICIT), Beginning of year (480,069) 744, ,020 FUND BALANCES (DEFICIT), End of year $ (456,485) $ 909,333 $ 452,848 The accompanying notes are an integral part of these financial statements. (3)

6 STATEMENT OF CASH FLOWS Operating Replacement Fund Fund Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts: Cash received from assessments $1,838,132 $ 209,977 $ 2,048,109 Cash received from others 161, ,544 Interest received 11,736 33,567 45,303 Payments: Cash payments to suppliers for goods and services ( 1,917,032) (75,885) (1,992,917) Income taxes paid (1,604) (1,216) (2,820) Interest paid (18,917) (18,917) Net cash from operating activities 73, , ,302 CASH FLOWS FROM FINANCING ACTIVITIES Interfund transactions 88,315 (88,315) Inter-fund loan (137,943) 137,943 Decrease in working capital advances (1,668) (1,668) Net cash from financing activities (51,296) 49,628 (1,668) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (885) (885) Net increase in cash and cash equivalents 21, , ,749 CASH AND CASH EQUIVALENTS, beginning of year 484, , ,986 CASH AND CASH EQUIVALENTS, end of year $ 506,225 $ 498,510 $ 1,004,735 RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES Excess (deficiency) of revenue over expenses $ 23,584 $ 165,244 $ 188,828 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 3,535 3,535 Increase in accounts receivable (42,706) (4,018) (46,724) Decrease in prepaid expenses 1,580 1,580 Increase in accounts payable 55,120 55,120 Increase in amount due to other 4,444 4,444 Increase in accrued expenses ,011 Increase in deferred revenue 27,399 5,109 32,508 Total adjustments 50,275 1,199 51,474 NET CASH FROM OPERATING ACTIVITIES $ 73,859 $ 166,443 $ 240,302 The accompanying notes are an integral part of these financial statements. (4)

7 Organization Herons Glen Homeowners Association, Inc. (the "Association") was organized in 1990 as a Florida not-for-profit corporation to function as a homeowners' association and provide for the ownership, maintenance, preservation and architectural control of lots, properties, and common areas within the development known as Herons Glen Country Club Community, located in North Fort Myers, Florida. Each purchaser of a lot in the community automatically becomes a member of the Association. The anticipated build-out of Herons Glen Country Club Community is 1,300 lots. As of September 30, 2007, 1,266 lots, or 97%, of the lots have been sold to residents. According to the Declaration of Covenants, Conditions and Restrictions of the Association, the developer maintained direct control of the Association until 75 percent of the lots were sold, at which time the Association was turned over to the residents. The turnover occurred January 1, Income Taxes Homeowners' associations may be taxed either as homeowners' associations or as regular corporations. As a homeowners' association, non-member income is taxed at a 30% rate. As a regular corporation, membership income is exempt from taxation if certain elections are made, and the association would be taxed only on its nonmembership income at the regular graduated federal and state corporate rates. The Association's investment income is always subject to tax. For 2007 the Association filed as a regular corporation. Federal and State income tax expense for the year ended September 30,2007, totaled $2,241 and $579, respectively. Member Assessments The Association's Board of Directors approves assessments based upon budgeted expenditures and all unit owners are assessed accordingly. In addition, the developer is assessed on platted lots owned by the developer and on lots expected to be platted during the year. For 2007, this number was 1,300, the maximum number of developable lots in Herons Glen. In the event that assessments exceed the related expenditures in any year, the excess may be deferred and used to reduce assessments in the subsequent year or refunded to the owners. If additional funds are needed, the Association has the ability to increase regular assessments, pass special assessments or delay major repairs and replacements until funds are available.

8 NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Member Assessments (Continued) Member assessments for the fiscal years ending September 30, 2006 and September 30,2007, include the following elements: Common area and security assessments $ 628 $ 575 User fees: Lawn Maintenance - Single Home $ 429 $ 420 Lawn Maintenance - Villa $ 417 $ 420 Lawn Maintenance - Solana $ 78 $ 420 Cable TV $ 337 $ 361 Irrigation $ 219 $ 108 Capital replacement reserve assessments $ 120 $ 103 Hurricane loss reserve $ $ 58 Villa assessments $ 468 $ 304 Fund Accounting To ensure and facilitate the fiduciary responsibility required of the Association regarding restrictions placed on the use of resources available to it, the accounts are maintained in accordance with the principles of fund accounting. Disbursements from the operating fund are generally at the discretion of the Board of Directors. Disbursements from the replacement fund generally may be made only for designated purposes. The Association's revenues, except for its capital replacement assessments, currently have no restrictions and, accordingly, are recor,ded in the operating fund and are available for normal operating expenditures. The capital replacement assessments are recorded in the replacement fund and are available only for designated purposes. Common Property Assets Inconformity with industry practice, the Association recognizes property to which the Association has title and that the Board of Directors can dispose of for cash while retaining the proceeds or is used to generate significant cash flows from members and nonmembers on the basis of usage. The Association records such assets at cost and depreciates these assets over their estimated useful lives using the straight line method. The Association also owns common real property dedicated for the use of the entire community. However, the property cannot be sold separately, and thus has no fair market value other than that related to its intended use. Such assets are not recognized in the financial statements of the Association.

9 NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents For purposes of the statement of cash flows, the Association considers all cash deposits subjectto immediate withdrawal to be cash and/or cash equivalent. Concentration of Credit At times, the Association has cash balances on deposit with financial i"nstitutionsin excess of FDIC insurance limits of $100,000. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. During the fiscal year ended September 30, 2006 the replacement fund loaned the operating fund $423,791, to retire a loan which was payable to Fifth Third Bank. The interfund loan requires interest only from October 1, 2005 until September 30, 2006 and, thereafter, in quarterly principal payments of $39,000, pius interest at 5.00%. The note may be prepaid in full or in part without penalty or premium. Principal payments on the note are presented below: For the years ending September 30,2008 September 30, , , ,848

10 Herons Glen Recreation District Transactions Herons Glen Recreation District (the "District"), a governmental entity composed of the same housing units as the Association, provides management, maintenance and accounting services to the Association. The charge for the accounting services is based upon a flat monthly fee. Fees paid to the District, for the year ended September 30, 2007, for accounting services were $27,300, for maintenance fees $81,375 and for management fees $65,100. At September 30, 2007, the Association owed the District $34,860. The Association has entered into a contract with Time Warner Cable to provide cable services for the residents. The Association is billed a flat rate for each resident. For the fiscal year ending September 30,2007, the Association paid Time Warner $411,557. The Association has entered into a contract with Ikon Financial Services to lease a copier. The Association is billed a flat monthly fee. For the fiscal year ending September 30,2007, the Association paid Ikon Financial Services $4,392. The Association's governing documents allow for funds to be accumulated for future major repairs and replacements. Accumulated funds are held in separate savings accounts and generally are not available for expenditures for normal operations. Funds are being accumulated in the replacement fund for future repairs and replacements of common property components. Actual expenditures may vary from the amounts collected, 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, subject to membership approval, to increase regular assessments, pass special assessments, or delay major repairs and replacements until funds are available. Major classifications of property and equipment and their respective lives are summarized below: Vehicles Equipment Less: accumulated depreciation 13,704 21,768 (26,689) 8,783

11 When a buyer purchases a lot or a residence in Herons Glen, the purchaser is required to make a non-interest bearing working capital advance to the Association. When the owner sells the residence, the Association is obligated to collect the working capital advance from the new member and refund the working capital amount of the seller. The advance can be used by the Association to cover operating expenses and other expenses incurred, pursuant to the Association's declarations and by-laws. The Association maintains two replacement funds; the General Replacement Reserve fund and a Villas Replacement Reserve fund. The balances in these reserve funds are: General Villas Replacement Replacement Reserve Reserve Total Balances, September 30,2006 $ 706,687 $ 37,402 $ 744,089 Assessments and Interest 234,434 7, ,345 Expenditures (77,101) (77,101 ) Balances, September 30, 2007 $ 864,020 $ 45,313 $ 909,333 SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS (UNAUDITED) The Association is accumulating funds for future major repairs and replacements. The General Reserve is for the maintenance and upkeep of the roads and common areas for the complete development. The Villas Replacement Reserve is for the long term expenditures of painting and roof cleaning. The Board of Directors had a pavement structural condition survey performed by Ardaman & Associates, Inc. in October of 2002, and again in May of The surveys provided estimates of the condition of the roadways within Herons Glen and the estimated costs of maintaining the roadways based on costs at the date of the studies. The repair costs were based on the schedule prepared by Ardaman & Associates in October of 2002, and have been increased for the most current work that is to be done, and the estimated costs for the 2012 activity have been doubled by the Board. Both of these adjustments are estimates and could change significantly based on when the work is performed and the extent of the work. These estimates have not been revised since September of 2004 and do not take into account the results of the survey prepared by Ardaman & Associates in May of The following schedule only contains roads older than three years, which is approximately 5% of the development.

12 SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS (UNAUDITED) (CONTINUED) Estimated Type of Repair and Street remaining Estimated Cost of Repair Estimated Date service Faliron Road 7 Years Overlay 2012 $ 13,300 Carinthia Circle 7 Years Overlay ;850 Val Paraiso 7 Years Overlay ,000 Via Presido 7 Years Overlay ,600 Palo Duro Way 7 Years Overlay ,750 Corona Del Sire 7 Years Overlay ,500 Embarcadero 7 Years Overlay ,500 Via Verde 7 Years Overlay ,500 Villa Real Way 7 Years Overlay ,500 Santorai 7 Years Overlay ,000 Rio Nuevo Drive 7 Years Overlay ,000 Micrassia 7 Years Overlay ,500 Ochos Rios 7 Years Overlay ,750 Via La Quinta 7 Years Overlay ,800 Mystic Way 17 Years Overlay 2022 Uknown Tisbury Lane 17 Years Overlay 2022 Uknown Dennisport Lane 17 Years Overlay 2022 Uknown Athenian Lane 17 Years Overlay 2022 Uknown Via Athena 17 Years Overlay 2022 Uknown Wheelock Drive 17 Years Overlay 2022 Uknown Odyssea 17 Years Overlay 2022 Uknown Villas Reserve 37,402 Other long term expenditures 449,381

13 Board of Directors Herons Glen Homeowners Association, Inc. In planning and performing our audit of the financial statements of Herons Glen Homeowners Association, Inc. for the year ended September 30, 2007, in accordance with auditing standards generally accepted in the United States of America, we considered the Association's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Association's internal control. However, during our audit we became aware of certain matters that should be brought to your attention. These comments are presented below. This letter does not affect our report dated March 13, 2008, on the financial statements of Herons Glen Homeowners Association, Inc.. Payments on the interfund loan should be made in quarterly installments of principal in the amount of $39,000, plus interest. During the year ended September 30, 2007 payments on the interfund loan were made monthly in the amount of $13,000, which includes interest, these payments are not in compliance with the terms of the loan. Therefore, we recommend quarterly payments of $39,000 plus interest to be in compliance with the terms of the loan agreement. Regarding the interfund loan, we are repeating our comment from last year about the interest revenue and interest expense need not be reported on the Association's tax return. We have determined that the interest revenue to the replacement reserves is not includible as interest revenue. Similarly, interest payments from the operating fund need not be included as interest expense. We will review the status of these comments during our next audit engagement. We have already discussed many of these comments and suggestions with various Association personnel, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations. Fort Myers, Florida March 13, 2008 ~ ~LLf LARSONALLEN LLP l1li, larsonalien llp is a member of Nexia International, a worldwide network of independent accounting and consulting firms.