Audited Financial Statements. Providence Community Association, Inc. December 31, 2017

Transcription

1 Audited Financial Statements December 31, 2017

2 Contents Audited Financial Statements Independent Auditor s Report... Page 1-2 Balance Sheet... 3 Statement of Revenues, Expenses, And Changes in Fund Balance... 4 Statement of Cash Flows... 5 Notes to Financial Statements Supplementary Information Supplementary Information on Future Major Repairs and Replacements (Unaudited)... 9

3 Independent Auditor s Report Board of Directors Richmond, Virginia We have audited the accompanying financial statements of, which comprise the balance sheet as of December 31, 2017, and the related statements of revenues, expenses, and changes in fund balance and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is 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 made by management, 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

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as of December 31, 2017, 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. Report on Summarized Comparative Information We have previously audited s 2016 financial statements, and we expressed an unmodified opinion on those financial statements in our report dated October 23, In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived. Disclaimer of Opinion on Required Supplementary Information Accounting principles generally accepted in the United States of America require that the information on future major repairs and replacements of common property on page 9 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 of management about the methods of preparing the information and comparing the information for consistency with management s 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. Richmond, Virginia September 6,

5 Balance Sheet December 31, 2017 Assets Operating Replacement Fund Fund Total Total Cash and cash equivalents $ 120,041 $ 584,682 $ 704,723 $ 695,968 Assessments receivable, net 5,250 5,250 5,497 Prepaid insurance ,064 Income taxes receivable, net Interfund balances (4,000) 4,000 $ 122,320 $ 588,682 $ 711,002 $ 702,755 Liabilities and Fund Balance Liabilities Unearned assessments $ 15,075 $ $ 15,075 $ 12,357 Fund Balance 107, , , ,398 $ 122,320 $ 588,682 $ 711,002 $ 702,755 See Notes to Financial Statements - 3 -

6 Statement of Revenues, Expenses, and Changes in Fund Balance Year Ended December 31, Operating Replacement Fund Fund Total Total Revenues Regular assessments $ 204,790 $ 28,908 $ 233,698 $ 242,759 Interest income 304 4,265 4,569 3,946 Late fees Other 3,284 3, ,918 33, , ,060 Expenses Grounds 112, , ,174 Repairs and replacements 29,395 11,955 41,350 15,023 Management fees 35,404 35,404 34,373 Trash removal 22,050 22,050 21,000 Gutter cleaning 7,525 7,525 7,580 Professional fees 3,885 3,885 3,520 Utilities 3,603 3,603 3,395 Insurance 3,070 3,070 3,206 Printing 2,280 2,280 3,317 Social 1,997 1,997 2,763 Postage 1,530 1,530 1,599 Bad debts ,050 Income taxes Miscellaneous ,720 Reserve study 2, ,607 11, , ,094 Excess (Deficiency) of Revenues over Expenses (15,689) 21,218 5,529 44,966 Fund balance at beginning of year 122, , , ,432 Fund Balance at End of Year $ 107,245 $ 588,682 $ 695,927 $ 690,398 See Notes to Financial Statements - 4 -

7 Statement of Cash Flows Year Ended December 31, Operating Replacement Fund Fund Total Total Cash Flows from Operating Activities Excess (deficiency) of revenues over expenses $ (15,689) $ 21,218 $ 5,529 $ 44,966 Adjustments to reconcile excess (deficiency) of revenues over expenses to net cash provided (used) by operating activities: Bad debts ,050 (Increase) decrease in: Assessments receivable (523) (523) (1,458) Prepaid insurance (29) Income taxes receivable (81) Increase (decrease) in: Unearned assessments 2,718 2,718 2,473 Net Cash Provided (Used) by Operating Activities (12,463) 21,218 8,755 46,921 Cash Flows from Financing Activities Interfund transfers (4,000) 4,000 Net Increase (Decrease) in Cash and Cash Equivalents (16,463) 25,218 8,755 46,921 Cash and cash equivalents at beginning of year 136, , , ,047 Cash and Cash Equivalents at End of Year $ 120,041 $ $ 584,682 $ $ 704,723 $ 695,968 Supplemental Disclosure The Association paid $474 and $382 in income taxes, net of refunds, in the years ended December 31, 2017 and 2016, respectively. See Notes to Financial Statements - 5 -

8 Notes to Financial Statements December 31, 2017 Note A - Nature of Organization ( Association ) is a homeowners association that was incorporated in the Commonwealth of Virginia on January 29, The Association is responsible for the operation and maintenance of the common property of the development and consists of 175 residential units located in Chesterfield County, Virginia. Note B - Summary of Significant Accounting Policies Fund Accounting The Association s governing documents 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 using 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 is used to account for financial resources available for the general operations of the Association. Replacement Fund: This fund is used to accumulate financial resources designated for future major repairs and replacements. Member Assessments Association members are subject to monthly assessments to provide funds for the Association s operating expenses, future capital acquisitions, and major repairs and replacements. Assessments receivable at the balance sheet date represent fees due from unit owners. The Association s policy is to retain legal counsel and place liens on the properties of homeowners whose assessments are ninety days or more delinquent. Any excess assessments at year end are retained by the Association for use in the succeeding year. Income Taxes Homeowners associations may elect annually to be taxed either as homeowners associations or as regular corporations. For the years ended December 31, 2017 and 2016, the Association elected to be taxed as a homeowners association. Under that election, the Association is taxed on its nonexempt function income, such as interest earnings, at a flat federal rate of 30% and the regular state corporate rate of 6%. Exempt function income, which consists primarily of member assessments, is not taxable. Cash and Cash Equivalents Unrestricted deposits, short-term investments, money market accounts and certificates of deposit that are highly liquid are considered cash and cash equivalents

9 Notes to Financial Statements December 31, 2017 Note B - Summary of Significant Accounting Policies - Continued Comparative Amounts The financial information for 2016 is included to provide a basis for comparison with 2017 and is not intended to present all information necessary for a fair presentation of 2016 information in accordance with accounting principles generally accepted in the United States of America ( GAAP ). Bad Debts Bad debts are expensed using the allowance method. The Association has calculated an allowance for doubtful accounts at an amount which actual bad debts are reasonably expected not to exceed. The allowance is calculated based on a detailed review of outstanding receivables and takes into account the historical payment habits of the members. Periodically, the Association s Board of Directors and management review past due receivables and write off specific accounts which are deemed uncollectible, after all reasonable collection efforts have been exhausted. The allowance was $3,570 and $3,492 at December 31, 2017 and 2016, respectively. Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Property and Equipment All property and equipment to which the Association has title or evidence of ownership, and meets one of the two required tests, is capitalized. Real property directly associated with the units, as well as property transferred from the developer, is generally not capitalized. At December 31, 2017, real property not capitalized consists of sidewalks, access roads, and greenbelts. Property and equipment acquired by the Association are recorded at cost. Personal property may be disposed of at the discretion of the Board of Directors. Real property may only be disposed of with the approval of a majority of the members of the Association. Note C - Date of Management s Review In preparing the financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through September 6, 2018, the date that the financial statements were available to be issued

10 Notes to Financial Statements December 31, 2017 Note D - Future Major Repairs and Replacements The Association s governing documents require funds to be accumulated for future major repairs and replacements. Accumulated funds, which aggregate approximately $585,000 at December 31, 2017, are held in separate accounts and are generally not available for operating purposes. The Association engaged an independent consulting firm to conduct a study in 2016 to estimate the remaining useful lives and replacement costs of the common property components. An additional study was conducted to estimate the remaining useful lives and replacement costs of the townhouse roofs. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the studies estimates of current replacement costs, considering amounts previously accumulated in the replacement fund. Actual expenditures, however, 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 future needs. If additional funds are needed, the Association has the right to increase regular assessments, levy special assessments, or it may delay major repairs and replacements until funds are available. The Board of Directors decided to continue making contributions to the townhouse roof reserve but to suspend any contributions to the reserve account from 2017 through Contributions to the reserve account will resume in 2022 beginning at $15,000 with annual increases of 1.8% throughout the remainder of the study period. This decision has been reflected in the reserve account study. Note E - Commitments The Association currently has a one-year agreement ending December 31, 2018, with Community Partners of Virginia, Inc. for management and accounting services. The contract automatically renews annually unless previously terminated. Total management fee expense was $35,404 and $34,373 for 2017 and 2016, respectively. The Association also has various other contract services

11 Supplementary Information

12 Supplementary Information on Future Major Repairs And Replacements (Unaudited) December 31, 2017 The Association has established a funding program for future major repairs and replacements of common property components. In 2016, the Association engaged an independent consulting firm to perform studies to estimate the remaining useful lives and replacement costs of the common property components and the townhouse roofs. The studies assumed an inflation rate of 2.61%, an earnings rate of 1.80% on replacement funds, and no earnings on the roof replacement funds. The estimates were obtained from local contractors and construction cost databases. The Association has elected to fund major repairs and replacements using the cash flow method of accumulating replacement reserves. Under the cash flow method as determined by the townhouse roofs study, the minimum recommended annual deposit to the Replacement Fund for 2017 is $28,912. Actual expenditures, however, 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 future needs. If additional funds are needed, the Association has the right to increase regular assessments, levy special assessments, or delay major repairs and replacements until funds are available. The following table of estimated remaining useful lives and replacement costs is based on the study performed in Component Estimated Estimated Remaining 2016 Useful Replacement Lives Cost Full Replacements Townhouse roofs 7-10 yrs $ 356,683 Roads and flatwork 2-17 yrs 68,519 Exterior lighting and signage 7-22 yrs 40,381 Fencing 7-22 yrs 65,248 Irrigation and landscape 2-7 yrs 19,607 Site furnishings and shelters 5-37 yrs 10,364 Mailboxes 7 yrs 30,625 Partial Replacements Roads 1-2 yrs 17,996 Drainage 27 yrs 19,077 Exterior signage yrs 1,930 $ 630,