Sandpointe Townhouses Owners Association, Inc.

Transcription

1 Sandpointe Townhouses Owners Association, Inc. Financial Statements and Supplemental Material Year Ended December 31, 2009

2 Contents Independent Auditors Report 3 Financial Statements Balance Sheet 4 Statement of Revenues, Expenses and Changes in Fund Balances 5 Statement of Cash Flows 6 Summary of Significant Accounting Policies 7 11 Notes to Financial Statements Supplemental Material Independent Auditors Report on the Required Supplementary Information 16 Supplementary Information on Future Major Repairs and Replacements 17 2

3 Independent Auditors Report Board of Directors Sandpointe Townhouses Owners Association, Inc. We hare audited the accompanying balance sheet of Sandpointe Townhouses Owners Association, Inc. as of December 31, 2009, and the related statement of revenue, expenses and changes in fund balance and cash flows for the year then ended. These financial statements are the responsibility of Sandpointe Townhouses Owners Association, Inc 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 our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an option on the effectiveness of the Association s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Sandpointe Townhouses Owners Association, Inc. at December 31, 2009 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. March 16, 2010 Certified Public Accountants 201 S. Orange Avenue, Suite 800 Orlando, FL Pope Avenue NW Winter Haven, FL W. Bay to Bay Blvd., Suite 202 Tampa, FL Fax:

4 Balance Sheet December 31, Operating Fund 2009 Replacement Fund Total Assets Cash and cash equivalents $ 37,526 $624,719 $ 662,245 Assessments receivable, net of allowance for doubtful accounts of $107,061 and $55,435 (Notes 1 and 2) , ,604 Due from replacement fund 592, ,906 Prepaid expenses and other assets 23,215 23,215 Property and equipment, net (Note 3) 15,937 15,937 Liabilities and Fund Balances $670,141 $730,766 $1,400,907 Accounts payable and accrued expenses $ 11,932 $ $ 11,932 Assessments received in advance 43,202 43,202 Other liabilities 8, ,412 Due to operating fund 592, ,906 Total liabilities 63, , ,452 Commitments and contingencies (Notes 4 and 5) Fund balances (Note 4) 606, , ,455 $670,141 $730,766 $1,400,907 See accompanying summary of significant accounting policies and notes to financial statements. 4

5 Statement of Revenues, Expenses and Changes in Fund Balances Year ended December 31, Operating Fund 2009 Replacement Fund Total Revenues Member assessments $1,181,221 $ $1,181,221 Interest income 492 1,764 2,256 Late charges 15,376 5,705 21,081 Other income 63,540 63,540 Total revenues 1,260,629 7,469 1,268,098 Expenses Grounds 259, ,640 Maintenance and replacement 265, , ,869 Utilities 27,199 27,199 General and administrative 180, ,087 Provision for bad debts 84,895 42, ,945 Depreciation 1,604 1,604 Total expenses 819, ,964 1,199,344 Excess (deficiency) of revenues over expenses 441,249 (372,495) 68,754 Fund balances, beginning of year 165, , ,701 Fund balances, end of year $ 606,895 $ 137,560 $ 744,455 See accompanying summary of significant accounting policies and notes to financial statements. 5

6 Statement of Cash Flows Year ended December 31, Operating Fund 2009 Replacement Fund Total Cash flows from operating activities: Excess (deficiency) of revenues over expenses $ 441,249 $(372,495) $ 68,754 Adjustments to reconcile excess (deficiency) of revenues over expenses to net cash provided by operating activities: Depreciation 1,604 1,604 Loss on disposal of equipment 1,771 1,771 Provision for bad debts 84,895 42, ,945 Cash provided by (used for): Assessments receivable (48,042) 482, ,026 Prepaid expenses and other assets 2,771 2,771 Accounts payable and accrued expenses 7,402 7,402 Assessments received in advance Other liabilities 1, ,708 Net cash provided by operating activities 493, , ,676 Cash flows from investing activities: Purchase of property and equipment (16,536) (16,536) Cash flows from financing activities: Interfund borrowings, net (469,145) 469,145 Net increase in cash and cash equivalents 8, , ,140 Cash and cash equivalents, beginning of year 29,454 3,651 33,105 Cash and cash equivalents, end of year $ 37,526 $624,719 $662,245 See accompanying summary of significant accounting policies and notes to financial statements. 6

7 Summary of Significant Accounting Policies Nature of Operations Fund Accounting Sandpointe Townhouses Owners Association, Inc. (the Association ) was incorporated in the State of Florida in March 1984, as a not-for-profit corporation for the purpose of operating and maintaining the common properties of Sandpointe Townhouses (the Community ), a townhouse community located in southwest Orange County, Florida. The development consists of 368 townhouse units. 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. The purposes of the various funds and the restrictions on the use of their assets are as follows: Operating Fund All revenues not allocable to the replacement fund are recorded in this fund and are available for normal operating expenditures. Replacement Fund This fund represents funds collected by the Association from the members to fund future replacement, major repairs and purchases of additional commonly owned assets. Expenditures from this fund are restricted to those items for which assessments were paid. Member Assessments and Revenue Recognition The Association derives revenue principally through owner assessments. Pursuant to the by-laws of the Association, assessments are allocated to the unit owners in proportions or percentages provided in the Declaration of Covenants. Annual assessments are billed to owners monthly and are recorded as receivables when billed. Annual assessments are approved by the Association based upon budgeted expenditures. 7

8 Summary of Significant Accounting Policies The Declaration of Covenants also provides that in addition to the annual assessments, the Association may levy, in any assessment year, a special assessment applicable to that year only for the purpose of defraying, in whole or in part, the cost of the construction, reconstruction, repair or replacement of a capital improvement upon the common area, including fixtures and personal property related thereto, provided that any such assessment shall have the assent of two-thirds of the votes of its members. In April 2008, the Association approved a special assessment (Note 2.) Cash and Cash Equivalents Assessments Receivable For purposes of reporting cash flows, the Association considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include checking accounts and money market funds. The Association s financial instruments that are exposed to concentrations of credit risk consist of cash and cash equivalents, which include amounts placed with reputable federally insured financial institutions. Such accounts may at times exceed federally insured limits. The Association has not experienced any losses on such accounts. Assessments receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to assessments receivable. 8

9 Summary of Significant Accounting Policies Property, Equipment and Depreciation Assessments Received in Advance Taxes on Income Real property and common areas acquired from the developer and related improvements to such property are not recorded in the Association s financial statements because those properties are owned by the individual unit owners in common and not by the Association. The Association capitalizes personal property at cost and depreciates it over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method. Assessments received in advance are 2010 maintenance fees received by the Association prior to January 1, The Association receives exemption from Federal and state income taxes as a homeowner s association pursuant to Section 528 of the Internal Revenue Code. Some sources of revenue (such as interest income), however, are not exempt and are taxed at statutory rates. Effective January 1, 2009, the Association adopted FASB ASC 740, Accounting for Uncertainty in Income Taxes, ( FASB ASC 740 ) which clarifies the accounting and disclosure for uncertainty in income taxes recognized in a company s financial statements. FASB ASC 740 requires that the Association recognize in its financial statements the impact of a tax position if that position is more likely than not to be sustained in an audit, based on the technical merits of the position. The Association performed its evaluation of the requirements under FASB ASC 740 and has determined the adoption had no material impact on the Association s financial statements. The Association did not have any unrecognized tax benefits as of December 31, 2009 and does not expect this to change significantly over the next 12 months. As of December 31, 2009, the Association has not accrued any interest or penalties related to uncertain tax positions. 9

10 Summary of Significant Accounting Policies Fair Value of Financial Instruments The Association has adopted FASB Accounting ASC 820, Fair Value Measurements ( ASC 820 ), formerly referenced as FASB No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Valuation based on quoted market prices in active markets for identical assets or liabilities. Level 2 Valuation based on quoted market prices for similar assets and liabilities in active markets. Level 3 Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management s best estimate of what market participants would use as fair value. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, The Association uses the market approach to measure fair value for its Level 1 financial assets which includes cash equivalents. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, assessments receivable, accounts payable and accrued expenses, and due to/from operating and replacement funds. 10

11 Summary of Significant Accounting Policies Use of Estimates Subsequent Events 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. The Association has evaluated events and transactions occurring subsequent to December 31, 2009 as of March 16, 2010, which is the date the financial statements were issued. Subsequent events occurring after March 16, 2010 have not been evaluated by management. No material events have occurred since December 31, 2009 that require recognition or disclosure in the financial statements. 11

12 Notes to Financial Statements 1. Member Assessments and Assessments Receivable Association members are subject to annual assessments to provide funds for operating expenses and future major repairs and replacements. The annual budget and member assessments are determined by the Board of Directors and approved at the annual meeting. For 2009, the monthly assessment per unit was $267 for operations and $0 for replacement reserves. Assessments receivable at the balance sheet date represent fees due from townhouse unit owners. The Association has the right to retain legal counsel and place liens on the unit weeks of members whose assessments are past due. 2. Special Assessment On April 7, 2008, the Association approved a special assessment of $3,000 per unit totaling $1,104,000. The assessment is payable over a two-year period beginning May 1, Owners had the option of paying the assessment in full during 2008, paying two one-time payments of $1,500 per year, or paying $375 per quarter over the two-year term. The special assessment is recorded in the replacement fund and is for roof repairs, unit exterior refurbishment (primarily painting and dry rot repair), landscaping and irrigation system refurbishment. During 2009 and 2008, the Association incurred $123,656 and $737,597, respectively, of expenditures related to the special assessment. Any excess funds remaining after planned expenditures will be credited towards accumulated funds for future general major repairs and replacements. The Association recorded the entire amount of the special assessment when approved and levied in

13 Notes to Financial Statements 3. Property and Equipment Property and equipment consists of the following: 2009 Furniture and equipment $ 17,695 Less: accumulated depreciation (1,758) Property and equipment, net $ 15, Replacement Fund The Association s governing documents require the Association to accumulate funds for future major repairs and replacements. Accumulated funds are held in separate interest-earning cash accounts and are not available to expend for normal operations. In prior years, the Association had not conducted a recent study to determine the useful lives of the components of common property, including estimated cost of major repairs and replacements. The Board of Directors did assess the members for replacement reserves prior to However, they were not based on current estimates of replacement costs. In addition, during 2008, the Board of Directors did levy a special assessment for certain major repairs (see Note 2). The remaining balance in the reserve has been designated as a General Reserve as of December 31, During 2009, the Board of Directors conducted a reserve study in order to evaluate the estimated useful lives and the estimated current replacement costs of the components of the replacement fund. Where applicable, licensed contractors were consulted regarding useful lives and current replacement costs. Beginning in 2010, the Board of Directors intends to fund for major repairs and replacements over the estimated useful lives of the components based on estimates of current replacement costs. Actual expenditures may vary from the estimated future expenditures, 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 13

14 Notes to Financial Statements pass special assessments or delay major repairs and replacements until funds are available. The activity of the General Reserve account is as follows: Balance, December 31, 2008 Additions Interest and Other Income Expenses Balance, December 31, 2009 General Reserve $510,055 $ $7,469 $379,964 $137,560 During 2009, there was no allocation of a portion of the annual assessment to replacement reserves. 5. Contingencies Legal In the normal course of conducting its business, the Association may be involved in litigation. The Association is not a party to any litigation which management believes could result in any judgments that would have a material adverse effect on its financial position, liquidity or results of future operations. 14

15 Supplemental Material

16 Independent Auditors Report on the Required Supplementary Information Board of Directors Sandpointe Townhouses Owners Association, Inc. The supplementary information on future major repairs and replacements on page 17 is not a required part of the basic financial statements but is supplementary information required by the American Institute of Certified Public Accountants. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Orlando, Florida March 16, 2010 Certified Public Accountants 16

17 Supplementary Information on Future Major Repairs and Replacements The Association s Board of Directors conducted a study during 2009 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 common property components at the date of the study. Estimated current replacement costs have not been revised since that date and do not take into account the effects of inflation between the date of the study and the date that the components will require repair or replacement. The following table presents significant information concerning the replacement fund as required by Rule 61B , Florida Administrative Code: Components Estimated Remaining Useful Lives Estimated Current Replacement Costs Replacement Fund Balance at December 31, Funding Requirement Roofing 4 20 years $ 5,255,000 $ $278,916 Paving 3 years 31,000 10,333 Exterior painting 6 years 400,000 66,666 Exterior wall, fencing and security gate years 268,000 26,133 Clubhouse/pool 1 10 years 95,200 26,138 Tennis court 4 5 years 15,500 3,375 Signage years 28,000 2,466 Maintenance and irrigation equipment 5 10 years 63,600 8,820 General 137,560 $6,156,300 $137,560 $422,847 17