TURTLE SHORES OWNERS ASSOCIATION, INC. Financial Statements Supplementary Information and Accountants Review Report For the Year Ended December 31, 2012 Janice W. Lake AND ASSOCIATES, INC. 71 South Dixie Highway, Suite 9 St. Augustine, Florida 32084 Telephone: 904.824.1521 Fax: 904.824.1551
TABLE OF CONTENTS FINANCIAL STATEMENTS AND ACCOUNTANTS REVIEW REPORT DECEMBER 31, 2012 TURTLE SHORES OWNERS ASSOCIATION, INC. INDEPENDENT ACCOUNTANTS REVIEW REPORT 1 PAGE BALANCE SHEET 2 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND BALANCES 3 STATEMENT OF CASH FLOWS 4 NOTES TO THE FINANCIAL STATEMENTS 5 ADDITIONAL INFORMATION: COMPARISON OF OPERATING FUND REVENUES AND EXPENSES TO BUDGET 10 SUPPLEMENTARY INFORMATION: SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS 11
Janice W. Lake AND ASSOCIATES, INC. 71 South Dixie Highway, Suite 9 St. Augustine, Florida 32084 Telephone: 904.824.1521 Website: jlakecpa.com Facsimile: 904.824.1551 To the Board of Directors Turtle Shores Owners Association, Inc. Ponte Vedra, Florida INDEPENDENT ACCOUNTANTS REVIEW REPORT We have reviewed the accompanying balance sheet of Turtle Shores Owners Association, Inc. (the Association ) as of December 31, 2012, and the related statements of revenues and expenses and changes in fund balances and cash flows for the year then ended. A review includes primarily applying analytical procedures to management s financial data and making inquiries of Association management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Our review was made for the purpose of expressing a conclusion that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The Comparison of Operating Fund Revenues and Expenses to Budget on page 10 is presented only for additional analysis purposes. Such information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and we did not become aware of any material modifications that should be made to it. The Supplementary Information on Future Major Repairs and Replacements on page 11 is not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have compiled the supplementary information from information that is the representation of management of the Association, without audit or review. Accordingly, we do not express an opinion or any other form of assurance on the supplementary information. Janice W. Lake and Associates, Inc. April 23, 2013
Balance Sheet At December 31, 2012 Turtle Shores Owners Association, Inc. Assets Operating Replacement Fund Fund Total Current assets: Cash and cash equivalents $86,247 $265,525 $351,772 Fees and assessments receivable, less allowance for doubtful accounts of $15,700 9,843 9,843 Prepaid expenses 1,495 1,495 Prepaid insurance 7,367 7,367 Total assets $104,952 $265,525 $370,477 Liabilities and Fund Balances Current liabilities: Accounts payable $9,405 $9,405 Prepaid fees and assessments 13,958 13,958 Total current liabilities 23,363 23,363 Fund balances 81,589 $265,525 347,114 Total liabilities and fund balances $104,952 $265,525 $370,477 See accompanying notes and accountants' report. Page 2.
Statement of Revenues, Expenses and Changes in Fund Balances For the Year Ended December 31, 2012 Turtle Shores Owners Association, Inc. Revenues Operating Replacement Fund Fund Total Expenses Maintenance fees $352,044 $37,740 $389,784 Late fees 3,911 3,911 Other income 3,564 3,564 Interest income 544 544 Total revenues 359,519 38,284 397,803 General and administrative 65,225 65,225 Insurance 4,766 4,766 Maintenance 184,457 21,853 206,310 Utilities 44,057 44,057 Grounds 52,632 52,632 Total expenses 351,137 21,853 372,990 Surplus of revenues over expenses 8,382 16,431 24,813 Fund balances, beginning of year As originally stated 68,965 249,094 318,059 Prior period adjustment 4,242 4,242 Beginning of year, restated 73,207 249,094 322,301 Fund balances, end of year $81,589 $265,525 $347,114 See accompanying notes and accountants' report. Page 3.
Statement of Cash Flows For the Year Ended December 31, 2012 Turtle Shores Owners Association, Inc. Cash flows from operating activities: Operating Replacement Fund Fund Total Maintenance fees received $352,298 $37,740 $390,038 Interest and other income received 7,475 544 8,019 Cash paid to employees/suppliers (334,392) (21,853) (356,245) Net cash provided by operating activities 25,381 16,431 41,812 Cash and cash equivalents, Beginning of year 60,866 249,094 309,960 End of year $86,247 $265,525 $351,772 Adjustments to reconcile surplus of revenues over expenses to net cash provided by operating activities: Surplus of revenues over expenses $8,382 $16,431 $24,813 (Increase)/decrease in: Fees and assessments receivable 18,260 18,260 Prepaid expenses (1,495) (1,495) Prepaid insurance (7,367) (7,367) Utility deposits 620 620 Increase/(decrease) in: Accounts payable and accrued expenses 4,871 4,871 Prepaid fees and assessments 2,110 2,110 Net cash provided by operating activities $25,381 $16,431 $41,812 Supplemental disclosures of cash flow information: Cash paid for interest Cash paid for taxes None None See accompanying notes and accountants' report. Page 4.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012 TURTLE SHORES OWNERS ASSOCIATION, INC. NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Turtle Shores Owners Association, Inc. (the "Association") was incorporated on October 30, 1987 under the laws of the State of Florida as a not-for-profit corporation for the purpose of administering and enforcing the protective covenants, conditions, restrictions and easements, charges and liens and maintaining and preserving the common property of the Turtle Shores community, located in Ponte Vedra Beach, St. Johns County, Florida. The property is a planned community consisting of 298 single family residences on approximately 107 acres. Common property of the Association includes: landscape areas, entranceways and entrance features/walls, signage, limited access gate, and recreational facilities (clubhouse, swimming pool, beach access and pavilion, tot lot and tennis courts). The property was developed by Prime Land Corporation, a Florida corporation (the Developer ). Control of the Association was transferred from the Developer to the owners during 1989. Basis of Presentation The accompanying financial statements have been prepared using the accrual basis of accounting. The accrual basis of accounting means that revenues are recorded when they are earned and expenses are recorded when they are incurred. Assessments are considered earned during the year for which they are levied by the Board of Directors. The owners are assessed their share of the cost of maintaining and operating the common property. Many owners pay the assessments early. Early collections of assessments are shown as prepaid assessments on the balance sheet. 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, which requires that funds such as operating funds and funds designated for future major repairs and replacements be classified separately for accounting and reporting purposes. The assets, liabilities and fund balances of the Association are reported in two self-balancing fund groups. The operating fund reflects the operating assessments paid by unit owners to meet the regular, recurring costs of operation. Disbursements from this fund are limited to those connected with the day-to-day operations, and are generally at the discretion of the Board of Directors. The replacement fund is composed of all capital assessments paid by unit owners to fund future replacements and major repairs. Interest earned on the replacement fund is retained in the fund. Disbursements from this fund are restricted to those items for which assessments were levied. These funds may be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority of owners. Page 5.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012 TURTLE SHORES OWNERS ASSOCIATION, INC. NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash in banks, mutual funds and certificates of deposit. Owners' Assessments Association members are subject to annual assessments (payable in advance in monthly installments) to provide funds for the Association's operating expenses and major repairs and replacements. Assessments receivable at the balance sheet date represent fees due from owners. Prepaid assessments at the balance sheet date represent fees paid in advance by owners. The Association s policy is to retain legal counsel and place liens on the properties of owners whose assessments are delinquent. The annual budget and assessments of owners are determined by the Board of Directors. The Association retains excess operating funds at the end of the fiscal year, if any, for use in future periods. 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. Recognition of Assets The Association s policy for recognizing assets in its balance sheet is to recognize real property to which it has title and that it can dispose of for cash while retaining the proceeds. Tangible personal property acquired by using the Association s operating funds is expensed in the year in which it is purchased. Donated Services The Association s Board of Directors and its officers serve without compensation. The value of these services is not recorded in the financial statements. Concentration of Credit Risk The Association s primary source of income is assessments paid by owners. Interest Income Interest income earned by the replacement fund is retained in that fund. Other interest income earned by the operating fund cash account is credited to that fund account. Page 6.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012 TURTLE SHORES OWNERS ASSOCIATION, INC. NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value of Financial Instruments Unless otherwise indicated, the fair values of all reported assets and liabilities that represent financial instruments (none of which are held for trading purposes) approximate the value of such assets and liabilities. NOTE 2 - DATE OF MANAGEMENT S REVIEW The Association has adopted Financial Accounting Standards Board ASC No. 855, Subsequent Events ( ASC 855 ). This standard is intended to establish general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 requires issuers to reflect in their financial statements and disclosures the effects of subsequent events that provide additional evidence about conditions at the balance sheet date. Disclosures should include the nature of the event and either an estimate of its financial effect or a statement that an estimate cannot be made. This standard also requires issuers to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the release of their financial statements. In preparing the financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through April 23, 2013, the date that the financial statements were available to be issued. NOTE 3 - OWNERS ASSESSMENTS Annual assessments to owners were $1,308 (paid in monthly installments of $109) in 2012. Of these amounts, $126.64 per owner ($10.55 per owner per month) was contributed to the replacement fund. Delinquent assessments totaled $25,543 at year end. As of December 31, 2012, an allowance for uncollectible assessments in the amount of $15,700 has been recorded since collection of certain delinquent accounts and related expenses is doubtful. NOTE 4 - FEDERAL AND STATE INCOME TAXES Homeowner associations may elect to be taxed as a regular corporation or as a homeowners association. The Association elected to be taxed as a homeowners association for the year ended December 31, 2012. Under Internal Revenue Service Code Section 528, the Association excludes from taxation exempt function income, which generally consists of revenue from uniform assessments to owners. The Association s investment income and other nonexempt income were subject to tax. Based on allocations made, there was no tax liability for the year ended December 31, 2012. The Association has adopted accounting guidance relating to accounting for uncertainty in income taxes, effective January 1, 2009. This guidance prescribes criteria for financial statement recognition, measurement, and disclosure of a tax position taken or expected to be taken in a tax return. There was no impact on the Association s financial statements as a result of this implementation. Page 7.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012 TURTLE SHORES OWNERS ASSOCIATION, INC. NOTE 5 - CONCENTRATION OF CREDIT RISK At December 31, 2012, the Association had no uninsured cash accounts. Effective October of 2008, Federal Deposit Insurance Corporation ( FDIC ) insurance covers unlimited amounts for non-interest bearing operating cash accounts and up to $250,000 (per tax identification number) for interest bearing cash accounts. NOTE 6 - FUTURE MAJOR REPAIRS AND REPLACEMENTS The Association is accumulating funds for future major repairs and replacements. Accumulated funds total $265,525 at December 31, 2012, and consist of cash in a bank account and a certificate of deposit. These funds are held in separate income earning accounts generally not available for expenditures for normal operations. The Association is funding reserves based on a study of the remaining useful lives of the components of common property and current estimates of costs of major repairs and replacements that may be required in the future. The study was performed by Reserve Advisors, Inc. and was dated September 6, 2011. The reserve study includes recommended funding of $60,600 for 2013. The Association has taken guidance from this study and included in its 2013 budget reserve funding in the amount of $44,502. The table included in the Supplementary Information on Future Major Repairs and Replacements provides an analysis of the funding as of December 31, 2012. Funds are being accumulated in the replacement fund based on estimates of future needs for repairs and replacements of common property components. 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 increase regular assessments, levy special assessments, or delay major repairs and replacements. NOTE 7 - COMMITMENTS AND CONTINGENCIES The Association may periodically be involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The financial statements do not include any adjustments for such actions. The Association also has entered into various contracts for services including management and other services. The Association engages Sovereign & Jacobs Property Management Companies to provide property management services, including: accounting, collections, closings, administration, property management, employment of personnel, and maintenance of common elements. Management fees under this contract totaled $36,600 for the year ended December 31, 2012. In addition, the Association reimburses the management company for labor costs, office supplies and out-of-pocket expenses incurred on the Association s behalf. These costs totaled $7,169 for 2012. Page 8.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012 TURTLE SHORES OWNERS ASSOCIATION, INC. NOTE 8 - PRIOR PERIOD ADJUSTMENT Prior period adjustments totaling $4,242 have been recorded to the operating fund balance on the Statement of Revenues and Expenses and Changes in Fund Balances as of December 31, 2012. They include certain assets and liabilities identified during 2012 that related to prior years. These items have been recorded as prior period adjustments rather than in the current year revenues and expenses in order to avoid overstating the current year activities. Page 9.
Comparison of Operating Fund Revenues and Expenses to Budget For the Year Ended December 31, 2012 Turtle Shores Owners Association, Inc. Actual Budget Variance Revenues Maintenance fees $352,044 $352,027 $17 Late fees 3,911 3,911 Gate clicker income 3,280 2,700 580 Other income 284 284 Total revenues 359,519 354,727 4,792 Expenses General and administrative Bad debt expense 20,116 7,000 13,116 Bank charges 88 270 (182) Federal taxes 1,800 (1,800) Legal 2,406 7,000 (4,594) Office and administrative 2,607 4,000 (1,393) Management fees 36,600 36,600 Postage/copying 2,408 6,000 (3,592) Professional fees 1,000 1,200 (200) Total general and administrative 65,225 63,870 1,355 Insurance - property, hazard, liability 4,766 12,500 (7,734) Maintenance Community relations 246 630 (384) Facilities repairs and maintenance 28,786 37,127 (8,341) Gate repair 14,538 14,538 Maintenance personnel 37,991 43,000 (5,009) Pool contract service 13,294 4,000 9,294 Pool supplies 5,470 4,500 970 Security service contract 78,177 77,600 577 Security system cameras 2,276 5,000 (2,724) Sheriff patrol/security 3,679 3,700 (21) Total maintenance 184,457 175,557 8,900 Utilities Clubhouse utilities 13,956 13,000 956 Common area electric 18,083 21,000 (2,917) Water and sewer 12,018 11,000 1,018 Total utilities 44,057 45,000 (943) Grounds Fertilization/pest control 3,168 4,300 (1,132) Irrigation maintenance 4,293 5,000 (707) Landscape contract 26,773 28,000 (1,227) Landscape maintenance 10,135 11,000 (865) Pond maintenance 4,400 4,000 400 Tree trimming 3,863 5,500 (1,637) Total grounds 52,632 57,800 (5,168) Total expenses 351,137 354,727 (3,590) Surplus of revenues over expenses $8,382 $8,382 See accountants' report. Page 10.
Supplementary Information on Future Major Repairs and Replacements At December 31, 2012 Turtle Shores Owners Association, Inc. The Association is funding reserves based on a formal study performed by Reserve Advisors, Inc. The study estimates the remaining useful lives and the replacement costs of the components of common property. The following information is based on the study and presents significant information about the components of common property. Estimated Estimated Remaining Current 2013 Useful Replacement Balance at Interest Balance at Approved Components Life Cost 12/31/11 Additions Allocation Expenditures 12/31/12 Funding Property site elements 1-20 years $1,448,145 Clubhouse 1-26 years 232,850 Pool and spa 1-20 years 207,280 Reserve study update 1 year 3,500 Pooled fund $249,094 $37,740 $544 ($21,853) $265,525 $44,502 Totals $1,891,775 $249,094 $37,740 $544 ($21,853) $265,525 $44,502 See accountants' report. Page 11.