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Howard S. Simon, CPA CHAPARRAL PINES COMMUNITY ASSOCIATION FINANCIAL STATEMENTS and ACCOUNTANTS REPORT DECEMBER 31, 2008
CHAPARRAL PINES COMMUNITY ASSOCIATION TABLE OF CONTENTS Page Accountants Report 1 Financial Statements Balance Sheet 2 Statement of Revenues, Expenses and Changes in Fund Balances 3 Statement of Cash Flows 4 Notes to Financial Statements 5 7 Supplementary Information 8
Howard S. Simon, CPA, P.C. 3116 E. Shea Blvd., #140 Phoenix, Arizona 85028 Phone: 602-384-8582 Fax: 602-532-7989 ACCOUNTANTS REVIEW REPORT The Board of Directors Chaparral Pines Community Association We have reviewed the accompanying balance sheet of Chaparral Pines Community Association as of December 31, 2008, and the related statements of revenues, expenses and changes in fund balances and cash flows for the year then ended, in accordance with Statements of Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Chaparral Pines Community Association. A review consists principally of inquiries of association personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. 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 the basis of accounting described in Note 2. The supplementary information on future major repairs and replacements on page 8 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 compiled the supplementary information from information that is the representation of management, without audit or review. Accordingly, do not express an opinion or any other form of assurance on the supplementary information. March 12, 2010
Chaparral Pines Community Association Balance Sheet December 31, 2008 Funds General Working Operating Reserve Capital Reserve Total ASSETS Cash and Cash Equivalents $ 451,046 $ 369,503 $ 136,704 $ 957,253 Assessments Receivable 48,171 - - 48,171 Prepaid Expenses 22,430 - - 22,430 Furniture and Equipment, net 7,410 - - 7,410 Note Receivable 4,543 - - 4,543 Other Assets 4,306 - - 4,306 Inter Fund Due (to) / from Balances (218,307) 217,994 314 - TOTAL ASSETS $ 319,599 $ 587,497 $ 137,017 $ 1,044,113 LIABILITIES AND FUND BALANCES Liabilities Accounts Payable $ 46,897 $ - $ - $ 46,897 Refundable Construction Deposits 80,000 - - 80,000 Refundable Landscape Deposits 25,000 - - 25,000 Prepaid Assessments - Deferred Revenue 122,526 - - 122,526 Total Liabilities 274,422 - - 274,422 Fund Balances 45,176 587,497 137,017 769,690 TOTAL LIABILITIES AND FUND BALANCES $ 319,599 $ 587,497 $ 137,017 $ 1,044,113 See accompanying notes and accountants' report 2
Chaparral Pines Community Association Statement of Revenues, Expenses and Changes in Fund Balances For the Year Ended December 31, 2008 Funds General Working Operating Reserve Capital Reserve Total Revenues Assessments $ 1,031,669 $ 86,509 $ 5,800 $ 1,123,978 Reimbursements and Fees 74,492492 20,000000-94,492492 Interest 778 15,720 1,809 18,307 Total Revenues 1,106,939 122,229 7,609 1,236,777 Expenses Bad Debt Expense 85,813 - - 85,813 General and Administrative 48,114 - - 48,114 Security - Contract 468,535 - - 468,535 Security - Other 48,057 - - 48,057 Professional Fees 48,618 - - 48,618 Management Fees 114,000 - - 114,000 Maintenance a - Contract 214,712 - - 214,712 Maintenance - Other 34,260 - - 34,260 Utilities 10,672 - - 10,672 Insurance 7,446 - - 7,446 Taxes 5,717 - - 5,717 Depreciation 2,469 - - 2,469 Total Expenses 1,088,414 - - 1,088,414 Net Revenues over Expenses 18,526 122,229 7,609 148,364 Fund Balances - Beginning of Year As Previously Reported 295,592 169,015 129,408 594,015 Prior Period Adjustments, Net (268,942) 296,253253-27,311 As Restated 26,650 465,268 129,408 621,326 Fund Balances - End of Year $ 45,176 $ 587,497 $ 137,017 $ 769,690 See accompanying notes and accountants' report 3
Chaparral Pines Community Association Statement of Cash Flows For the Year Ended December 31, 2008 CASH FLOWS FROM OPERATING ACTIVITIES Funds General Working Operating Reserve Capital Reserve Total Net Revenues over Expenses $ 18,526 $ 122,229 $ 7,609 $ 148,364 Adjustments to reconcile excess revenues over expenses to net increase (decrease) in cash Depreciation 2,469 - - 2,469 (Increase) / Decrease in Assets: Interfund Balances 9,678 (10,564) 885 - Assessments / Accounts Receivable (35,034) - - (35,034) Prepaid Expenses (21,522) - - (21,522) Other Assets (4,306) - - (4,306) Increase / (Decrease) in Liabilities: Accounts Payable / Accrued Expenses 30,404 64,804-95,207 Refundable Construction ti Deposits (242,000) - - (242,000) Prepaid Assessments - Deferred Revenue 50,914 - - 50,914 Net Cash and Cash Equivalents Provided (Used) by Operating Activities (190,872) 176,469 8,495 (5,908) CASH FLOWS FROM FINANCING ACTIVITIES - Payments on Note Receivable 5,154 - - 5,154 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (185,718) 176,469 8,495 (754) Cash and Cash Equivalents - Beginning g of Year 636,763 193,035 128,209 958,007 CASH & CASH EQUIVALENTS - END OF YEAR $ 451,045 $ 369,504 $ 136,704 $ 957,253 Federal and state income taxes paid in 2009, net of prior year tax refunds, amounted to $9,834 and $2,450, respectively. See accompanying notes and accountants' report 4
Chaparral Pines Community Association Notes to Financial Statements For the Year Ended December 31, 2008 1. Organization Chaparral Pines Community Association (the Association) is a nonprofit Arizona corporation comprised of 810 single family lots/homes formed on January 19, 1996 for the purpose of maintaining and preserving the common property of the Association in Payson, Arizona. Every owner of a lot or home is a member of the Association. The Association is responsible for maintaining the community s roads, entry/exit gates and gate operators, guardhouses, and Tract C common area. The Association has engaged Ogden & Company, a professional property/association management company, for administrative and property management services under a management agreement. 2. Summary of Significant Accounting Policies Basis of accounting - The financial statements are prepared on the accrual basis of accounting; revenues and the related assets are recognized when earned and expenses are recognized when the obligation is incurred. Fund Accounting - The Association has adopted certain guidelines for governing its financial activities. Financial resources are classified for accounting and reporting purposes as: (a) operating funds, available for the general operations; and (b) reserve fund(s), for accumulation of funds for future repairs and replacements of Association property or other designated uses. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as 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. Common Property - Certain property was contributed by the developer upon completion of the property at no cost to the Association. These common areas are not reflected in the financial statements and no value has been assigned to them. Interest Income - Interest received is allocated to the funds based on actual earnings of the funds respective assets. 3. Furniture and Equipment Furniture and equipment consists of office furniture and computer equipment comprised as follows at December 31, 2008: Furniture and Equipment, at cost $12,349 Less: Accumulated Depreciation (4,940) $ 7,409 See accompanying accountants report. 5
Chaparral Pines Community Association Notes to Financial Statements For the Year Ended December 31, 2008 4. Federal and State Taxes The Association elected to be taxed under Internal Revenue Code Section 528 as a homeowners association and filed its 2008 federal income tax return on Form 1120-H. Under IRC Section 528, the Association is taxed at the rate of 30% on non-exempt function income, which is comprised primarily of interest income. The Association s federal and Arizona income tax expense incurred in 2008 was $2,768 and $812, respectively. During 2008, the Association paid current and prior year federal and Arizona income taxes, net of prior year tax refunds, of $9,834 and $2,450, respectively. At December 31, 2008, the Association has 2008 tax refunds receivable of $4,306 and 2009 prepaid taxes of $2,536. 5. Risk Management - Concentration / Financial instruments Financial instruments that subject the Association to credit risk consist of member assessments receivable and cash & cash equivalents. Substantially all of the Association s income is comprised of assessments and expense reimbursements from its members. During 2008, the Association wrote off assessments receivable in the amount of $45,813 and provided an allowance for uncollectible assessments receivable as of December 31, 2008 in the amount of $40,000. Total bad expense in 2008 was $85,813. Effective October 3, 2008, the Emergency Economic Stabilization Act of 2008 temporarily increased the basic limit on FDIC insurance coverage to $250,000 per depositor and on May 9, 2009, Congress extended the expiration date to December 31, 2013. On October 14, 2008, the FDIC announced its new Transaction Account Guarantee (TAG) Program as part of the Temporary Liquidity Guarantee Program. The TAG program guarantees full deposit insurance coverage of non-interest bearing deposit transaction accounts, regardless of the dollar amount until June 30, 2010, regardless of the dollar. During the year and as of December 31, 2009, the Association s cash and cash equivalents (comprised of certificates of deposit), did not exceed FDIC insurance coverage. 6. Future Major Repairs and Replacements The Association is setting aside funds for future major repairs and replacements as determined by the Board of Directors and a reserve analysis study as part of the annual budgeting process. Monies to fund the reserve are generated primarily from member assessments and interest income, and are periodically transferred from the operating account into the reserve account(s). See accompanying accountants report. 6
Chaparral Pines Community Association Notes to Financial Statements For the Year Ended December 31, 2008 6. Future Major Repairs and Replacements (continued) At the direction of the Board of Directors, an engineering company conducted an independent study and issued their report dated September 4, 2009 for the purpose of estimating the remaining useful lives and replacement costs of the components of common property, and to determine a funding plan for major repairs and replacements effective for the budget year beginning January 1, 2010. Actual expenditures and investment income may vary from the estimated amounts, and the variations may be material. Therefore, funds accumulated may not be adequate to meet all future needs. 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. 7. Prior Period Adjustments The following adjustments were discovered following the completion of the audit of the Association s 2007 financial statements and are presented in the accompanying statement of revenues, expenses and changes in fund balances in lieu of restating the 2007 financial statements: December 31, 2007 Fund Balances Description General Operating_ Reserve_ Fund Balances, as previously reported $ 295,592 $ 169,015 To correct cash applied to fund balances (231,450) 231,450 2007 reserve fund reimbursement - 67,225 2007 refundable deposit recorded as revenue (25,000) - Other (12,492) (2,422) Total prior period adjustments (268,942) 296,253 Fund balances, as restated $ 26,650 $ 465,258 See accompanying accountants report. 7
SUPPLEMENTARY INFORMATION
Chaparral Pines Community Association Supplementary Information on Future Major Repairs and Replacements December 31, 2008 (Unaudited) The Association is setting aside funds for future major repairs and replacements as determined by the Board of Directors and a reserve analysis study as part of the annual budgeting process. Monies to fund the reserve are generated primarily from member assessments and interest income, and are periodically transferred from the operating account into the reserve cash account. At the direction of the Board of Directors, an engineering company conducted an independent study and issued their report dated September 4, 2009 for the purpose of estimating the remaining useful lives and replacement costs of the components of common property, and to determine a funding plan for major repairs and replacements effective for the budget year beginning January 1, 2010. The study used the Modified Cash Flow funding method and the Threshold Funding strategy. The funding requirements assume an annual inflation rate of 3.0%, an annual contribution increase of 3.0%, an investment yield on reserve funds of 1.56% with no taxes on yield, and a funded reserve balance as of January 1, 2010 of $466,275. The accumulated, unallocated Reserve Fund balance at December 31, 2008 is $587,497. Actual expenditures and investment income may vary from the estimated amounts, and the variations may be material. Therefore, funds accumulated may not be adequate to meet all future needs. 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. The table below of unaudited supplementary information on future major repairs and replacements from the September 4, 2009 study presents summary information about the components of common property. Estimated Estimated Current Remaining Replacement Common Property Component Useful Life Cost Streets - Overlay and Slurry 4 to 22 $2,497,622 Seal / Stain - Clubhouse - Club Drive & Tyler Pkwy 0 to 3 3,750 Guardhouses - HVAC, Remodel, Office Equiment 0 to 10 15,000 Gate Operators and Lane Controller - Club Drive 1 24,800 Barrier Arm Operators, Lane Controllers, Gate Operators, Intercoms 1 to 8 105,000 Security - Radios and Server Hardware 0 to 5 12,375 Monument Signs 6 to 15 4,000 Totals $2,662,547 See accompanying accountants report. 8