AUDITED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT AND SUPPLEMENTARY INFORMATION For the year ended December 31, 2013
C O N T E N T S Pages INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS: Balance Sheet 3 Statement of Revenues, Expenses and Changes in Fund Balance 4 Statement of Cash Flows 5 Notes to Financial Statements 6-9 SUPPLEMENTARY INFORMATION: Supplementary Information on Future Repairs and Replacements 10
WESTON & GREGORY, LLC CERTIFIED PUBLIC ACCOUNTANTS 100 La Costa Lane, Suite 100 Daytona Beach, FL 32114-8158 386.274.2747 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Members of The Ashley Condominium Management Association, Inc. Daytona Beach Shores, Florida Report on the Financial Statements We have audited the accompanying balance sheet of The Ashley Condominium Management Association, Inc. as of December 31, 2013, 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. - 1 -
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Ashley Condominium Management Association, Inc. as of December 31, 2013, 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. 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 ten 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. Daytona Beach, Florida February 20, 2014-2 -
Balance Sheet December 31, 2013 ASSETS Operating Replacement Fund Fund Total Cash and cash equivalents $ 263,984 $ 233,386 $ 497,370 Assessments receivable, net of allowance for doubtful accounts of $39,000 3,792-3,792 Prepaid expenses 25,904-25,904 Property and equipment, net of $89,971 of accumulated depreciation 53,725-53,725 $ 347,405 $ 233,386 $ 580,791 LIABILITIES AND FUND BALANCE Accounts payable $ 13,581 $ - $ 13,581 Accrued expenses 2,098-2,098 15,679-15,679 Fund balance 331,726 233,386 565,112 $ 347,405 $ 233,386 $ 580,791 See accompanying notes to financial statements and independent auditor's report - 3 -
Statement of Revenues, Expenses and Changes in Fund Balance For the year ended December 31, 2013 Operating Replacement Fund Fund Total Revenues: Members' assessments $ 626,940 $ 92,880 $ 719,820 Interest income 909 1,476 2,385 Other income 10,201-10,201 638,050 94,356 732,406 Expenses: Administrative 7,194 100 7,294 Bad debts 14,701-14,701 Building rmaintenance and repairs 83,295 1,141,643 1,224,938 Depreciation 3,713-3,713 Elevator maintenance and repairs 17,744744-17,744744 Grounds maintenance 6,496-6,496 Insurance 153,631-153,631 Pest control 5,404-5,404 Pool maintenance and repairs 5,863-5,863 Professional fees 4,125-4,125 Taxes, fees, and licenses 1,289-1,289 Utilities 181,617-181,617 Wages and benefits 127,222-127,222 612,294 1,141,743 1,754,037 Excess (deficit) of revenues over expenses 25,756 (1,047,387) (1,021,631) Fund balance, beginning of year, as restated 327,368 1,259,375 1,586,743 Transfers in (out) (21,398) 21,398 - Fund balance, end of year $ 331,726 $ 233,386 $ 565,112 See accompanying notes to financial statements and independent auditor's report - 4 -
Statement of Cash Flows For the year ended December 31, 2013 Operating Replacement Fund Fund Total Cash flows from operating activities: Cash received from members' assessments $ 618,422 $ 92,880 $ 711,302 Cash received from interest and other income 11,110 1,476 12,586 Cash paid for services and goods (584,836) (1,265,653) (1,850,489) Net cash provided by (used in) operating activities 44,696 (1,171,297) (1,126,601) Cash flows from investing activities: Sale of certificates of deposit - 399,908 399,908 Net cash provided by investing activities - 399,908 399,908 Cash flows from financing activities: Interfund transfers (21,398) 21,398 - Net cash provided by (used in) financing activities (21,398) 21,398 - Net increase (decrease) in cash and cash equivalents 23,298 (749,991) (726,693) Cash and cash equivalents, beginning of year 240,686 983,377 1,224,063 Cash and cash equivalents, end of year $ 263,984 $ 233,386 $ 497,370 Reconciliation of excess (deficit) of revenues over expenses to net cash provided by (used in) operating activities: Excess (deficit) of revenues over expenses $ 25,756 $ (1,047,387) $ (1,021,631) Adjustments to reconcile excess (deficit) of revenues over expenses to net cash provided by (used in) operating activities: Depreciation 3,713-3,713 Provision for bad debt 14,701-14,701 (Increase) decrease in: Assessments receivable (7,037) - (7,037) Prepaid expenses 5,936-5,936 Increase (decrease) in: Accounts payable 3,490 (123,910) (120,420) Accrued expenses (382) - (382) Assessments paid in advance (1,481) - (1,481) Net cash provided by (used in) operating activities $ 44,696 $ (1,171,297) $ (1,126,601) See accompanying notes to financial statements and independent auditor's report - 5 -
Notes to Financial Statements December 31, 2013 1. Organization: The Ashley Condominium Management Association, Inc. (the Association) was incorporated on April 12, 1989, as a not-for-profit corporation in the State of Florida for the purpose of operating and maintaining the common property of the Ashley Condominium. The condominium is located in Daytona Beach Shores, Florida, and consists of a twenty (20) story oceanfront building containing 129 residential units, a manager s unit and a parking garage. Policy decisions in regard to normal every day operations of the Association are formulated by the Board of Directors, who are elected by the general membership. Major policy decisions, as outlined in the documents of the Association, are referred to the general Association membership. 2. 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. Unless otherwise so designated, any excess assessments or surplus at year end is retained by the Association for use in future years. Financial resources are classified for accounting and reporting purposes in the following funds established according to their nature and purpose: The Operating Fund reflects the operating assessments paid by unit owners to meet the regular, recurring costs of operation. Expenditures of this fund are limited to those connected with the day-today functions of the Association. The Replacement Fund is composed of all capital assessments paid by the unit owners to fund future replacements, major repairs and purchases of additional commonly owned assets. Expenditures from this fund are restricted to those items for which the assessments were paid and those which are approved by the Board of Directors. Cash and cash equivalents: Cash and cash equivalents includes all highly liquid debt instruments purchased with an original maturity of ninety days or less. The Association has deposits at banks that are federally insured up to $250,000 under FDIC protection. At December 31, 2013, $252,184 of the Association s funds were not fully insured. Common Owned Property: Real and personal property acquired by the Association from the developer and major replacements or improvements made by the Association are capitalized on the financial statements of the Association, when ownership of these commonly owned assets is vested directly in the Association and may be sold. Assets vested directly or indirectly in the unit owners deemed not to be severable are not capitalized on the financial statements. The Association capitalizes personal property at cost and depreciates it over its estimated useful life using the straight line method. Assets have been depreciated over lives of seven (7) for furniture and equipment, and forty (40) years for the manager s condominium unit. - 6 -
Notes to Financial Statements December 31, 2013 2. Summary of Significant Accounting Policies: (Continued) 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Assessments: Association members are subject to monthly assessments to provide funds for the Association's operating expenses and reserves for major repairs and replacements. Assessments are levied against the unit owners for their allocable share of common expenses based on unit type. Assessments receivable at the balance sheet date represent fees due from unit owners. Assessments collected in advance are recorded as liabilities. Special assessments may also be imposed from time to time as deemed appropriate by the Board of Directors. The Association's policy is to retain legal counsel and place liens on the properties of unit owners whose assessments are delinquent. Allowance for Doubtful Accounts: The Association provides an allowance for accounts receivable it believes it may not collect in full. Management has made an assessment of uncollectible receivables and determined that an allowance for uncollectible accounts of $39,000 is needed as of December 31, 2013. Income Taxes: Condominium associations may be taxed as either a homeowners' association or a regular corporation. The Association elected to be taxed as a homeowners' association in accordance with Internal Revenue Code, Section 528, for the current year. Under that election, the Association is taxed on its nonexempt function income, such as interest earnings, at a rate of 30%. Exempt function income, which consists primarily of member assessments, is not taxable. For the year ended December 31, 2013, the Association s deductions for tax purposes exceeded any taxable income, therefore no income tax expense was incurred. The Association has a small employer health insurance premiums credit carryforward of $1,945 that may be offset against future taxable income. Of these credit carryforwards, $405 will expire on December 31, 2031 and the balance will expire on December 31, 2032. The Association files income tax returns in the US federal jurisdiction. With few exceptions, the Association is no longer subject to federal income tax examinations by tax authorities for years before 2010. - 7 -
Notes to Financial Statements December 31, 2013 2. Summary of Significant Accounting Policies: (Continued) Subsequent Events: The Association has evaluated events and transactions for potential recognition or disclosure in the financial statements through February 20, 2014, the date the financial statements were available to be issued. No subsequent events have been recognized or disclosed. 3. Windstorm Insurance: The current insured value of the Association s real property is $27,650,193. The Association s current insurance policy contains a deductible of three percent (3%) of the insured value for any named hurricane damage. The deductible was approximately $829,506 for the current policy year, which ends March 7, 2014. Other deductibles apply to the basic insurance coverage as well. 4. Property and Equipment: The major classifications of property and equipment at December 31, 2012 are as follows: Condominium unit $ 136,000 Furniture and equipment 7,696 143,696 Less: Accumulated depreciation $ (89,971) 53,725 5. Replacement Reserves: Florida Statues and the Association's documents require funds to be accumulated for future major repairs and replacements. The Association's current policy is to assess each unit owner a monthly assessment to meet all future replacement and major repair costs. These funds are held in separate accounts and are generally not available for operating purposes. Interest earned on these funds, net of service charges, is allocated to the specific reserve components, based upon the balance of the reserve component. The Association had an independent reserve study conducted in 2008 to estimate the remaining useful lives and the replacement costs of the common property components. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the study s estimates of current replacement costs, considering amounts previously accumulated in the replacement fund. The Board of Directors is required to present a budget that reflects full funding of reserve items. However, the members of the Association may vote to reduce, consolidate or eliminate reserve items. The Association s members, at a duly called meeting, voted for partially funding for such repairs and replacements. Actual expenditures, however, may vary from the estimated amounts and the variations may be material. Since the Association is only partially funding its future major repairs and replacements, amounts accumulated in the replacement fund will not be adequate to meet future needs. When additional funds are needed, the Association has the right to increase regular assessments, levy special assessments, or delay repairs and replacements until funds are available. - 8 -
Notes to Financial Statements December 31, 2013 5. Replacement Reserves: (Continued) The activity within the replacement fund for the year ended December 31, 2013 is presented as follows: Balance, Beginning Interest, net Balance, of Year, of Bank End as Restated Assessments Charges Transfers Expenditures of Year Roofs $ 41,077 $ 2,322 $ 10 $ - $ - $ 43,409 Painting and waterproofing 141,057 32,508 40 - (160,843) 12,762 Elevators 40,298 37,152 18 - - 77,468 Mechanical and electrical (5,178) 11,610 1 - (28,743) (22,310) Building components 10,076 2,322 3 - (2,100) 10,301 Site improvements 10,076 2,322 3 - (5,493) 6,908 Furniture and equipment 14,508 4,644 4 - (2,208) 16,948 General building 22,810-5 15,000-37,815 Special assessment 85 - - - - 85 Insurance settlement 984,566-1,292 6,398 (942,256) 50,000 $ 1,259,375 $ 92,880 $ 1,376 $ 21,398 $ (1,141,643) $ 233,386 6. Insurance Settlement: During 2010, a negotiated settlement regarding hurricane damage was reached with the insurance carrier. Proceeds from the settlement totaled $1,996,966. Through December 31, 2013, total interest of $12,082 had been earned on these funds. During the year ended December 31, 2013 $6,398 was transferred in from the operating fund to reimburse the reserves for a repair done in conjunction with the concrete restoration project. The Board approved using the funds for roof replacement and concrete restoration. During the years ended December 31, 2013, December 31, 2012, and December 31, 2011, the Association spent $942,256, $514,210, and $301,353, respectively on these projects. In 2012 the Board also approved to pay the 2012 insurance premiums totaling $155,840 from this account. In 2011, the Board approved paying off the mortgage on the association owned condominium unit, which totaled $51,787. As of December 31, 2013 all approved projects using the insurance settlement proceeds were complete and there was $50,000 remaining. The Association will use the remainder for future repairs. 7. Prior Period Adjustment: Two invoices, for work performed prior to December 31, 2012, pertaining to the concrete restoration project, we recorded as reserve fund expenditures during the year ended December 31, 2013. These invoices should have been recorded as of December 31, 2012. The effects are summarized below: Reserve Fund: Balance December 31, 2012 Balance December 31, 2013, as restated Change Liabilities: Accounts payable $ - $ 83,165 $ 83,165 Retainage payable $ - $ 40,745 $ 40,745 Fund Balance $ 1,383,285 $ (123,910) $ 1,259,375-9 -
SUPPLEMENTARY INFORMATION
Supplementary Information on Future Repairs and Replacements December 31, 2013 Florida Statutes and the Association's documents require funds to be accumulated for future major repairs and replacements. The Association's current policy is to assess each unit owner a monthly assessment to meet all future replacement and major repair costs. These funds are held in separate accounts and are generally not available for operating purposes. Interest earned on these funds is allocated to the specific reserve components, based upon the balance of the reserve component. The Association had an independent reserve study conducted in 2008 to estimate the remaining useful lives and the replacement costs of the common property components. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the study s estimates of the 2008 replacement costs, considering amounts previously accumulated in the replacement fund. The effects of inflation on the costs between the date of the study and the current date have not been considered in their calculation. The following information is based on the study and presents significant information about the components of common property: Estimated Estimated Estimated Replacement Useful Remaining Current Fund Balance 2014 2014 Life Useful Life Replacement December 31, Full Funding Budgeted Component (Years) (Years) Cost 2013 Requirement Funding Roofs 5-30 0-29 $ 676,637 $ 43,409 $ 22,811 $ 3,270 Painting and waterproofing 6-14 1-7 368,937 12,762 70,060 32,702 Elevators 15-30 4-7 525,300 77,468 79,736 45,782 Mechanical and electrical 6-44 1-21 371,164 (22,310) 138,744 16,351 Building components 6-32 1-31 1,018,646 10,300 524,191 6,540 Site improvements 3-25 2-16 126,556 6,908 32,282 6,540 Furniture and equipment 7-20 1-15 110,371 16,948 47,795 6,540 Paving and concrete maintenance 30 5 831,965-166,393 13,081 General building - - - 37,815 - - Special assessment - - - 85 - - Insurance settlement - - - 50,000 - - $ 4,029,576 $ 233,385 $ 1,082,012 $ 130,806 The Association's members, at a duly called meeting, voted for partially funding for such repairs and replacements. Actual expenditures, however, may vary from the estimated amounts and the variations may be material. Therefore, since the Association is only partially funding its future major repairs and replacements, amounts accumulated in the replacement fund will not be adequate to meet future needs. If additional funds are needed, however, the Association has the right to increase regular assessments or levy special assessments, or it may delay major repairs and replacements until funds are available. - 10 -