May 31, 2011
James Messinger
Treasurer, KPWCA
P. O. Box 271
Fairfax, VA 22038
Goldklang Group
1801 Robert Fulton Dr. Suite 200
Reston, VA 20191
RE: KPWCA Response to Goldklang Fiscal Year 2010 Audit
Dear Goldklang Group,
This letter is a response to your comments and recommendations from the Auditor’s Report dated December 9, 2010 regarding your audit of KPWCA fiscal year ending May 31, 2010. Each question was taken directly from your Management Letter and/or the Independent Auditor’s Report and all responses are valid as of May 31,2011
1) As of May 31, 2010 the Association had a surplus of $10,872 in unappropriated members’ equity (excess operating funds). This represents approximately 62 % of annual assessments. Generally, we recommend associations maintain a buffer of 10-20% of annual assessments as excess operating funds. Any amount above 20% should be transferred to replacement reserves.
The Association agrees with the issue presented and steps have been taken over the last 2 years to address this by reducing the annual assessment to the membership thus reducing the excess and more recently, the January 26th, 2011 snow storm caused extensive tree damage to our common ground that required substantial expenditures from this operating fund- thus reducing it dramatically. The tree maintenance annual budget was exceeded by approximately $6,000.00 for fiscal year ending May 2011.
Our current surplus balance stands at $2,163 which is approximately 15% of annual assessment as of this date.
2) As of May 31, 2010, the Association’s assessment receivables balance of $2,649.00 was equal to 15% of annual assessments. An assessments receivable balance of 3% or more of annual assessments suggests the Association may have future cash flow problems. We recommend the Association continue to aggressively pursue all delinquent accounts.
As of September, 2010, a payment plan program was introduced to the eight members who represented most of the receivables balance. This plan allowed these members the opportunity to pay down their debt over a 12 month period with their individual payments split into 12 equal payments based on their outstanding balance. This plan was very well received and as of May 10, 2011, four members have paid in full and the remaining four members’ continue to repay monthly and the total receivables have been reduced to $339, which represents 2% of the annual assessment. We also aggressively approached the membership regarding payment of their current 2010-11 assessment of $25 resulting in all households being paid up-to-date by February 2011.
3) As of May 31, 2010, the Association currently has an outstanding deposit in transit of $105.00 on its bank reconciliation, which was recorded several years ago. Tracking outstanding items is an important control procedure. An adjustment was proposed during the audit to write off the deposit.
This item was researched with the bank and Mr. Lim, who wrote the original check. Although booked by the management company in 2005, the check was never cashed and the deposit was never received by the bank. Subsequently, Mr. Lim provided a replacement check which was deposited in January, 2011.
4) The Association had a replacement reserve study conducted in 2005. We recommend the Association consider having an updated study done. The Virginia General Assembly passed legislation that requires a study be conducted at least every 5 years. The Association should take steps to comply with this law.
A new study has been completed for 2010-11. Updated repair and replacement costs have been provided in this new study. Also, the Board made a decision to change the yearly deposit to the reserve fund based on a new schedule/option outlined in detail. A full copy of this new report will be provided on request.
5) We recommend the Association meet with its insurance agent at least annually to discuss coverage and to make sure that the coverage provides the necessary and appropriate protection. The Association should maintain crime coverage that equals or exceeds the total of its funds. It should be structured to include a defalcation or misappropriation committed by a Board member, an employee of the Association, or employees of the management company, including principals.
As the Treasurer, I met with the insurance provider (Hardy Associates) twice in the last four months and did confirm that the coverage and structure is in compliance as outlined in the audit.
6) On July 21st, 2010, the FDIC $250,000 per financial institution was extended permanently. We recommend the Association monitor its accounts and immediately transfer funds in excess of the FDIC limit to other institutions or treasury instruments so all Association funds will be insured. The Association should also periodically check the ratings for all financial institutions used by the Association.
The Associations current balances are well within the FDIC limit for each institution. BB&T, which is the Associations financial institution is rated A (stable) from Standard and Poors.
7) The Associations’ accounting records are maintained on a modified cash basis of accounting throughout the year. We have proposed several material adjustments, including recording the approved 2009 audit adjustments, to present the financial statements on the accrual basis of accounting.
While we understand the issue, the Board believes it is unnecessary for KPWCA to make this accounting change.
Our monthly expenses are very small and are consistent, planned and usually less than $2,000.00/month.
We only see an issue if there would be an unexpected large expense incurred in May, or the last quarter of the fiscal year that would be paid in the next fiscal year causing an understatement of the years expenses.
From a revenue standpoint, billing is done in July so most of the revenue comes in during the 1st fiscal quarter, thus not causing any year over year problem.
Thank you very much for your efforts in conducting the audit and we appreciate your comments and recommendations. Please feel free to contact me at 703-350-2525 with any questions or if you need additional information.
James Messinger
Treasurer
CC: RCS
KPWCA Board