Money Watch
June 29, 2008 - Throwing the baby out with the bathwater
A delayed update for sure, but it was courteous to give some time and to watch events. Sad to say, all the MVF financial reports issued since last year have been incorrect and incomplete. This is a serious matter, especially in anticipation of the upcoming 2009 budget review and approval.
Most mistakes are minor, but there are more than a few and they add up to less than full confidence in the overall picture.
One of the most disturbing observations is that the budget has been changed since it was approved last year. Among the changes to the budget is a $10K shift of income from the MVF Fund to the DU Fund. While the underlying reason for the shift (the budget was wrong?) may be valid, it is questionable whether the budget should have been changed at all and it should certainly not have been changed without Board approval. Correct fund accounting for the income is all that is necessary. In the event that the budget change would be approved, the entry for the $10K should be consistent with all the other budget entries. It is not. Keep in mind that the MVF and DU assessments are based on related income (and expense) for these funds.
Other budget changes are in evidence, and there has been no explanation forthcoming. No budget changes should be made without board approval.
Among the long term missing elements of the reports are the Investment reports (required by policy), a Cash Flow Statement, Reserves Income and Expense and the all important Fund Summary. Finally, a Fund Summary appeared for June after seven months absence and it is wrong! There is no excuse for any of this.
There is a more accurate June Fund Summary Report available, but it is not totally accurate because of the problems with the underlying data. It shows a different picture than the report issued by MVF, and points to serious problems with financial management and reporting. One can only wonder if the mindset for “change” has all but thrown the baby out with the bath water.
June 9, 2008 - More about the Money
March 21, 2008 - Audit Committee Meeting
Last night’s audit committee meeting was a testimony to the old adage of enjoying the sausage, but shuddering at watching it being made. Between an interminable obsession with the Letter to the Audit Committee (as opposed to the financial statements), the inability to understand what adjusting journal entries are, wandering into cash management issues which have nothing to do with the auditors, and deliberating an old fund consolidation idea, a good 90 minutes were wasted.
Of about twenty present, there were probably five or six who had some notion of what was going on. The rest had no clue, but fortunately were silent.
The substance of the meeting took about 30 minutes the auditors gave an unqualified opinion – clean audit. Operations was about breakeven and pretty much on budget. In total the loss including Operations, Fixed Assets and Reserves was ($337K), and that included $508K of depreciation which is a non cash expense. This compares with a loss of ($509K) in 2006. Of more significance, Operations was at about breakeven, with Community Management and Maintenance performing somewhat better than budget and MVF and DU Funds slightly worse than budget. The final Contribution to Reserves was $14,936.
On the questionable side was a $61K charge for uncollectable assessments which is a new accounting item for MVF. This is a set aside in anticipation of bad debt. It seems high, especially in light of a $50,000 bad debt expense budget for 2008. More importantly, since the bad debt has not occurred, it distorts the visibility on timing by reducing Accounts Receivable in anticipation of something that has not occurred. A further expense of $50K was taken in anticipation of taxes owed on certain benefits.
Overall, it was not a great year, but it was pretty much on target with budget. The really disturbing news is that the undesignated reserves are still negative, the reserves are now overstated by $700K, the fund balances are still wrong and we are once again at the MVF assessment ceiling. These are structural problems that have been discussed with the Board starting in mid-2006. There is yet to be any useful action taken despite the election of Board members who vowed to fix them.
The most disturbing moment came at the end of the meeting when EVP, Dave Humpton, announced that the Board is considering having a Board member chair the Audit Committee. This is a proposal on a par with the appointment of a Board member as Treasurer. While not illegal, it is a terrible idea. It confounds the notion of audit committee independence for one thing and it is a disaster waiting to happen considering the lack of financial expertise on the board.
The 2007 Budget in chart form. See how it all fits together. MVF Money 2007
The 2007 Year End Report. See how it all worked out. 2007 Year End Report
The 2008 Budget in chart form. MVF Money 2008