Finance Advisory Committee – August 2022

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, August 2022:

Question of the Month: Does the Association have a Procurement Policy?

The short answer to this question is YES, but let’s look at what it states.

Our Board of Directors reviews the procurement policy and revises it as needed. The last revision was in January 31, 2022. It provides the rules for the purchase of ordinary and necessary goods and services for our community. The intent is to increase competition among potential vendors who want to bid on providing goods and services to our community so that we obtain optimum value for these purchases. The policy also provides accountability for the expenditure of funds by the Association.

To accomplish these goals, there are Approval Levels and mandatory bid requirements which you can review on the Association website. Generally, the policy provides that the General Manager may approve purchases of less than $2,500 but must report these expenditures to the Board President and the Treasurer every week. For purchases between $2,501 and $5,000, no bids are required; but the entire Board must authorize such an expenditure.

Purchases of $5,001 to $10,000 require two bids plus a review and recommendation by the Finance Advisory Committee (FAC), with the Board making the ultimate decision. Finally, a purchase in excess of $10,001 requires three bids, a review by the FAC, and a decision by the Board. ALL purchases must identify where the funding will come from in the annual budget. If it is not provided for in the budget, the purchase must be justified, and there must be a disclosure of how it will be funded.

There are numerous other conditions that must also be met for each purchase. One of the most important is that the FAC written recommendation to either approve, modify, rebid, or deny the proposed purchase shall be available for resident review. This provision as well as requiring FAC review on all purchases over $5,001 were only recently included in the latest review of the policy. Before that, the FAC only reviewed Replacement Fund expenditures over $10,000; but it now reviews ALL expenditures over $5,001. This ensures that each and every larger purchase is examined by many eyes before the purchase is made.

To read the Procurement Policy on the Association website, look under HOA, then Documents, then click on the HOA Board file. We hope you will be very pleased that our Association seeks to make its purchase procedures transparent. Members of the FAC plus its Sub‑Committee (including Vice-Chair Zerryl Becker) have a wealth of relevant experience and knowledge gained through their various previous careers.

The Sub-Committee has one opening for a resident who has had a career in construction, engineering, corporate or government purchasing, or other positions where sound monetary decisions were needed. If you have any questions about the functions of the FAC, do not hesitate to contact us at finance@scshca.com.

Contact the author at finance@scshca.com.

Finance Advisory Committee – July 2022

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, July 2022:

Question of the Month: What is the Replacement Fund?

Last month we discussed the Reserve Study, and this month we will learn how the Reserve Study affects the Sun City Shadow Hills Replacement Fund. The items that need replacement after their useful life are found on the replacement fund list if they have a useful life of 30 years or less. This list is created by the experts we hire to conduct the Reserve Study. During a Type 1 Full Study, these experts visit our community, take photographs of equipment, and record measurements. Then the experts develop a useful life schedule and determine an estimated cost to replace each item at the end of its useful life. Once the experts make these determinations, they then determine an amount each year that our HOA must put in reserve to replace that item at some predetermined time in the future.

When an item needs replacement, it is identified on the reserve study so that the department head, such as maintenance, can seek bids for its replacement. The department head evaluates the quality of the suppliers and suppliers’ product and prepares a Board Action Form (BAF) to which the suppliers’ bids for replacement are attached. There are usually at least three bids on each replacement request.

This BAF then goes to the SCSH General Manager who will in turn forward it to the Finance Advisory Committee and its Sub-Committee for pricing investigation, inspection of the item for which replacement is requested, and preparation of a recommendation to the Board about whether the replacement request is justified and priced properly. The Board makes the ultimate decision on the replacement purchase using the replacement funds.

The list of items covered by the Replacement Fund numbers in the hundreds. The items range from patio furniture to ice machines and golf course mowers. The FAC Sub-Committee has members who have experience in various fields like construction, purchasing, and engineering. These members are all volunteers who spend their time assisting our community in evaluating if the replacement request is justified or if it can it be safely deferred.

A lot of consideration has gone into keeping this community in first class condition, and we are fortunate to have had management practices over the years that have created a sound replacement fund to meet the needs determined by the Reserve Study, without which we could be exposed to special assessments or community loans.

The FAC Sub-Committee has two openings. If you possess specialized skills or experience from your past or current work activities, we encourage you to complete a Committee Interest Form and help us keep this community financially sound.

Contact the author at finance@scshca.com.

Finance Advisory Committee – June 2022

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, June 2022:

Question of the Month: What Is a Reserve Study, and Why Does the Association Have to Perform One?

A Reserve Study identifies major components of the facilities owned by an Association such as air conditioners, etc., that have a remaining service life of 30 years or less. The Davis-Stirling Act, which is the California law that regulates Homeowner Associations, requires an Association to perform Reserve Studies at least once every three years. The study is to be a report based on a diligent visual inspection of the accessible areas of Association components which the Association is financially responsible for maintenance, repair, and replacement. (See CA Civil Code sec. 5550.)

In addition to identifying the components, the study estimates the cost of maintaining or replacing the major components and provides a funding plan to meet these Association needs through the residents’ annual monthly contributions. The studies are also reviewed annually by the Association to determine whether events over the past year warrant adjustments to the reserve funding. The Reserve Study and the accumulation of the required reserve funds is designed to prevent the necessity of special assessments and/or loans to cover Association’s needs.

If the reserve funds are properly accumulated annually, the residents should feel that their investment in a community is jeopardized by special assessments or Association debt obligations. The latest Reserve Study conducted by SCT Reserve Consultations, Inc., confirmed that -- out of our current monthly assessment of $309.00 -- $51.23 is allocated to our reserves. It also indicated that the reserve amount that we presently have in our replacement fund is 77.37% of suggested total funding. Learned opinions have determined that this is excellent because it presents only a 1% or less chance that we would suffer a special assessment or loan.

As a resident-owner, you receive the Reserve Study Summary with your annual budget report; and you have the right to request an opportunity to review the entire Reserve Study.

The Finance Advisory Committee (FAC) assists in the selection of a competent reserve study consultant and makes that recommendation to the Board for approval. The FAC will also review the report regularly throughout the year, and the FAC has a voice in all proposed replacement fund expenditures in excess of $5,000 from the reserve funds. We at the FAC take this obligation in our Charter very seriously, as we continually work to keep our community financially healthy.

Contact the author at finance@scshca.com.

Finance Advisory Committee – May 2022

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, May 2022:

Question of the Month: How Does the Financial Review Process Happen?

Interested residents will find it helpful to know how the review of the Finance Advisory Committee (FAC) comes together each month. Within ten (10) days from the first of each month, with the assistance of their Arizona shared services section, Troon generates the financial reports for the preceding month, and those go to the FAC and Association management. Within five (5) days thereafter, Desert Resort Management’s (DRM’s) corporate office in Dallas finalizes the Association financial reports for the previous month and submits those to Tyler Ingle, our Association General Manager, for review and submittal to the FAC.  The FAC receives the financial reports before its monthly meeting so members can analyze the reports in order to have a productive meeting.

By Charter, the FAC’s mission is to review and analyze the financial reports monthly to:

  1. Ensure they are clear, concise, informative, and completed in accord with Generally Accepted Accounting Principles (“GAAP”);
  2. Ensure they are free from material misstatements, whether due to fraud or error;
  3. Advise the Board when those records have been reviewed and that they are recommended for approval by the Board;
  4. Review and recommend approval of the Treasurer’s Report;
  5. Review the monthly bank reconciliations of both the Association accounts and the investment accounts, and advise the Board if they are recommended for approval.
  6. Review numerous other financial records, including the annual forecast of revenues and expenses, bad debt reports, and variance reports, to determine if the Association is operating within its approved budget. If a significant variance is found, it would be immediately reported to the Board for appropriate action.

There are, of course, many other assigned duties in the FAC Charter but these are the principal ones that deal with the monthly financial reports issued by Troon and DRM that require FAC action monthly and FAC recommendations to the Board.

We will provide other helpful information and explanations for you in future issues of The View. If you have any specific financial questions, please contact the FAC at finance@scshca.com.

Contact the author at finance@scshca.com.

Finance Advisory Committee – April 2022

By Robert “Bob” O. Jester
Finance Advisory Committee Chair

As published in The View, April 2022:

I prepare this article having been selected to lead the Finance Advisory Committee (FAC) on March 1, 2022, upon the acceptance of the resignation of the current Chair, Larry Helseth. I have some very big shoes to fill because Larry had a long and accomplished career as a Certified Public Accountant and had previously served for several years on the Finance Advisory Committee. I will not pretend to have the financial knowledge of any of my predecessors in the position of Chair, but I do commit to this community that I will do my best to lead the committee to accomplish its assigned tasks under the FAC Charter.

I have begun the transition process by redesigning the structure of the committee to profit from the vast professional and job experience of its current members. I have appointed Vice Chairs from the committee membership to take the lead in each area assigned to the FAC by its charter. Those areas are Financial Analysis, Audit and Taxes, Budgets, Contracts and Compliance, Investments and Replacement Fund, Insurance, and the Sub-Committee of the FAC that reviews all expenditure requests in excess of $5,000.. I will be asking each of these new Vice Chairs to introduce themselves to you over the next months and to provide you with their insights about the various functions of the FAC.

I know that many of you have questions about the oversight of the Association from a financial standpoint, so we always invite any questions that you might have. We are also in real need of another Certified Public Accountant to join our committee.

This committee is here to maintain the financial stability of our community in the face of the financial demands placed on the Association to provide security, a quality community appearance, and worthwhile amenity offerings for the benefit of our citizens. This committee promises to always be your “Financial Watchdog.”

Contact the author at finance@scshca.com.

Finance Advisory Committee – January 2022

By Larry Helseth, Chair of Replacement Fund Sub-Committee

As published in The View, January 2022:

Results of 2022 Reserve Study

Our 2022 Level 3 Reserve Study was completed in October 2021, and you can review it on the SCSH website (124 pages). It meets all the requirements set forth in the Davis-Stirling CID Act, Civil Code sections 5550 through 5580.

The reserve study is a long-term capital budget planning tool for the common area assets called components and includes a 30-year Funding Plan to repair, replace, restore, or maintain the components.

There are approximately 700 major component types in the study. Some examples are:  access gates, fountains, asphalt and concrete, fences, irrigation controllers, mailboxes, street poles, roofs, HVCA units, restaurant equipment, golf carts, lake liners, ceiling lights, fitness equipment, mowers, patio chairs, trucks, awnings, carpeting, pool heaters, plus tennis and pickleball courts, just to name a few items. Each component has a quantity, measurement unit, estimated life, remaining useful life, basis cost, current replacement cost, future replacement cost, straight line depreciation allocation, and a 100% funded level at beginning of the study year.

2022 2021
Current replacement cost of components, note 4 35,743,196 35,117,247
Replacement fund balance, beginning of year (Cash in Bank) 14,054,829 13,343,219
Fully funded balance, beginning of year, note 1 18,166,159 17,321,131
Projected cash expenditures, current year 3,267,670 3,351,878
Percent funded, beginning of year, note 2 77.37% 77.03%
Average replacement fund deficit per homeowner unit 1,192 1,153
Monthly Replacement fund assessment $51.23 $49.26
Percent of total budget allocated to reserves, note 3 16.6% 16.1%
Construction cost inflation rate 5.0% 3.0%
Return on investment rate 3.12% 2.25%
Income tax rate (Federal and State of CA) 28.11% 28.11%
Contribution percent needed in future years 6.63% 4.50%

Notes:

  1. Accrued depreciation is calculated for each reserve component, then summed together for a total dollar value that represents 100% funded.
  2. Dividing replacement fund balance by fully funded balance equals percent funded. Above 70% is considered a strong position for size and age of our association.
  3. The percent of assessment allocated to the reserves should be around 20% of the operating budget. Fannie Mae and the Federal Housing Administration require a minimum of 10% of the total budget be dedicated to reserve contributions.
  4. The three largest component categories are: Golf, 42.0%; Asphalt, 26.9%; and Clubhouse Buildings, 11.5%. All other components account for the remaining 19.6%.

FAC Members: Larry Anderson and Larry Helseth, Co-Chairs; Zerryl Becker, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, Ed Levine. FAC Sub-committee Members for the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Mike Whelan, Bob Jester, and Zerryl Becker.

Contact the author at finance@scshca.com.

Finance Advisory Committee – December 2021

By Robert “Bob” O. Jester, Committee Member

As published in The View, December 2021:

Who Is on the Finance Advisory Committee, and What Does the Committee Do and Not Do?

In recent candidate interviews, it became apparent that there are numerous misconceptions about what the Finance Advisory Committee is and what it does. So I want to describe for our residents how this committee is composed and what we do and do not do each month in our meetings.

Who are the members of this Committee?

By charter, this committee is composed of residents who have expressed an interest in serving the community and have verifiable professional backgrounds in finance, accounting, law, or relevant business management in fields related to the committee’s responsibilities. These include insurance, investments, banking, corporate management, and best industry practices in financial reporting systems and systems of internal controls.

What does this Committee not do?

This committee has NO authority to spend Association funds or to direct Association staff to expend Association funds. Those powers rest with the elected Board of Directors of the Sun City Shadow Hills Association.

What does this Committee do monthly?

  1. We analyze ALL Association and Troon financial statements in monthly meetings that last from three to five hours, and we commit approximately 12 to 18 hours in total each month to accomplishing the Committee’s obligations. In a typical monthly meeting, we review, analyze, and discuss approximately 125 pages of financial records. Our obligation is to look for errors in the reports, track trends, and compare the actual figures in all categories to the approved budget.
  2. We assist with the annual budgeting process and advise the Board on budget issues.
  3. We review all vendor contracts and insurance contracts and advise the Board about them.
  4. We advise the Board on best industry practices, and the Committee is vigilant about the Board’s compliance with California law applicable to Homeowners Associations.

I count 20 areas of charter obligations that the Committee is to accomplish or consider each month.

What is the Reserve Study Sub-Committee?

The Finance Advisory Committee has a Sub-Committee with four Finance Committee members and two residents with specialized expertise. They review the Reserve Study Report, which is a key element of the Replacement Fund. The Sub-Committee also reviews proposed Replacement Fund expenditures in excess of $5,000 submitted by staff and advises the Board about whether the requested expenditure is justified.

Hopefully this gives you a better taste for what we do to serve the community and the Board. Future articles will discuss specific topics in detail.

FAC Members: Larry Anderson and Larry Helseth, Co-Chairs; Zerryl Becker, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, and Todd Murphy. FAC Sub-Committee Members for the Replacement Fund and Reserve Study: Chris Stevens and Don Salvatore.

Contact the author at finance@scshca.com.

Finance Advisory Committee – November 2021

By Larry Anderson and Larry Helseth
Finance Advisory Committee Co-Chairs

As published in The View, November 2021:

The Finance Advisory Committee (FAC) is one of the standing committees established in our Bylaws and charged to make recommendations to the Board on financial matters.

At present, the FAC accomplishes this mission in many ways: financial reviews, analysis, auditing, compliance, research, and special studies with Best Practices recommendations.

 Each month a flood of over 60 financial documents is prepared by our HOA management company, golf management company, investment bank, insurance agent, contractor bids, and reserve consultant. To save the Board time, the FAC reviews all these documents for accuracy. Any imbalances or errors are corrected before forwarding them to the Board.

The FAC also reviews all contracts to ensure financial compliance with the CC&Rs and Rules & Regulations, and makes recommendations accordingly.

In coming months, we will discuss FAC’s activities in other areas of responsibility. But it is important to keep in mind that your elected Board makes all the decisions. The FAC can only make recommendations. This is why our conclusions are not published in The View. The Board, and rightly so, need not accept the FAC’s position.

In our current meetings, the FAC is reviewing the 2022 budget and the 2022 Replacement Fund Reserve Study plus participating in the Food and Beverage Special Subcommittee.

FAC Members: Larry Anderson and Larry Helseth Co-Chairs, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, and FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens and Don Salvatore.

Contact the author at finance@scshca.com.

Finance Advisory Committee – October 2021

By Larry Anderson and Larry Helseth
Finance Advisory Committee Co-Chairs

As published in The View, October 2021:

Instead of our normal report we’d like to use this month’s article to pay special tribute to our retiring Finance Advisory Committee (FAC) Chairman, Bill Wethe.

Bill,

On behalf of the entire SCSH Community, the FAC wants to express our appreciation for your leadership and transformational efforts as FAC Chairman over the last five years. We are in a much sounder financial position because of your tireless and seemingly endless efforts as a leader, mentor, and caretaker of all our financial matters.

With your guidance, the FAC and the Board Treasurers have developed strong policies and procedures that will continue to enhance financial management, while providing confidence and stability for years to come. We all marvel at the number of hours you have devoted to the tasks at hand, your knowledge of our governing documents, how they need to be applied to new issues, and your extensive experience in the HOA management industry. You never lost sight of the big picture, yet no detail escaped your scrutiny.

You have provided Board members with invaluable analyses on a myriad of topics. Your expertise in construction, maintenance, and enhancements to hospitality venues has been a tremendous asset that is going to be difficult to replace.

Enjoy your “newly available time” to visit more often with your family members in Orange County and Arizona, play some golf, and participate in volunteer opportunities in the Coachella Valley and Orange County.

Thank you again for your service and dedication.

FAC Members: Larry Anderson and Larry Helseth Co-Chairs, Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, Todd Murphy, and FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, and Don Salvatore.

Contact the author at finance@scshca.com.

Finance Advisory Committee – September 2021

By Larry Anderson and Larry Helseth
Finance Advisory Committee Co-Chairs

As published in The View, September 2021:

FAC Members

Larry Helseth returns to the FAC with the resignations of Bruce Marley in July and Bill Wethe in August. Larry previously served on FAC in 2016 through 2018. We now have seven members and Board approval for a total of nine members. As of this writing, we are interviewing one candidate. We are always looking for owners who have a financial background including accounting and financial reporting and an interest in serving on the FAC or on its Subcommittee on the Reserve Study. Please contact either of the Co-Chairs if you would like to discuss completing an Advisory Committee Interest Form.

Work Completed

During the month of August 2021, the FAC and its Subcommittee continued their work including:

  • Review and recommend Board approval, subject to audit, of the unaudited July 2021 financial statements including the:
    • Combining and combined financial statements and supplemental financial information schedules.
    • Condensed financial information for The View magazine.
  • Review of the year-to-date variance analysis on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2021 Forecast (7+5) as compared to the 2021 Budget and the 2021 Forecast (6+6).
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (7+5) as compared to the 2021 Budget and the 2021 Forecast (6+6) provided to the Board.
  • Review and written recommendations to the Board on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the July 2021 bank statements, bank reconciliations, and investment account statements.
  • Regular meeting held on August 20, 2021.
  • Preparation of the monthly written report to the Board for its meeting on August 30, 2021.
  • Review of Q2 2021 HOA insurance market renewal update from the insurance agent with written recommendations for the 2022 Budget.
  • Preparation of articles for Finance News on two new members and Replacement Fund investment in equity index funds.

Work in Process

  • Review and written recommendations to the General Manager and the Board on the drafting of the 2022 Reserve Study.
  • Review and written recommendations to Troon, the General Manager, and the Board on the drafting of the 2022 Budget.
  • Mike Nilsson has volunteered to join the new Ad Hoc Advisory Committee studying the possible expansion and renovation of Shadows Restaurant.

Further Information

Additional FAC Members: Bob Jester, Jerry Cavoretto, Mike Whelan, Mike Nilsson, and Todd Murphy. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bob Jester, Mike Whelan, and Larry Helseth, Chair.

Contact the author at finance@scshca.com.

Change of Investment Policy for Replacement Fund (aka “Reserves”)

By Mike Nilsson, Member
and Bill Wethe, Chair
Finance Advisory Committee

Through December 2020 our Replacement Fund, per the existing Policy, was invested in cash based and fixed income assets. As we all know these investments are earning very low rates, far below construction cost inflation. In December 2020 the Board approved a change in the Investment Policy whereby up to 35% of the Replacement Fund could be invested in a professionally managed basket of low-cost equity investments. In April 2021 the Board approved moving $3 million (about 25% of the Fund) into equities. Almost $1 million was invested prior to July and the balance is to be invested over the remainder of this year. The “basket” is being managed by Comerica Securities and closely monitored by the FAC. The investments are in index funds, mutual funds and exchange traded funds.

To view a copy of the current Investment Policy use the following link on the HOA website:

https://www.scshca.com/wp-content/uploads/2021/04/Signed-Investment-Policy-Approved-12-21-20.pdf

Finance Advisory Committee – August 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, August 2021:

FAC members

On June 28, 2021, the Board approved the addition of two new FAC members: Mike Nilsson and Todd Murphy. Welcome, Mike and Todd! We appreciate your interest in serving our community. FAC has eight members, and we have Board approval for a total of nine members. We are looking for owners who have a background including accounting and financial reporting, and an interest in serving on the FAC or on its Subcommittee on the Reserve Study. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Work Completed

During the month of July 2021, the FAC and its Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval, subject to audit, of the unaudited June 2021 financial statements of the Association including the:
    • financial statements and supplementary schedules.
    • combining and combined financial statements and supplemental financial information schedules included in the Treasurer’s report.
    • condensed financial information of the Association to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the General Manager on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2021 Forecast (6+6) of the Operating Fund and Replacement Fund as compared to the 2021 Budget and the 2021 Forecast (5+7).
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (6+6) as compared to the 2021 Budget and the 2021 Forecast (5+7) provided to the Board.
  • Review and written recommendations to the Board on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the June 2021 bank statements, bank reconciliations, and investment account statements.
  • Conference call with Comerica Securities, the Replacement Fund investment manager, on July 23, 2021 to review investment performance and investment recommendations.
  • Regular meeting of FAC held on July 23, 2021, using audio and video conference call.
  • Preparation of the FAC monthly written report to the Board for its meeting on July 26, 2021.

Upcoming Work

  • Review and written recommendations to the General Manager and the Board on the drafting of the 2022 Reserve Study.
  • Review and written recommendations to Troon, the General Manager, and the Board on the drafting of the 2022 Budget.

Further information

Additional FAC Members: Larry Anderson, Bob Jester, Jerry Cavoretto, Mike Whelan, Bruce Marley, Mike Nilsson, and Todd Murphy. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, Bob Jester, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

FAC Introduction to Nilsson and Murphy

By Bill Wethe
Finance Advisory Committee Chair

The Board recently approved the recommendations from the members of the Finance Advisory Committee (FAC or the Committee) to have Mike Nilsson (Mike) and Todd Murphy (Todd) become members of the Committee.

Mike and Todd prepared the following brief summaries introducing themselves to the community residents for those of you who have not yet met them.

Mike Nilsson

Those of you who have been here a bit longer may remember Mike as President of the SCSH Computer Club from about 2008 to 2011. He and his wife, Sue, moved to Sun City Shadow Hills from Beverly Hills in November 2004, when there were only about two hundred homes completed.

Mike is a retired sailor, ski instructor, pilot, off-road racer and swimmer. To fund all those endeavors, he was Executive VP of Sinclair Paint Company. Prior to Sinclair he was Corporate Director of Lear Siegler’s Internal Consulting Group and Manager of Financial Control at Mattel Toy Company.

In the nonprofit area, he has over 20 years on other HOA Boards, has been a director of Caltech’s Entrepreneurs’ Forum for 30 years and was Exec VP of the Bob Hope Hollywood USO for 3 years, among others. He has both BS and MS degrees in Engineering/Operations Research from Northwestern and USC respectively.

Todd Murphy

Todd and his wife, Kathy, purchased their first home in Sun City Shadow Hills in 2007 as a second home while living in Fawnskin on the north shore of Big Bear Lake. After living in the mountains and skiing for 20 years (ended by bad knees), they wondered why they were shoveling snow all winter. So they sold their first home here and bought a second as their full time residence. Both were very involved in their mountain community with Kathy serving as Fawnskin Mayor and President of the North Shore Improvement Association and Todd as President/Director of the Big Bear Municipal Water District and President/Director of the Mountain Area Transit Agency, while also volunteering for the Big Bear Discovery Center, the Chamber of Commerce and various other community organizations.

They originally moved to the mountains from Orange County to purchase a Bed and Breakfast – the Inn at Fawnskin – which Kathy operated while Todd continued to manage the Orange County transit system – OCTA. Both were active in Yorba Linda with Kathy volunteering at the Nixon Library and Todd serving as Mayor/Councilman for the city. They were also very involved in youth sports where they met.

After moving from the mountains, they were ready to take a break from intense civic involvement and decided to spend more time with family and friends. That didn’t last long. Both are volunteers at the Living Desert serving as Conservation Ambassadors and are also active physically with many hours of working out in the pool’s year round, playing bocce ball and other sports. Todd also enjoys the North Golf Course as he chases the white ball around. He has always been actively involved in his community and is looking forward to being as helpful as possible serving on the FAC and to bring his varied professional experiences to help the Committee make the right recommendations to our board.

Please join me and the other six members serving on the FAC in welcoming Mike and Todd and thanking them for their participation with FAC in service to our community. FAC now has eight of nine positions filled. We are continuously looking for owners who have a background including accounting and financial reporting and an interest in serving on the FAC or on its Subcommittee on the Reserve Study. Please contact the FAC Chair if you would like to discuss completing an Advisory Committee Interest Form.

Finance Advisory Committee – July 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, July 2021:

FAC Members

FAC is in the process of interviewing three candidates. FAC has six members, and we have Board approval for a total of nine members. We are looking for owners who have a background including accounting and financial reporting and an interest in serving on the FAC or on its Subcommittee on the Reserve Study. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Work Completed

During the month of June 2021, the FAC and its Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval, subject to audit, of the unaudited May 2021 financial statements of the Association including the:
    • financial statements and supplementary schedules.
    • combining and combined financial statements and supplemental financial information schedules included in the Treasurer’s report.
    • summary financial information on financial position and results of operations included in the General Manager’s report.
    • condensed Association financial information to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the General Manager on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2021 Forecast (5+7) of the Operating Fund and Replacement Fund as compared to the 2021 Budget and the 2021 Forecast (4+8).
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (5+7) as compared to the 2021 Budget and the 2021 Forecast (4+8) provided to the Board.
  • Review and written recommendations to the Board on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the May 2021 bank statements, bank reconciliations, and investment account statements.
  • Review and written recommendations to the Board on engagement of a Reserve Study consultant and parameters for the 2022 Reserve Study.
  • Regular meeting of FAC held on June 18, 2021, using audio and video conference call.
  • Special meeting of FAC held on June 8, 2021, using audio and video conference call.
  • For the Board meeting on June 26, 2021:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the General Manager monthly written report to the Board.

Upcoming Work

  • Review and written recommendations to the General Manager and the Board on the drafting of the 2022 Budget.

Further Information

Additional FAC Members: Larry Anderson, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

Finance Advisory Committee – June 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, June 2021:

Work Completed

During the month of May 2021, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval, subject to audit, of the unaudited Association April 2021 financial statements including the:
    • financial statements and supplementary schedules.
    • combining and combined financial statements plus supplemental financial information schedules included in the Treasurer’s report.
    • summary financial information on financial position and results of operations included in the General Manager’s report.
    • condensed Association financial information to be published in The View.
  • Review of the year-to-date variance analysis prepared by the General Manager on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2021 Forecast (4+8) of the Operating Fund and Replacement Fund as compared to the 2021 Budget and the 2021 Forecast (3+9).
  • Review and written recommendations to the Board on a proposed contract for security services.
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (4+8) as compared to the 2021 Budget and the 2021 Forecast (3+9) provided to the Board.
  • Review and written recommendations to the Board on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the April 2021 bank statements, bank reconciliations, and investment account statements.
  • Regular meeting of FAC held on May 21, 2021, using audio and video conference call.
  • Review of 2021 estimate of taxable income and estimated income tax payments.
  • For the Board meeting on May 24, 2021:
    • Preparation of the FAC monthly written report.
    • Review of the General Manager monthly written report.

Upcoming Work

  • Interview candidate for the Committee.
  • Review and written recommendations to the Board on parameters for the preparation of the 2022 Reserve Study.

FAC Members

FAC has six members, and we have Board approval for a total of nine. So we have three openings, and we would love to meet with you. We are looking for owners who have a background including accounting and financial reporting and an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Further Information

Additional FAC Members: Larry Anderson, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

Finance Advisory Committee – May 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, May 2021:

Work Completed

During the month of April 2021, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval, subject to audit, of the unaudited March 2021 financial statements of the Association including the:
    • financial statements and supplementary schedules.
    • combining and combined financial statements and supplemental financial information schedules included in the Treasurer’s report.
    • summary financial information on financial position and results of operations included in the General Manager’s report.
    • condensed Association financial information to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the General Manager on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2021 Forecast (3+9) of the Operating Fund and Replacement Fund as compared to the 2021 Budget and the 2021 Forecast (2+10).
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (3+9) as compared to the 2021 Budget and the 2021 Forecast (2+10) provided to the Board.
  • Review and written recommendations to the Board on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the March 2021 bank statements, bank reconciliations, and investment account statements.
  • Regular meeting of FAC held on April 23, 2021, using audio and video conference call.
  • Conference call with Comerica Securities, the Replacement Fund investment manager, on April 23, 2021.
  • Review and written recommendations to the Board on insurance renewal as of April 22, 2021.
  • For the Board meeting on April 26, 2021:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the General Manager’s monthly written report to the Board.

Upcoming Work

  • Review of 2021 estimate of taxable income and estimated income tax payments.
  • Review and written recommendations to the Board on parameters for the preparation of the 2022 Reserve Study.

FAC Members

FAC has six members, and we have Board approval for a total of nine members. So we have three openings, and we would love to meet with you. We are looking for owners who have a background that includes accounting and financial reporting and an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Further information

Additional FAC Members: Larry Anderson, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

Finance Advisory Committee – April 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, April 2021:

Work Completed

During the months of February and March 2021, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval of the 2020 audited financial statements. Audited financial statements were approved by the Board on February 22, 2021, and issued by the Auditor on February 24, 2021.
  • Review and recommend Board approval of the 2020 income tax returns.
  • Review and recommend Board approval of the Association’s unaudited January and February 2021 financial statements including the:
    • financial statements and supplementary schedules.
    • combining and combined financial statements included in the Treasurer’s report.
    • summary financial information on financial position and results of operations included in the General Manager’s report.
    • condensed Association financial information to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the General Manager on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2021 Forecast (2+10) of the Operating Fund and Replacement Fund as compared to the 2021 Budget.
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2021 Forecast (2+10) provided to the Board.
  • Review and written recommendations on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the January and February 2021 bank statements, bank reconciliations, and investment account statements.
  • Regular meeting of FAC held on March 19, 2021, via audio and video conference call.
  • For the Board meeting on March 29, 2021:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the General Manager’s monthly written report to the Board.

Work in Process

  • Insurance renewal as of April 22, 2021.

FAC Members

Thank you, Bob Giovannettone, for serving on the Committee from June 2019 through February 2021. We appreciate the contributions and recommendations you made. Now, FAC has six members; and we have Board approval for a total of nine. So we have three openings, and we would love to hear from you. We are looking for owners who have a background including accounting and financial reporting and an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Further Information

Additional FAC Members: Larry Anderson, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

Treasurer’s Message: A Treasurer’s Report

Carey Thompson
Treasurer

Hello residents,

I’m Carey Thompson, a fellow homeowner and since June 2020, your Treasurer of our HOA Board. I assumed that responsibility when Bruce Marley resigned for personal reasons. It was an easy transition for me since I was the previous Treasurer and a member of the Finance Advisory Committee. Since I rejoined the Board, we have not been able to have meetings with homeowners in attendance. I’ve been very brief in my reports at the open Board meetings held via streaming, so I thought it might be a good time to provide you an update.

By now you should have received a packet in the mail that contains a cover letter from me and includes the 2020 annual audit results as well as our current insurance coverage. The law requires us to mail this information to you every year. In addition, our resident’s only website has an abundance of detailed financial reports for those of you interested in drilling down into the details.

So, in the spirit of a “State of the Union” address, I want to bring you all up to date on how our community is doing financially. Although this topic makes some people’s eyes glaze over, I think you’ll want to hear how we’re doing. I’ll keep it simple and brief, and I promise you there won’t be a quiz at the end.

Overall, how are we doing financially? In a word – great.

When the pandemic crisis hit in March 2020, the Board took proactive measures to slash expenses to make up for lost revenue. At the height of the pandemic, both Shadows and our golf courses were closed. With no end-of-season group and club parties, there was no revenue from catering, which is usually quite profitable for us. Our investment income was decreased due to falling investment rates.

The Board took steps early on in the crisis to decrease our operating budget expenses including golf, landscape, property protection, fitness, facilities/maintenance, mostly in personnel costs. Closed facilities do not need as many people to maintain them in good working condition. As a result, our 2020 actual performance was just over $600,000 above our budget plan. Here are the numbers:

When the 2020 operating budget was approved, the Board planned just over $14 million in revenue and $14.4 million in expenses, which was a $331,000 budget deficit of revenue over expenses. Our existing working capital would cover that deficit. It allowed the Board to approve an $8 per month credit on the 2020 monthly assessment.

However, due to the cost saving measures the Board took, the actual financial performance for the year was $12.8 million in revenue and $12.5 million in expenses. Although we had reduced revenue in fitness, golf, food and beverage, as well as investment income, we reduced the expenses even more. That’s how we were able to finish the year more than $600,000 above our planned budget. In addition, the favorable variance in actual results, as well as the accumulated net working capital in the

Operating Fund, allowed the Board to authorize a one-time annual credit of $144 per home or $496,800 in total effective January 1, 2021. This $144 credit per home was reflected in your HOA account and your monthly assessment for January 2021 was reduced by the one-time credit.

Since rejoining the board, in addition to the standard monthly responsibilities, I have been quite busy with several major projects: I coordinated the development of the 2021 budget, renegotiated the Troon contract, updated our investment policy, oversaw the 2021 Reserve Study, and the 2020 annual audit and filing of our income taxes. Of course, I had lots of help from FAC and Bill Wethe, as well as significant support from our DRM General Manager, Tyler Ingle and Troon General Manager, Rolland Vaughn.

Here’s what’s on tap for the coming year. The Board is now working on ways to increase our investment income. Return on standard Certificates of Deposit is extremely low, less than 1% of the value of the CD on maturity. We have received some recommendations from our Comerica investment advisors and the FAC for the Board’s consideration. The more revenue we can generate from investment income means less we need to assess homeowners in monthly dues. I will share more information on this in the near future.

We are also planning to replace our golf cart fleet this year. The fleet we purchased almost 5 years ago has been fully depreciated and it is time to purchase new carts. We have been saving money in our Replacement Fund for this purchase. Fortunately, unlike when we previously leased golf carts, we have a trade-in value of more than $200,000 as opposed to no value on the leased carts. We are receiving bids and expect to have new carts delivered by the start of the season this coming November.

When this term of office expires in April 2022, I plan to apply to rejoin the FAC as a regular member. Currently, our FAC has three vacant positions. Yes, you do need a financial or related background to serve on this committee, but we have not had any applications for membership in many months despite our many efforts at recruiting. It’s easy to apply, just go to our resident’s only section of the HOA website and search for the volunteer application form.

As I mentioned, you recently received a packet from me including the 2020 audit of financial statements highlighting our results along with an abundance of additional detail. Take a moment to review the audit. I think you will be happy with our financial standing.

I welcome your comments and questions. You can email me anytime. The address is on the inside front cover of The View every month. I look forward to seeing you at an open board meeting in the future.

Carey Thompson
Treasurer

Finance Advisory Committee – March 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, March 2021:

Work Completed

During the month of February 2021, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval of the unaudited January 2021 Association financial statements including the:
    • financial statements and supplementary schedules prepared by DRM/Associa, Troon, and the Controller.
    • combining and combined financial statements included in the Treasurer’s report prepared by the Controller.
    • summary financial information on financial position and results of operations included in the General Manager’s report to the Board.
    • condensed Association financial information to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the Controller on the:
    • 2021 Operating Fund revenues and expenses.
    • 2021 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and recommend Board approval of the January 2021 bank statements, bank reconciliations, and investment account statements.
  • Review and recommend Board approval of a written agreement to engage a firm to provide non-judicial foreclosure services approved by Board on January 25, 2021.
  • Board approved proposed revisions to the following items on January 25, 2021:
    • FAC Charter and Mission – FAC BAF 2021 # 1.
    • FAC Subcommittee Charter and Mission – FAC BAF 2021 #2.
    • Association Procurement Policy – FAC BAF 2021 #3.
  • Special meeting of FAC held on February 3, 2021, via audio and video conference call.
  • Regular meeting of FAC held on February 19, 2021, via audio and video conference call.
  • For the Board meeting on February 22, 2021:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the General Manager’s monthly written report to the Board.

Work in Process

Review and recommendation to the Board on the:

  • 2020 audited financial statements.
  • 2020 Federal and California tax returns.

Upcoming Work

Insurance renewal in April 2021.

FAC Members

FAC has seven members, and we have Board approval for a total of nine members. So, we have two openings, and we would love to hear from you. We are looking for owners who have a background including accounting and financial reporting and an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Further information

Additional FAC Members: Larry Anderson, Bob Giovannettone, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

Finance Advisory Committee – February 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, February 2021:

Work Completed

During the month of January 2021, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval of the unaudited December 2020 financial statements of the Association including the:
    • financial statements and supplementary schedules prepared by DRM/Associa, Troon, and the Controller.
    • combining and combined financial statements included in the Treasurer’s report of the Association prepared by the Controller.
    • summary financial information on financial position and results of operations included in the Controller’s report to the Board.
    • condensed financial information of the Association to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the Controller on the:
    • 2020 Operating Fund revenues and expenses.
    • 2020 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2020 annual results as compared to the 2020 Budget and the 11+1 Forecast provided to the Board.
  • Review and written recommendations on proposed BAFs for the expenditure of funds from the Replacement Fund for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the December 2020 bank statements, bank reconciliations, and investment account statements.
  • Review of firms providing non-judicial foreclosure services, preparation of Request for Proposal (RFP), review of responses to RFP, evaluation and reference check of service firms, and written recommendation to the Board (FAC BAF 2020 # 16).
  • Written recommendation to the Board of proposed revisions to Replacement Fund Investment Policy (FAC BAF 2020 # 15).
  • Regular meeting of FAC held on January 22, 2021, via audio and video conference call.
  • For the Board meeting on January 25, 2021:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the Controller’s monthly written report to the Board.

Work in Process

Annual review and submission of proposed revisions to the Board for review and adoption including:

  • FAC Charter and Mission – FAC BAF 2021 # 1.
  • FAC Subcommittee Charter and Mission – FAC BAF 2021 #2.
  • Association Procurement Policy – FAC BAF 2021 #3.

Upcoming Work

2020 Audit.

FAC Members

FAC now has two openings. We would love to hear from you if you have a background including accounting and financial reporting and an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Further Information

Additional FAC Members: Larry Anderson, Bob Giovannettone, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

Finance Advisory Committee – January 2021

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, January 2021:

Work Completed

During the month of December 2020, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval of the unaudited November 2020 financial statements of the Association including the:
    • financial statements and supplementary schedules prepared by DRM/Associa, Troon, and the Controller.
    • combining and combined financial statements included in the Treasurer’s report for the Association prepared by the Controller.
    • summary financial information on financial position and results of operations included in the Controller’s report to the Board.
    • condensed Association financial information to be published in The View.
  • Review of the year-to-date variance analysis prepared by the Controller on the:
    • 2020 Operating Fund revenues and expenses.
    • 2020 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Review and written recommendations on the 2020 Forecast (11+1) of the Operating Fund and Replacement Fund as compared to the 2020 Budget and the 2020 Forecast (10+2) Forecast prepared by the Controller.
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2020 Forecast (11+1) with comparison to the prior forecast and the 2020 Budget provided to the Board.
  • Review and written recommendations on proposed BAFs for the expenditure of funds from the Replacement Fund for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the November 2020 bank statements, bank reconciliations, and investment account statements.
  • Regular meeting of FAC held on December 18, 2020, using an audio and video conference call.
  • For the Board meeting on December 21, 2020:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the Controller’s monthly written report to the Board.

Work in Process

  • Review of firms providing non-judicial foreclosure services, preparation of Request for Proposal (RFP), review of responses to RFP, evaluation of service firms, and written recommendation to the Board.
  • Potential revisions to Replacement Fund Investment Policy and written recommendation to the Board.

Upcoming Work

Annual review and potential revisions to the:

  • FAC Charter and Mission.
  • FAC Subcommittee Charter and Mission.
  • Association Procurement Policy.
  • 2020 Audit

FAC Members

FAC now has two openings on the Committee. We would love to hear from you if you have a background including accounting and financial reporting along with an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form.

Further Information

Additional FAC Members: Larry Anderson, Bob Giovannettone, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.

What is the California HOA Fidelity Bond?

The California HOA Bond is a new type of fidelity bond requirement, which protects the homeowners in a community from various acts of fraud, or theft. California legislation, effective January 1, 2019, is now requiring that every HOA in California be required to obtain a HOA fidelity bond. The HOA is considered a private government within a community of homes that can regulate, assess, and create specific rules for the community and homeowners based on decisions of an elected board.

The California HOA fidelity bond requirements are listed below and require cooperation of management companies entrusted with the day-to-day operations of the HOA and the elected board members to ensure that the fidelity bond can be obtained. This bond will protect the HOA and homeowners from any dishonest activity that may occur with the assets in the Operating Fund and Replacement Fund of the HOA. The HOA fidelity bond will protect the HOA and its homeowners from the management companies or the directors should funds in either the Operating Fund or Replacement Fund not be disbursed in accordance with applicable law and with policies and procedures adopted by the Board of SCSHCA.

California Civil Code Section 6, 5806, states the following:

“Unless the governing documents require greater coverage amounts, the association shall maintain fidelity bond coverage for its directors, officers, and employees in an amount that is equal to or more than the combined amount of the reserves of the association and total assessments for three months. The  association’s fidelity bond shall also include computer fraud and funds transfer fraud. If the association uses a managing agent or management company, the association’s fidelity bond coverage shall additionally include dishonest acts by that person or entity and its employees.”

In the prior paragraph, the Civil Code refers to the word “reserves”. This word is synonymous with the word Replacement Fund that is utilized by SCSHCA to describe the accumulated financial resources for the major repair and replacement of common area real and personal property components as identified in the most recent Reserve Study. The most recent reserve study approved by the Board of Directors of SCSHCA is dated October 29, 2020 and is referred to as the 2021 Reserve Study.

The California HOA fidelity bond requirements rely largely on three things including: 1) managerial companies/persons, 2) separation of financial duties, and 3) annual CPA audit.

Requirement #1: Is there an independent management group running the community?

The purpose of the HOA fidelity bond is to ensure limited access to the funds in the Operating Fund and the Replacement Fund of the HOA, i.e.: a property manager should not be allowed full access to HOA funds. Underwriters will need to know exactly who all has access to the HOA funds and will require that rules be established for certain parties to protect the members of that specific community. Honesty is crucial when requesting a California HOA Bond.

Requirement #2: Separation of all Financial Responsibilities

Whoever applies for the HOA Bond must be aware of the requirement where specific financial responsibilities must be performed by different people. This is yet another way to protect the homeowners from fraudulent activities. There must be at least two different people on the HOA board to approve invoices for payment. The person who makes the bank deposits, writes checks, or completes bank withdrawals cannot be the person who keeps the books and checks the bank statements at the end of each month to ensure that all funds received and disbursed are accounted for properly in accordance with generally accepted accounting principles.

Requirement #3: Books submitted annually to CPA or Accountant

When requesting the HOA Bond, the Surety will look to ensure that the HOA applying for the fidelity bond has an independent Auditor who issues their report on the annual audited financial statements of the HOA.

The SCSHCA is served by a five-member elected Board of Directors. Day to day management of the operations of the HOA are the responsibility of Desert Resort Management, Inc. (DRM) for all operations other than golf and food and beverage (F&B) operations pursuant to a written management agreement. Day to day management of the golf and F&B operations are the responsibility of Troon Golf, L.L.C. (Troon) pursuant to a written management agreement. DRM and Troon are each responsible for employment of management and staff positions for their respective operations. DRM and Troon are each responsible for the preparation of the accounting and financial reporting for each of their operations. The Controller of SCSHCA is an employee of DRM and is responsible for the preparation of the combining and combined financial statements of SCSHCA. Monthly financial statements and other monthly financial reports are reviewed by the Finance Advisory Committee (FAC) composed of residents appointed by the Board of Directors of SCSHCA to review the financial statements and reports prepared by Troon, DRM, and the Controller and to make a recommendation to the Board of Directors of SCSHCA to accept or not accept the financial statements and financial reports. The Controller, and the Treasurer of the Board and at least one other Board member must approve invoices and payment requests for the disbursement of funds from either the Operating Fund or the Replacement Fund. The financial statements prepared by the Controller, DRM, and Troon are audited annually. The amount of the fidelity bond is computed annually by the FAC and furnished to the Board of Directors for approval.

Finance Advisory Committee – December 2020

By Bill Wethe
Finance Advisory Committee Chair

As published in The View, December 2020:

Work Completed

During the month of November, the FAC and FAC Subcommittee continued its work with the Board as well as with DRM and Troon management on behalf of the Association including:

  • Review and recommend Board approval of the unaudited October 2020 financial statements of the Association including the:
    • financial statements and supplementary schedules prepared by DRM/Associa, Troon, and the Controller.
    • combining and combined financial statements included in the Association Treasurer’s report prepared by the Controller.
    • summary financial information on financial position and results of operations included in the Controller’s report to the Board.
    • condensed Association financial information to be published in The View magazine.
  • Review of the year-to-date variance analysis prepared by the Controller on the:
    • 2020 Operating Fund revenues and expenses.
    • 2020 Replacement Fund expenses for the purchase and replacement of common area real property components and inter-fund transfers to the Operating Fund for the purchase and replacement of common area personal property and equipment components.
  • Conference call with Comerica Securities, Inc., the Investment Manager for the Replacement Fund, on October 23 including review of:
    • current investment yield.
    • forecasted investment yield for the next 12 months.
  • Review and written recommendations on the 2020 Forecast (10+2) of the Operating Fund and Replacement Fund as compared to the 2020 Budget and the 2020 Forecast (9+3) Forecast prepared by the Controller.
  • Preparation of the Management Discussion and Analysis (MD&A) of the 2020 Forecast (10+2) provided to the Board.
  • Review and written recommendations on proposed BAFs for the expenditure of funds for the replacement or major repair of real and personal property common area components identified in the Reserve Study.
  • Review and recommend Board approval of the October bank statements, bank reconciliations, and investment account statements.
  • Regular meeting of FAC held on November 20 using audio and video conference call.
  • For the Board meeting on November 23:
    • Preparation of the FAC monthly written report to the Board.
    • Review of the Controller monthly written report to the Board.

Work in Process

  • Review of firms providing non-judicial foreclosure services, preparation of Request for Proposal (RFP), review of responses to RFP, evaluation of service firms.
  • Potential revisions to Replacement Fund Investment Policy.

FAC members

FAC now has two openings on the Committee. We would love to hear from you if you have an interest in serving on the FAC or on the FAC Subcommittee. Please contact the author if you would like to discuss completing an Advisory Committee Interest Form. I would be pleased to discuss any questions you may have and provide you important information to aid you in your decision making.

Further Information

Additional FAC Members: Larry Anderson, Bob Giovannettone, Bob Jester, Jerry Cavoretto, Mike Whelan, and Bruce Marley. FAC Subcommittee Members on the Replacement Fund and Reserve Study: Chris Stevens, Don Salvatore, Bruce Marley, and Bill Wethe, Chair.

Contact the author at finance@scshca.com.