During the January 2009 Board Meeting the board members were discussing the motion to renew Mr. Gary Lein as association auditor and there were discussions about my previous calling for independent audits of certain financial matters.  Mr. Lein’s then invited board members to notify him directly if we had any particular concerns he should include in his 2009 audit plans.

With this in mind, I have submitted the following 11 items to Mr. Lein for his 2009 plans.  A letter describing the following items in more detail is here:  [1] Letter to SCA Auditor Gary Lein

1.    2008 Reserve Fund “Look Back Study” needs to be audited to allow members to have high confidence in the revised reserves calculations.  These numbers are used to drive the levels of future assessments. The modified reserve study document is also used to justify the collection of hundreds of thousands of dollars for reserves payments that have remained due from the developer since 2005.  It has to be legally and financially accurate to be used as a collection document from a giant corporation like DW/Pulte.

2.    Unresolved Back Income Tax Questions need to be clearly answered.  For a number of years SCA reported it did not owe any income tax, but the rules for our corporation show that SCA should have paid taxes on surplus revenues.  Retired IRS managers in our community have said that over 3 million dollars of surplus assessments, and another million of other income were taxable.  Taxes could have been avoided on the millions of surplus dues/assessments if  they had been refunded or credited to member accounts.  The other surplus revenues/profits were clearly taxable.  And, since the surplus revenues were retained/rolled over for years without declaring any income tax due, more than a million dollars of back taxes are likely owed.  Since Mr. Lein was our tax preparer, as well as auditor, I have asked him to audit the returns and explain how we can avoid paying back taxes and heavy penalties in the event of an IRS audit in 2009.

3.    Valley Crest Hardscape Replenishment Contract.  This audit request is to review the apparently deficient contracting procedures used on RMI’s award of a $71,706 contract for 969 tons of landscape rocks to Valley Crest.  There were no written specifications and no written requests for bid.  Also, there are unresolved questions about such issues as whether the contract competition was conducted fairly, if SCA needed to pay more than $28,000 for the hardscape work, and if the contractor has actually delivered all that it was paid for.

4.    Sole-source Contract to Lutron Lighting Co. for $87,962 for minor upgrades to Anthem Center lighting systems.  This contract needs to be audited because there are many unanswered questions about the sole-source rationale, the casual contracting procedures, and the unusually high costs of such a limited project.

5.    Insufficient Details to Back Up RMI Check Requests.  This issue was a concern in the past, and has been reported as corrected.  I have asked for an audit to confirm that corrective actions have been implemented and will be sustained.

6.    Cleo Design Program Contracts.   About $600,000 was spent on Anthem Center and Independence Center facilities upgrade projects this year, and most of the orders for the work were apparently accomplished without using competitive contracting methods.  This huge project needs an audit in 2009 to confirm that the community funds were properly expended.

7.    Restaurant & Kitchen Refurbishment for over $150,000 in 2008 to prepare for the New Year’s Eve party.  An audit is needed to verify the project financials and the contracting procedures.

8.    Iron Fence Painting for about $250,000 in 2008.  Board-developed and approved specifications for this project were apparently disregarded, but the vendor was paid in full.  An audit is needed to review if the contracting and financials were handled properly by RMI.

9.    $16,700 SCA Check Donation to Minuteman Foundation in 2006.  There are unresolved questions on the legality of this large check issued between the two corporations while Favil West served as presidents of both boards.  The transaction needs to be audited to chart the best path to resolve and reconcile the matter.

10. $300,000 payment from DW/Pulte to SCA for construction defects in Rec Ctr 2. This transaction needs to be audited because the payment was claimed to be for health and safety defects, and it is not clear that all items were fully repaired or resolved.

11. Uncollected $1.375 Million funds Owed by DW/Pulte in 2005.  These are the “Co-Generation Plant” funds owed by the developer and uncollected since May of 2005.  The board acted in 2008 to allow DW/Pulte to apply most of those funds to “greening” Rec. Ctr. 3, and it is not clear the board acted properly or legally in doing so. Instead of greening the new center, it appears the board should have had Rec Ctr 3 built as originally proposed by Pulte.  And, the board should have required DW/Pulte to pay the $1.75 million in full, and credited an equivalent amount from available surplus assessment funds to the homeowners.

The community will be advised of the actions taken by Mr. Lein on the above items.

Bob Frank
SCA Director