Summary of Finance Committee Meeting of 7 February 2006

Present:

            Finance Committee:  Phyllis Benaman, Tom Cindric, John Frisch, Sanya Ham, Jim Hanscomb, Don Horan, John Lynch, Jean Strub

            Board of Directors (BoD):  Toni Brown, Art Gabler, Mal Malo, Bill Nosal, Jackie Richards

            Koger Management Group:  Jeff Koger

 The primary purpose of this meeting of the Finance Committee was to have Jeff Koger, Chief Financial Officer of Koger Management Group, Inc., review the Falls Run Community Association’s financial statements, i. e., Balance Sheet, Budget Comparison Report, and Purchase History, for December 2005 and January 2006.  Jeff went over each set of financial reports line-by-line and answered questions from the members of the Finance Committee and the Board of Directors.

 Points discussed at length include:

 Villa Contributions:  $93,600 of working capital contributions and monthly $130.00 assessments paid at settlement by Villa buyers were carried as “Other Receivable” for a few months in late 2005.  This money was paid to the Falls Run Community Association (FRCA) in January 2006.  Jeff also gave assurance that Del Webb’s marketing incentive granting a year without monthly assessments to Villa buyers did not result in loss of income to FRCA.  Del Webb is making the contributions for the Villa buyers participating in this program at closing.

 Investments:  By law, all investment of FRCA funds must be in accounts which are guaranteed / insured by the U. S. government.  All of our invested funds meet this requirement.  The Finance Committee explored with Jeff its desire to ultimately put “Replacement Reserve” funds into separate accounts and not allow that money to be mixed with money to be used for any other purpose.  A few ways to accomplish this were discussed and the Finance Committee will prepare a plan for the BoD’s approval.  The Finance Committee requested a detailed description of each of the FRCA’s investment accounts.

 Replacement Reserve:  In addition to the $101,000 designated in the 2005 budget, approximately $40,000 was put into the Replacement Reserve in 2005.  Jeff explained that this was done to decrease the “Net Income” achieved.  Since the FRCA is a nonprofit organization, the IRS gets very interested when an apparent profit is present.  The attention of the IRS is relaxed, however, if the “profit” is allocated to the Replacement Reserve or spent within three years.  The BoD recently voted to allocate approximately $69,000 of additional funds to the Replacement Reserve and the remainder of the 2005 Net Income will be available as an operating reserve to cover unexpected expenses during 2006.  The Finance Committee requested that Koger Management use only the term “Replacement Reserve” to identify such funds, and that other terms, such as “Multipurpose Reserve”, never be used when referring to replacement reserve funds.

 Fitness Equipment:  The fitness equipment in the Community Center is leased with an option to buy the entire roomful for $1.00 this summer.  We asked Jeff if there were any reasons why the FRCA should not exercise this option.  Jeff said that, if we didn’t buy it, the owning company would remove it.  Then we would have to lease or buy replacement equipment.  He suggested that it was to our advantage to buy the equipment.  If were are satisfied with it, we keep it.  If we are dissatisfied, we can then sell it and use the sale proceeds to help pay for purchase or lease of new equipment.  Funds to replace the fitness equipment are included in the Replacement Reserve.

 Property Taxes:  Jeff said that Del Webb is giving the Community Center to FRCA under legal provisions that make it exempt from property taxes.  However, we have to pay property taxes on the fitness equipment.  In 2005, the tax on the fitness equipment was a little over $500.

 Purchase History:  The Finance Committee believes quite a few of the explanatory entries on the purchase history are too nebulous.  We asked Jeff for opportunities to go to Koger Management offices and examine the invoices supporting the purchases.  Jeff assured us that we need only give notice of a day or two and we would be welcome to do that.

 Electronic Data Transmission:  The Finance Committee asked Jeff how we could routinely receive the monthly financial statements in a timely manner.  He offered to have them sent electronically.  Sylva Southwell is the point of contact to make this happen.

 Audit:  The Finance Committee asked who selects the accounting company to do the 2005 audit.  Jeff said that the FRCA BoD will select the auditing company.

 Contracts:  Jeff was given a list of all contracts in force known to the Finance Committee, and asked if the list is complete.  He said Sylva Southwell would check and let us know if anything was missing.

 Contract Guidance:  The Finance Committee asked if Koger Management had some concise guidelines for competing contracts.  They have a guide book for contracting, but no concise list.  The Finance Committee will prepare a concise set of contracting guidelines and present it to the BoD for approval.