Summary of Finance Committee Meeting of 3 April 2007
Present:
Finance Committee: Nancy Garner, Dottie Fields, Sanya Ham, Don Horan, John Lynch, Jean Strub
Board of Directors (BoD): Bill Nosal, Toni Brown, Chuck Heath
Discussion of February Financial Report: Until the 2006 audit is completed, not a lot can be said about the monthly financial reports. They generally show income and expenses which are not unexpected, but as yet are not connected to the closing balances of Koger Management. However, Jean Strub noted that the 31 January 2007 ending balance in the General Ledger did not agree with the 1 February 2007 beginning balance. Armstrong Management Services includes a Financial Analysis with each monthly report which makes comments and asks questions. Don Horan will prepare a response to the January and February financial analyses and question the difference in the ledger noted by Jean. Jean will send additional comments to Don.
Discussion of Investments: Armstrong Management Services recently received checks from Community Association Banc (CAB) totaling $271,339.62 for the closing balances from the FRCA money market, debit card checking, and operating accounts. This money has been deposited in the Firstrust operating account. As a result, the balance of the Firstrust account greatly exceeds the FDIC coverage maximum of $100,000. It would be prudent to move a significant amount of this money into investment accounts so that it will be well covered by FDIC insurance and earn interest at a good rate. Approximately $230,000 of Replacement Reserve funds are not adequately invested at present, and are a significant part of the recently received funds. Investment of the Replacement Reserve funds was discussed. Based on this discussion, the Finance Committee recommends that the Board of Directors take the following action:
"Direct Armstrong Management Services to open three new CDs in three different FDIC-insured banks, excluding CAB, Firstrust, and BB&T, as follows:
$75,000 for 60 months in bank offering the best interest rate;
$75,000 for 60 months in bank offering 2nd best interest rate; and
$40,000 for 60 months in bank offering 3rd best interest rate.
Each CD should be clearly identified as Replacement Reserve funds. Funds to purchase the CDs should be taken from the Firstrust operating account. Also, funds should be moved between the Firstrust operating account and the Replacement Reserve money market account in BB&T so the BB&T account will have a balance of $39,555 prior to addition of the April 2007 contribution."
When the 2005 and 2006 audits are completed, additional adjustments will be recommended for the Replacement Reserve accounts to cover present uncertainties in the Replacement Reserve total.
The following points were considered by the Finance Committee in making this investment plan:
1. A $100,000 CD at CAB will mature and be available on 25 July 2007.
2. An additional $14,166 is deposited in the Replacement Reserve each month.
3. We will lock up a good interest rate for 5 years.
4. Mason & Mason does not project a Replacement Reserve annual expenditure exceeding $137,000 until 2014.
5. Use of multiple banks will reduce our funds not covered by FDIC insurance.
Discussion of 2007 Mason & Mason Response to How Annual Contribution is Determined: During their explanation of their 2007 report on 21 March, Mason & Mason said that the key set of information in determining the annual contribution is the Component Method Funding Analysis, Table 4, of their report. The key point seems to be achieving a matching Ending Reserve Fund Balance in 2026 on both the Cash Flow Method Funding Analysis, Table 3, and the Component Method Funding Analysis, Table 4. It was noted during discussion, however, that the Ending Reserve Fund Balance was always different on the two tables for every year between 2007 and 2025, with the value on the Cash Flow Method Funding Analysis table always lower than the value on the Component Method Funding Analysis table. No conclusion was reached and these discussions will continue at subsequent Finance Committee meetings. The effect of adding the Modular Block Retaining Walls, $60,839 per year, was noted. It accounts for half of the annual increase recommended by the 2007 Mason $ Mason Report.