Once Upon A Time

ONCE UPON A TIME…

With the help of advances in medicine and Medicare, we are now living longer. Genetics, good luck, taking better care of ourselves, and making the right choices, allowed or prompted 80 percent of us over 55 begin to move to CID’s, or Common Interest Developments.   These are usually formed as Homeowners Associations and sometimes incorporate as a non-profit corporation to protect the rights and properties of its residents.  A board of directors is elected by a majority of homeowners to administer the CC&Rs, Rules and Regulations, and By-laws established by the developer and agreed to by buyers when they move in.  We chose SCSH because the lifestyle Dell Webb created was unique.  Now we know what a special place it is to spend our golden years! 

In the case of Sun City Shadow Hills, we elect five members who serve two years on the board.  Our annual meeting takes place in March.

Before the last election, a group of homeowners became alarmed that the board was about to approve almost a million dollars of our dues for redoing the restaurant.   In protest to a losing proposition, and in the financial interest and well-being interest of all residents, we organized a group of CPAs, attorneys, and business managers.   

It’s complicated.  But before you listen to the naysayers, name-callers and malcontents, (as some pro-management called us) please stick with us while we give you some straight, factual, unbiased,

unvarnished truth, and learn about what the issues are-- a $10 MILLION financial budget from OUR DUES!  We are NOT interested in lawsuits, finger-pointing, or disruption in our lifestyle, which we will protect at all costs.  But before you take a side, realize there shouldn’t be two sides! Why are there sides?  Aren’t we all in this together?                                                                                                                        

                                                                                 

                     WHO ARE PROPERTY MANAGERS AND WHY ARE THERE PROBLEMS?  

Because twenty percent of all American citizens are living in HOAs, many property managers back in the mid-1970s saw future opportunities to take over the CIDs and reap big rewards.  There are now 32,000 members of CAI--Community Association Institute--who employ 10,000 attorneys, and train professional managers.   Attorney Evan McKenzie, a graduate of USC and professor at University of Illinois at Chicago, wrote a book called PRIVATOPIA, revealing some heavy-handed managerial focus by CAI members.  There is no oversight by state or federal agencies.  The CAI aggressively lobbies the California legislature to increase their control and profits over Common Interest Developments.  No federal regulations exist.  Laws are left up to the states.  In California we have the Davis-Stirling Act.

Boards are filled by volunteers and non-experts.  They may not scrutinize reports and financials as the pros do.  An HOA is an easy target for mismanagement-- by their own board members or their outside management company.  There are numerous court cases by homeowners and/or investigated by the FBI (Google “HOA Fraud” or “Scumbusters.org”).  These run from dipping into petty cash, using association credit cards, kickbacks from potential contractors, checks for bogus invoices, and unaudited financial statements.  Our own managers, PCM/Associa, has had a few of these, particularly Laguna Woods.  

We, Sun City Shadow Hills, are a non-profit company.  However, we are managed by a FOR-profit company.  If there is any profit left from our dues after expenses, dues are supposed to be reduced or the excess returned to homeowners.  However, we found excess funds were held in our operating account. (NOT part of our restricted fund—reserves—which are in Commercia Bank in Texas.)

                                  HOW DID WE CONTRACT WITH PCM/ASOCIA?

Unlike the other Sun City, Palm Desert was given a choice of a CAI property manager or self-management. They chose to hire their own general manager and staff, which their board of directors oversee, as other desert communities such as Heritage Palms, Avondale, and many others.  When Pulte completed Phase I of Shadow Hills in January 2008, they created a board of directors from their own executives, who signed PCM, a CAI company located in Lake Forrest, CA (Orange County) to manage us.

Two years later, PCM was purchased by Associa in Texas that owns hundreds of companies and has been in charge since mid-2010.  The contract was one-sided with a lot of control given over to PCM/Associa: all our records- –accounting, personnel, banking, and dues collection-- are maintained in Lake Forrest.  Under state law protection of the Davis-Stirling Act, we have a right to access those records but requires prior notice and has been difficult in the past.  Some, particularly payroll information, was not available at all, as PCM maintains they are PCM employees and not ours.  We were billed for payroll with no backup.  If we don’t see how much we are paying, for how many employees on any given day, and are billed a management fee on top of that for payroll processing, benefits, workers comp, how is the board supposed to approve the invoice they receive?  We protested.  Now, President, Stu Stryker, has indicated that the board now receives redacted reports (personnel information blacked out) from A.D.P., the payroll service company for PCM/Associa., and as legally required, two board members started signing all checks. 

Based on a budget of expected expenses (created from expenditures last year) the board treasurer issues a monthly report indicating if we’re in the ball park—over or under budget for that month.  The board is now meeting to go over a preliminary budget for 2015.   The treasurer always adds at the end of his report, “subject to audit,” which is inaccurate.  They are “interim un-audited financial statements.” He also should state that the information is given as “modified cash accounting,” which is a “hybrid” accounting method, mixing cash and accrual:  assessment are recorded when due (accrual), but expenses not recorded until paid (cash basis).   If the board approves $65,000 for new furniture for the restaurant, it doesn’t show up on the financial report until a check is actually sent in payment.  The board may think it has excess funds when, in reality, it has a $65,000 obligation that is not accounted for.   This method is used by most of the management companies like PCM/Associa in monthly financial statements to the board.  Why?  It’s deliberate confusion.   

In other financial issues, PCM had 245 operations in Southern California when our developer signed them to a contract.  In turn, Shonwit & Associates, a large accounting firm in Orange County, started doing our audit and tax returns in 2008.  Who knows how many of those other companies Shonwit audited for PCM?  Steve Shonwit indicated in the AG matter that he was selling his practice to Catherine Vanderpol.  She performed our tax audit for 2012 and filed with a disputed IRS form.  The year-end financials for that year contained changes and reversals in accounts and lacked explanatory notes, as required by a CPA.   The monthly financial information given by PCM to our Board of Directors and homeowners is not audited-- but those figures make up the report which is used for the year-end audit.     Do you see problems inherent in this contracted auditor?  Would you let someone run your business like this?  We are required to have an independent auditor, which we do not have.  Furthermore, as of October 2014, Ms. Vanderpol has let her CPA license expired.

With millions of dollars in our bank account from dues, the finance committee, based on our “approved investment policy,” recommends to the board the best way to invest our money.   Who is the advisor to our finance committee? The bank in Texas with our million dollar reserve fund!    Any independent CPA can see that this is questionable.  In speaking with our largest bank branches here in the desert, Bank of America, Wells Fargo, and Chase, they have advised us that they would be more than happy to handle our million dollar accounts and give us much better interest rates, safe and secure, like the big corporations get.  

                 

                 WHAT WAS THE ATTORNEY GENERAL COMPLAINT ABOUT? 

There has been so much MIS-information surrounding the complaint filed by our original Voice members.   We hear people saying it cost the HOA many thousands of dollars, that it was about “elder abuse” and other such nefarious arguments to discredit our activities.

As mentioned before, the board and general manager were discussing redesign of the restaurant.   We questioned any plans, first of all there was no homeowner input on how our dues were being spent.  If we had a large amount of cash to spend, where did it come from?  We can’t have an extra cash stashed away—it’s against the law. (And it wasn’t part of the reserve fund.)

Here are the facts: In 2011, a retired CPA/homeowner began to put together findings of irregularities, and filed them with the State Attorney General citing non-conformance with the California Corporations Code 7231, possibly Section 8215, as well as Sections of Davis-Stirling.  This was a personal filing of 285 pages--at no cost to homeowners.  (See Code citations following.) The AG then issued a formal Notice of Complaint to our HOA Corporation.  HOA attorney, Mary Howell, replying for the board, denied all, and filed 1400 pages of documents.  This took all of 2012.   In May of 2013, more SCSH Homeowners joined the effort and sent a response to Senator Dianne Feinstein and AG Kamala Harris, citing additional federal and state concerns about activities of CIDs across the country, in which there is little recourse for homeowners against large law firms, lobby group, management companies.  This response included four areas: 1) Financial irregularities; 2) Conflict of interest (our treasurer is an employee of Associa) 3) Legal; and 4) Miscellaneous.

At the end of 2013, the Attorney General sent a letter that it was tabling the matter, but advised us that if the department received any further complaints it would reopen the file.   A group of name-callers who had no idea what the complaint entailed--and didn’t bother to find out-- decided we must be malcontents and had no business doing what we were doing.  They immediately started a campaign of mud-slinging, calling us, the Voice, the “vocal minority” and other pejoratives, saying the complaint was a “loss,” that “it was dismissed,” and that the board and PCM/Associa  “were vindicated on all charges.”  They were wrong!  This anti- group didn’t care what the AG said.  Furthermore, our board and PCM/Associa did nothing to deny it.   Here is the exact wording of the AG letter:

“As we previously stated, our office is prohibited by law from representing individual citizens in legal matters.  We do, within the limits of our resources, bring lawsuits for violations of California law in cases of statewide significance.  However, our role in any legal action against a corporation is on behalf of all people of California.  We will retain your complaint regarding (Sun City Shadow Hills HOA) this non-profit benefit corporation and contact you should the state commence formal legal action at some future date.”

But wait, there’s more!  Guess what happened?  Some of the code failures cited in the AG complaint were suddenly addressed by the board and changes began to happen!  The VOICE promised change and by golly, we got them (see below).

        WHAT ACTION HAS THE VOICE TAKEN SINCE THEN? HAS IT GIVEN UP?           

Formally approved by the board as a Resident Group on December 23, 2013, The Voice has been active all year.  First we supported and won a position for one of our candidates for the board election and monitored the voting process in March 2014.   We believe the AG action was a wake-up call for the directors in that they became more aware of their responsibility to homeowners.  We started a campaign of TRANSPARENCY insisting upon more open meetings and financial oversight resulting in a $40,000 in payroll fees and a reduction in monthly dues.   We questioned the huge losses in the restaurant and golf operations. To give the newly elected board in March a chance, we decided on a wait-and-see plan, and have continued to monitor HOA activities. 

To establish homeowner confidence and reduce risk for the future, we need to have the board approve an independent audit of our book and record to see where we stand.  This is not a legal matter, not a major expense (around $8,000), and not harmful in any way to PCM/Associa or to homeowners.  It is an inexpensive and reasonable next step in self-protection and eliminate doubt.  It must be done by an objective, independent top-rated audit firm to provide a true and fair view of our operations.  Some of the questions to be answered are: 1) Is PCM/Associa managing our affairs according to our contract? 2) Is our reimbursement for payroll to PCM/Associa fair?  And 3) Is PCM/Associa’s management and accounting of food and beverage expenses being allocated according to GAAP (generally accepted accounting principles)?

If the board denies the need for outside auditing, we will initiate a homeowner petition (we only need about 500 signatures).    Again, why should there be sides to this issue?  The board must work for all homeowners; an audit will resolve our questions.

With audit results, we can consider options:  1) Retain PCM/Associa and renegotiate their contract; 2) consider other management companies; 3) go for self-management.  

In the case of 3) above, the board would either appoint an advisory committee and/or hire a consultant.    An independent general manager (there are many qualified business managers in the realm of medium-sized or small cities or businesses)  would review our current employees (we are allowed by contract to make them offers), review office space, and hire replacements for a controller, accounts receivable, and accounts payable clerks who now work for PCM/Associa in Lake Forrest.  There is some indication that our HOA office may be over-staffed and our current space will be adequate. 

We will not give up until homeowners can rest assured we live in a well-managed, sharing and happy congenial community that we all enjoy and trust!

                                                     

                                       WHO IS THE VOICE AND HOW DO WE JOIN?

We are a Resident Group, listed in the VIEW.   You are ALREADY members.  All homeowners in Sun City Shadow Hills are members, if you choose to be.  If you care about what happens in our community, we invite your comments and participation.    

E-mail us: voice01scsh@yahoo.com