2018 Independent Audit

An independent, professional auditor, Elaine Combs CPA.

The Village Creek Board of Directors initiated an audit in mid 2019, shortly after switching from Spectrum Management to Crest Management.

The Board of Directors developed a mistrust of the previous management company, Spectrum, who paid numerous invoices without first getting approval of the board.

Spectrum served as the association’s management company for several years, and before most if not all current board members were elected.  Spectrum was replaced in 2019, shortly after issues came to light.

Unfortunately, Spectrum had contractual authority to spend money on behalf of the association, without board approval.  The new management company, Crest, does not have this same level of authority.

In short, the auditor found that the associations financial records for 2018 are “fair and accurate”. This simply means that all the accounts and numbers add up.  Nothing was misstated or entered incorrectly.

It is important to understand that an audit cannot determine if the associated did, or did not, pay too much for something… only that something was paid for, and it all adds up correctly.

Note “H” in audit mentions $49,000 in unapproved invoices.  Did we lose $49,000, or some part of it?

There’s little doubt that Spectrum Management was sloppy in the way they managed the association’s finances. 

As a result, some money was certainly spent that didn’t need to be. 

Some of it was recovered, some was not.

For a better understanding, let’s break things down into 4 categories…

1. Money was paid out, and then later recovered.
   • Landscaper charged, and was paid, sales tax for several months, totaling about $7,000. Village Creek HOA is a tax exempt organization.  So this amount was recovered in full, and sales tax was removed from future invoices.
   • It was somewhat shady on the part of landscaper, that the sales tax was included in the invoice total, and not shown as a separate line item.  This made it hard to spot.  It was noticed by a board member who, on a hunch, did some math and discovered the invoices were exactly 8.25% too high.
2. Money was paid out, and work was done, yet was potentially overpriced.
   • Landscaper did substantial emergency irrigation repairs, totaling about $22,000. This was a pretty large project, so the price is likely in the ball park.  However, because the HOA did not have the opportunity to get 3 bids, the work may have been overpriced… to what degree we’ll never know.  A significant amount of necessary and urgent work was performed, but we potentially overpaid.
   • Numerous smaller invoices were also paid out by Spectrum over the years, such as insurance, electric bills, rental fees for meeting room, and so on.  It is impossible to say at this stage, whether the association received fair pricing, or overpaid, for any of those services.
3. Money was paid out, and not recovered.
   • Landscaper charged an unauthorized “initial cleanup” fee of about $10,000, plus an “addendum” of about $10,000. So there was about $20,000 paid to the landscaper, without board approval.  Work was done at an extra cost, which should have been included as part of the original contract.
4. Money lost or missing.
   • According to the audit, no money was lost or missing.

In summary, Spectrum cost the association a lot of money.  It is difficult to know exactly how much.

Once it was discovered, the board quickly issued an order to Spectrum, preventing them from spending any money without board approval.

Then the board sought out legal advice, as well as began a search for a new management company.

Three separate law firms advised against attempting to recover any funds, since it would likely cost more than we’d recover, and besides that, the case was weak.

The board sought legal advice from three separate law firms, and the auditor, plus our new management company (Crest).

All 5 firms agreed that Spectrum had the authority to pay the invoices, based on their contract.  Taking legal action to recover the money would easily cost more than we’d potentially recover.  And we’d likely lose the case anyway.

As result of that advice, the board voted to close the issue and move forward.

Some resulting changes since dealing with this issue include the following…

1. 1. New management company, Crest Management
   2. New landscape company, Landcrafters
   3. New law firm, Roberts Markel Weinberg Butler Hailey PC
   4. New pool management company, Aquatic Management
   5. New, stricter processes for authorizing payments

• Residents should make an effort to attend meetings, at least periodically.
• You can contact either Crest Management and/or the Board of Directors at anytime, using the Contact form at www.villagecreek.us.