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January 2009
We do not make jokes, we simply watch the LA Times, the Orange County Register and CID/HOA board of directors and report the facts!
Fiduciary
Responsibility Primer – Part One
Posted
By CotoBlogzz
| 12/23/2008 10:00 PM
What
is the common denominator between Denmark’s
Entrepreneur of the Year, KPMG, Aide to Madoff HOA/CID
board of directors’ fiduciary duty?
In
doing research for series of articles dealing
with HOA/CID fiduciary responsibilities, we have
stumbled upon a number of whistle blower
incidents, not unlike the typical breach in
for-profit organizations: When someone wants to cook
the books, he or she simply does it with or without
the help of an auditing firm.
For
instance, in a Reuters’ article dated March 27,
2008, Amanda Beck reports that “Auditor
KPMG KPMG.UL either initiated accounting fraud at New
Century Financial Corp NEWCQ.PK or stood idly by as
the failed subprime mortgage lender committed fraud in
2005 and 2006, an independent report requested by the
U.S. Department of Justice shows”. In
other instances, the client sues its auditor, such as
the case of Fannie Mae suing, KPMG, for
negligence and breach of contract, as reported in the
December 12, 2006 issue of CFO.com: “Filed
Tuesday with the Superior Court of the District of
Columbia, the complaint accuses the Big Four
accounting firm of failing to serve its role as an
independent watchdog and prevent $6.3 billion in
accounting errors, according to Bloomberg”
More dramatically, last month in Copenhagen, accounting
firm Ernst
& Young, hosted some one thousand guests,
Denmark’s tax minister and leading business people,
to celebrate the feat of Entrepreneur
of the Year, Stein Bagger , while he was
surrendering to police in New York for what from
investigators now describe as Denmark’s biggest
business scam in decades. According to Wall
Street Journal accounts, Asger Jensby, chairman of
IT Factory, founded by Mr. Baggar, “.. says he is
flabbergasted by the fate of what he thought was a
“real company” run by a chief executive who was
“sharp, a bit arrogant, very articulate and
extremely orderly.””. KPMG audited IT
Factory’s accounts from 2005 through 2007. Deloitte
the previous two years. KPMG in Denmark says it
is “shocked” and “cooperating with police.”
Deloitte’s Danish unit said it has double-checked
its 2003 and 2004 audits and found no problems.
And
just this week, investigators probing the alleged
fraud carried out by Bernard Maddoff are looking at
key lieutenant at the firm, and have issued a subpoena
to the accountant who audited the firm’s financial
statements, seeking documents back to 2000. A December
23 Wall Street Journal article reports that
authorities are trying to determine who helped Mr.
Maddoff carry out what they say appears to be a
30-year scheme that may have caused at least $50
billion in loses/
In
non-profit organization, things get even more
complicated : Take for instance the
full-page advertisement in the December 15, 2008 issue
of the New York Times, paid for by the Center for
Union Facts (CUF) - www.UnionFacts.com
-highlighting the Service
Employees International Union’s (SEIU) role
in Governor Rod Blagojevich’s
recent pay-for-play scandal. The ad also connects the
SEIU to the much-indicted group ACORN (Association
of Community Organizations for Reform Now). The
text of the ad reads:
SEIU has given more cash to Rod
Blagojevich than any other group in America.
They also offered to help in his “sale” of a U.S.
Senate seat. And SEIU has been a long-time
financial partner of the often-indicted ACORN.
What’s next for SEIU?
The union is now using their political influence to pass the
deceptively-named Employee
Free Choice Act. This bill would give [Andy
Stern and other union bosses the tools to
intimidate employees and force them into paying
billions in union dues.
Homeowner’s
association (HOA/CID) are no different. The
problem in this case is even more acute, given that
the expertise dealing with fiduciary responsibility
regulations seem to be at a premium. In a
whistle blowing case for instance, the individual was
referred to Ogden, Utah, as the IRS did not have local
HOA/CID expertise.
To
make matters worse, last year, when Governor
Schwarzenegger signed legislation to bring
direct elections to Homeowner’s Associations such as
the one in Coto de Caza, the CZ Master Association
president called the legislation an act of
“micro-management”, and proceeded to ignore the
spirit and the law. When the auditing firm
refused to answer questions, a board member quipped in
essences: What does an auditing firm gain from
withholding information? Then the auditing firm never
responded. Shortly thereafter, a call to
the office of Senator Sheila Kuehl by a member
of the HOAATM group inquiring about the
reasoning behind the Senator’s support of Senate
Bill 127, the person attending the phones
characterized the Senator’s stakeholders as
“property management companies and HOA board of
directors”, NOT HOA residents
Hans
Strupat, publisher of SaveMarinaHills.org note that
the board of directors approved the audited
financial report – 2006, Keystone, the property
management company said it was OK – but he had many
unanswered questions - click here for the rest
of the story
The
Laguna Woods Village July 22, 2008 Golden Rain
Foundation Finance Community meeting scheduled to
review the budget including property management
company PCM’s Executive Vice President Janet
Price’s proposed 30% budget increase for general
manager Milt Johns elicited a number of shareholder
objections including charges of breach of fiduciary
responsibility citing that such moves 1) violated IRS
Code 4958, given that local newspaper reported that
given state of the economy, “no mayor or city
manager received pay increases”, 2)
Shareholders questioned why a tax-exempt board
suggested an excessive benefit transaction for a
disqualified person 3) Shareholders requested the
increase be rescinded and would also report the action
to the Internal Revenue Service.
In
a related matter and despite Milt Johns’, General
Manager of Professional Community Management (PCM)
emphatic defense of his business practices, the Laguna
Woods Village oversight committee continues to call
for Johns’ removal, as well as a call for a forensic
financial audit. The Laguna Woods Village Oversight
Committee in a document released to the media titled
Conflict of Interest called for the removal of Mil
Johns:” The document alleged violations of
501(C)3 self-interest restrictions, and requested the
removal of Milt Johns “ Mr.
Johns has held closed meeting in iolation Davis-Stirling
Act and has threatened board members with law suits.
The community has documents that indicate Mr Johns has
misused/misapplication of Laguna Woods Village assets
and resources. We are asking the board for immediate
removal of
his “self interest” status”.
In
the next installment, we discuss certain
whistle-blowing efforts as well as IRS efforts to
avoid non-compliance issues in the HOA/CID
environment, including Compliance Guide for 501(c)(3)
Tax-Exempt Organizations, aimed at educating
the public in general, and specifically HOA/CID
governances. The guide attempts to answer the
questions:
Why keep records?
What records should be kept?
How long should you keep records?
What federal tax reports and returns must be filed?
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