Is Eastman Another Enron?

ECA residents are the Owners of the community. We are spending an average of more than $1M per year for the Center/Golf facilities. Like Enron owners and investors, our financial reports do not tell us where and how that money is being spent.

Over the past 12 years the content and format of the Eastman Financial Audit reports has been substantially changed little by little. It is accounting standard procedure that when an entity, such as Eastman, changes the format and/or content of financial reports that it will display the financial information in both the old format and the new format in the transition year. This has not occurred over the past 12 years. This is one of the reasons the ECA Audited Financial Reports for FY 14 failed GAAP again.

The Board's July 2014 acceptance of these GAAP failed reports is a failure to require the lowest minimal acceptable level for financial reports of any operating entity. The failure to perform to an acceptable financial standard is a responsibility that lies with the ECA General Manager, the ECA Board and the ECA Audit Committee.

Here are some of the major areas based on an analysis I performed in a review of the Audit Reports from 2002 to 2014. The analysis provides quite a bit of informative insight as to how the ECA financial records have been re-constructed and re-engineered. The overall result is that ECA members know less about WHERE, HOW AND WHY our ECA assessment monies are being spent. The Audit Reports demonstrate to the reader a lack of Cost Center fiscal accountability on the part of the owners of this community. This is a red flag to a potential buyer or investor who can read financial reports.

Audit Reports:

    

Revenue, Expenses & Changes In Fund Balance Statement

·      Up until FY 2007, Golf Capital expenses were properly reflected in Schedule A as part of the total golf expense. In FY 2008 the financial records were changed such that all capital expense was rolled into a coverall category: DEPRECIATION. From that year on, no Cost Center details were given as to where, by Cost Center our capital monies were spent. 

·      In the FY 2013 Audit Report (Schedule A-1) you can see Expenses: Golf ceased to be recognized as a specific Cost Center expense. In fact as of FY 2013, no cost center specific expenses are shown in this Audited Statement.

·      Any “claimed” un-audited Income Statement is nothing other than someone's attempt to claim something using a financial statement as the "proof". Such a report is self-serving and unverified.

        Schedule Of Property And Equipment.  Schedule B

·      The Golf Course (and improvements) Valuation in FY 2002 was $699,343.   In the FY 2014 Audit it is stated as $3,690,283 for the same time period. 

·      The FY 2002 Audit entry Accumulated Depreciation: Golf Course (and Improvements) was $68,974. At the end of FY 2014 the line Accumulated Depreciation: Golf Course (and Improvements) was $1,894,125.

  

To approximately determine how much Capital we have spent over the 13 year period (2002-2014) on golf course improvements -- subtract the 2002 golf course valuation figure above from the 2014 figure arriving at $2,990,940.

Likewise, subtract accumulated golf depreciation arriving at $1,825,501. Add the two numbers together to determine that in that 13-year period we have expended $4,816,191 to "improve" the golf course, which has experienced diminishing demand and revenue.  Golf Revenue FY2002 = $796,119 and in FY2014 =$674,059—a $120,000 reduction in income.

The golf capital expenditures of $4.8 M are a tremendous cost to members particularly when that sum is added to the CENTER Capital Costs (more than $1 million) spent on the Center during the same timeframe. In addition to these sums, the allocation of overhead costs to golf consistently exceeded $100,000 until the Board ceased to acknowledge this cost of operating the golf course. Added to this, the Center Operating expenses have averaged $220,000 per year for the last 3 years.

(See http://eastmanblog.blogspot.com/2014/09/restaurant-con-game.html) It is easy to see that out of our assessment monies in recent years, we are spending an average of more than $1 M per year for the Center/Golf facilities. Building a new building will increase this number significantly.

NEXT I would call your attention to Schedule C of the Audit Reports. In FY2013 we no longer get a breakout of how our money is being spent as it pertains to management versus non-management or benefits. Yes we outsourced the employees to ADP however that breakdown is available.

These highlights of my analysis cause me to ask: ECA members are the owners of this community and yet the ECA Audited financial statements are moving targets and the Auditors seem to be playing the game- -WHY?

Submitted by Robert Logan