Background

What words strike fear in executives, accountants, auditors and investors? Restatement of financial reports. This article explains the contortions that IVGID management and Board underwent to avoid restating financial reports.

IVGID has no Whistle Blower Ordinance, even though required by Nevada law since 2019. (NRS 281.635)

For years, residents including several CPAs protested IVGID’s annual audited financial statements, especially the 2015 switch of the community venues from “Enterprise Fund” accounting which is to be used for business-type activities.  Public records requests for the detail supporting the statements (General Ledger and Chart of Accounts) were refused. Auditor Eide Bailly continued to issue “clean” opinions.

In 2020, the Board finally engaged Moss Adams for guidance on 4 issues. The Moss Adams report supported residents claims. In Eide Bailly’s last audit (2020), GM Winquest and Director of Finance Navazio made statements in their management representation letter that appear to be untrue.  CLICK for a larger image.

And the letter is missing key assertions regarding no suspected fraud or misappropriation has occurred.  CLICK for a larger image.

Sample representation letter

Highlighted with assertions

not contained in IVGID

representation letter

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2021: Audit Contains Caveat

 With the change in auditor to Davis Farr, the opinion (2021) now included the caveat above.  For 2022, there were THREE significant deficiencies: the checkbook for the main account with over 14 million dollars was not reconciled until October, over 3 months AFTER year-end. And there was NO Physical Inventory for the Golf Pro Shop at year-end; the shop makes over $500,000 purchases annually.  The third was related to journal entries – which totalled over a million dollars.

Clearly internal control issues have not just recently occurred; they have been systemic. And that calls into question whether there should be any reliance on the “clean” opinions by Eide Bailly  And why suppression of questionable accounting should worry residents.

For years, IVGID has purchased an award from the GFOA, the Government Finance Officers Association. The award is equivalent to Who’s Who, where everyone who pays gets their award. Even the City of Bell California was given a GFOA award in 2008 and prior years; in 2010, Bell became known as “corruption on steroids”.

Suppression of shady accounting by IVGID Management and Board

For many years, the IVGID Audit Committee consisted of only 3 Trustees and had limited responsibilities other than annually selecting an independent audit firm and subsequently accepting the annual audit report. The committee members never discussed various concerns expressed by the public about shady accounting.

In 2020, it became apparent that the Audit Committee responsibilities needed expansion. Committee members would be increased to 5 with three at large members from the community. An extensive comprehensive policy for oversight was developed.

 A Whistle Blower policy was developed intended to encourage residents to bring forth concerns, however the policy was not accepted by the Board.

The committee engaged Moss Adams, a regional CPA firm, to provide guidance on several questionable accounting practices and review the weak internal controls. Their report was completed in January, 2021 and accepted by the Board with a commitment that all recommendations to correct accounting would be enacted. The largest area, with the most financial impact, was the aggressive capitalization of routine maintenance and repair costs as capital assets.

The Audit Committee immediately ran into road blocks by IVGID management who would not comply with the new audit policy. After extensive delays, the Audit Committee submitted their report to modify the 6-30-2020 financials to charge off prior expenses which had been considered capital assets. On a 3-2 vote the Board of Trustees denied the Audit Committee recommendations but promised to make the charge offs in the subsequent year.  The largest charge off was over $3 million in expenses on the Effluent Pipeline. A retired CPA who spoke during public comment about the Board rejecting recommendations by the Audit Committee called the action “really extraordinary.” (source: https://www.yourtahoeplace.com/uploads/pdf-ivgid/H.2._-_Minutes_-_March_9__2022.pdf page 7).To translate into everyday words, rejecting Audit Committee recommendations is simply not done.

A new audit firm, Davis Farr, was engaged.to audit the financials for the year ending June 30, 2021. The firm was to review certain capital asset accounts to determine if additional charge offs to expense should be made. The firm found almost $3.6 million which should have been expensed. Management, without any justification, did not agree and claimed only a small portion should be charged off. It should be noted that the audit services did not include providing an opinion. Any adjustment was to be an Audit Committee decision since the costs erroneously capitalized were in prior years and not subject to the current audit. The review did not cover the construction in progress accounts.

It became apparent that a suppression of information on capital asset charge offs was underway; probably to avoid having to restate past financial statements. Through extensive public records requests, it was found that many capital accounts contained substantial expenses. From March, 2021 to August 2022, an audit committee member provided 11 memorandums on capital costs that should be charged off. As required by board policy, each memorandum was to be reviewed by the Audit Committee and recommendations were to be made. But – no actions were taken to resolve the memorandums and no charge offs were made in fiscal year 2022.

The Audit Committee caught management’s attempt to bury $700,000 in required charge offs in current year expenses rather than a prior period adjustment. When caught, management admitted wrong-doing but considered the mistake not to be “material” so a reclassification was unnecessary. The Board of Trustees did nothing.

 As a result of these suppressions, the matter of capital asset charge offs has NOT been resolved. After public outcry, the current Audit Committee Chairperson, Michaela Tonking, has promised to bring the memorandums back to the Audit Committee.

The Audit Committee members were changed last summer and only met twice; the committee again will be reconfigured this week with one new member and another new member in February. The lack continuity is apparent and we doubt the new committee will be able to “get up to speed” over the next 6 months thus delaying a resolution .

Another result is an accounting correction which should have been completed in one year will now stretch into 3 years. Procrastination is rarely progress. Or as former Secretary of State Colin Powell famously said, “Bad news, unlike fine wine, does not improve with age.”

The authors, Cliff Dobler and J. Gumz, are long-time resident and property owners of Incline Village, registered voters, and CPAs.