On October 20, 2023, we obtained audited financial statements back to Fiscal Year 1990 for the Incline Village General Improvement District. Analyzing the data, we can now state that the fraud explained in Cooking the Books (Part 1) has been ongoing since 1990, and likely before that time.

In that article, we explained that IVGID had improperly capitalized costs as LAND, and that this scheme is one of the ten most common fraud schemes involving financial statements. We analyzed data from audited financial statements CAFR/ACFR 2009 to 2022.

With the older CAFRs obtained (1990 – 2007: links at end of this article), we expanded the analysis as shown in the table.  Between 1990 and 2002, the LAND account for Recreational Facilities increased by $6,692,644! 

But IVGID acquired only one parcel in the timeframe that could be designated as “recreation”[1]. And that parcel at 980 Incline Way was not even included in the Fixed Asset Ledger (FA Ledger)[2].  Washoe County donated it to IVGID for the Recreation Center in FY1998 (October 1997). We estimated the Fair Market Value at date of acquisition[3] to be $2,428,500 ($150,000 per acre). IF that parcel were included in the CAFR 1998, there should have been an increase in LAND – Recreational Facilities. But there is NO CHANGE: LAND remained $13,457,881 for both CAFR 1997 and 1998.

This analysis and the ratcheting up of the LAND account every year indicates costs were posted to LAND – and not the proper expense account.

So what happened in 2003 – when $13,794,008 in LAND value DISAPPEARED from Recreational Facilities?

We believe acting General Manager Bill Horn and Controller Ramona Cruz had a discussion. The LAND account was getting too big. Someone was going to notice. So in 2003, the format of the CAFR was changed for the page on which LAND Recreational Facilities was shown. The new number would include only the 2 parcels for the beaches ($2,304,850), and 4 parcels acquired in 1976 from Japan Promotions ($1,041,043).

How this “write-off” was actually done, we don’t know. Buildings and structures went up $10,680,987. Did IVGID build and put into service a $10 million dollar structure between 2002 and 2003?  It is not in the Board minutes.  Projects were in process – but NOT completed. Were these improperly capitalized “improvements” moved to Buildings and Structures?  And where did the other $3,113,221 million go?  Why are there no explanations in the Notes to the Financial Statements? Did the external auditor, Barnard, Vogler & Co. of Reno, ever notice this? CAFR 2003 (PDF page 8) “Unaudited Management Discussion” states 2002 LAND for Business type activities (utilities + Recreation Fund) was $5,299,577. That is false – it was $19,104,358 (utilities $1,964,745 + Rec Facilities $17,139,901), according to the audited 2002 financials.

A new base value was set for LAND Recreational Facilities: $3,345,893. And it would remain that amount, until the Beaches were split into a separate fund in 2009. And the Community Services Fund was $1,041,043.

Ramona Cruz was promoted from Controller to Director of Finance in 2003 [Source: Board minutes].

Were these acts intentional?

In its Oct 5,2023 presentation, auditor Jennifer Farr stated, “The distinguishing factor between fraud and error is whether the underlying action that results in the misstatement of financial statements is intentional or unintentional.”

It is difficult to see how the increase of almost $7 million dollars of LAND – when no land was acquired in the two time frames 1990-1997 and 1998-2002 – can be “a mistake”. Instead, this appears to be intentionally hiding costs. 

This is not the first time IVGID has been accused of improper capitalization of costs. In 2021, Moss Adams was hired by IVGID Board to examine whether improper capitalization of capital project costs was occurring; Moss Adams said yes. “The District has been capitalizing expenditures incurred in the development of master plans as well as costs incurred that do not relate to specific capital projects or that increase the service capacity of an existing capital asset. This is not in compliance with established governmental accounting practices. In addition. the Board’s capitalization policies and practices are not sufficiently detailed to provide guidance on what types of costs should be considered for capitalization.”  (link: Moss Adams Report, page 4)

To understand what might have motivated these actions, consider these facts. Prior to 2015, employees received a bonus based on financial results of IVGID. It is unclear when this bonus scheme was implemented.  Thus, by understating expenses, financial results appears better than actual. In 2013 and 2014, a total of $1.4 million dollars in bonuses was paid to employees. These bonuses were not approved by the Board of Trustees. Gerald Eick received $22,524.29 (2013) and $14,710.85 (2014). In 2015, then General Manager Steven Pinkerton increased wage rates, and eliminated the bonus scheme.

Another reason to hide costs as a LAND asset may have been to make the financial statements more attractive to buyers of municipal bonds. IVGID issued $44,700,000 bonds since 1991, and possibly tens of millions from 1968 to 1989.  More accurate financial statements would have shown the District had higher expenses and perhaps imperiled its Bond rating from Moodys.  On July 31,2002, General Manager Horn reported that the District had a call from Moody’s earlier in the day to inform them that IVGID had gone from an A3 rating to an A2 rating. [Source: Board minutes]  The 2023 rating is now Aa1, investment grade.

Conclusions

Based on these facts, it is hard to characterize these activities as mistakes. These are intentional acts.  Both Ramona Cruz and Gerald Eick were licensed CPAs. Former Controller Lori Pommerenck was a CPA, though not licensed.  We believe the improper capitalizing of expenses and misstatement of the Land asset category in the financial statements is fraud, as intent is evident.

And the differences in amounts are “material”.  Land has been misstated on the financial statements for the Community Services Fund category from FY1990 – 2002, and expenses have been understated by an estimated $6.7 million dollars. Combined with the CAFR2009 – 2022 of $8.9 million, that is $15.6 million dollars.  Anyone who has stated that there has been no evidence of fraud at IVGID should read this article as well as Cooking the Books (Part 1)and examine the facts and evidence, which we believe is clear and convincing. 

The Board of Trustees has authorized a forensic audit which is in the Request for Proposal stage. We will be making our research available to them. 

And as for the LAND in the Utilities Fund?  Yes, there are problems. But that will be in Part 3 of Cooking the Books. 

This article contains allegations and the defendant is presumed innocent until and unless proven guilty in a court of law.

The author, J. Gumz, is a long-time resident and property owner of Incline Village and a registered voter. Cliff Dobler, a long-time resident, owner, and voter of Incline Village, contributed to this article. Both were CPAs, now retired.

[1]
We examined Washoe County assessor records of the parcels IVGID owns and determined the date of acquisition and other parcel details.   We also have the IVGID Board minutes since 1961 and examined them.

[3]
Generally Accepted Accounting Principles require donated assets be declared at Fair Market Value at date of acquisition.

Links to Audited Financial Statements 1990 – 2007

We obtained these statements NOT from IVGID, who has been non-responsive to many of our public records requests, but another entity.  Please contact us at village_alliance  at ourivcbvoice.com if you would like further details.

CAFR 1990 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_1990.pdf

   CAFR 1992 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_1992.pdf

   CAFR 1994 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_1994.pdf

   CAFR 1997 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_1997.pdf

   CAFR 1998 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_1998.pdf

   CAFR 2000 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_2000.pdf

   CAFR 2002 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_2002_Excerpts.pdf

   CAFR 2003 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_2003.pdf

   CAFR 2007 http://ourivcbvoice.com/wp-content/uploads/2023/10/IVGID_Audited_Financials_2007_Excerpts.pdf