Rancho Santa Fe Association President Fred Wasserman had a strong response to the Past Presidents Council who last week alleged “serious financial and managerial issues have occurred” at the Association and requested an independent forensic audit to review all accounting transactions.
At the Aug. 18 Association meeting, Wasserman said he posted a letter on the member website to address the allegations made in the letter by the Past Presidents Council (PPC) that many residents received.
“They thought they were being thoughtful in terms of trying to help the board, unfortunately, their approach was less than thoughtful,” Wasserman said.
Wasserman’s letter stated that an active investigation is ongoing by board members experienced in handling matters similar to the ones that the PPC alleges to have been mishandled. As the board goes through the process of review, Wasserman wrote that they will determine if professionals are needed to assist and, if so, they will be engaged accordingly. The PPC had recommended the board hire former Association counsel Alan Zuckerman to oversee the process.
“In the interim we ask that you support the board in this effort in this regard by allowing the board members to do their job,” Wasserman said in the letter.
During public comment at the Aug. 18 meeting, several residents spoke up that they hope the Association does not hire an audit firm nor rehire any past employees or consultants.
“We need to move forward in a positive manner and not go backward,” said Lisa Bartlett, noting that what the PPC is trying to do is “extremely detrimental” to the community. “Let’s start the healing and move forward with fresh ideas and fresh faces.”
Bartlett said should the board decide to hire a consultant, she requested that the person have no connection to the past and that the scope of the audit would not be limited to the past two years, but would also include former Manager Pete Smith and the members of the PPC’s tenure.
RSF resident Mike Mines said he doesn’t want to see the “Historic Rancho Santa Fe” on the community markers replaced with the word “Prehistoric.”
“I’m living in a community with radically divided special interests,” Mines said, noting that there are special interests of golf, horses, kids, no kids and a radical special interest called “no change.” “After hearing that letter, these special interests allowed what I would call a remarkable manipulation of people, assets and time. These special interests created a diversity and allowed entrenched management and old thinking into the community.”
Mines said the board’s biggest challenge moving forward will be to not allow those special interests and “well-informed insiders” to create a divided community.
“The letter bothered me on multiple levels,” RSF resident Saiid Zarrabian said. “I’m very respectful of the past presidents, there’s a tremendous amount of experience there. My concern was first, for them to identify publicly issues that may or may not be true and, secondly, to come and tell you who to hire to do the forensic audit is disturbing to say the least, especially since that individual has had previous conflicts in this Association.”
Zarrabian said that the people recruited to do the PPC’s audit were also conflicted, noting one is currently involved in two legal disputes with the Association.
Wasserman said that the PPC’s letter made him “angry” and “annoyed” due to how much work the board and staff does. He said all of the board members are well qualified and spend 20 to 40 volunteer hours a week working with Association staff on issues that may have been mishandled in the past.
“There are some issues, we agree. But I’m telling you that you have more commitment than you have ever had in the past in terms of this group here,” Wasserman said. “You have our commitment, you have our attention and you have our interest. But we will not be bullied. We will not be told that we have to put certain people on the board because they were past presidents. None of this is going to happen. This board represents the entire community and we are going to do that.”
As Association Controller Matt Ditonto spoke about preparing for the annual audit, he spent some time speaking in the financial department’s defense due to what was alleged in the PPC’s letter.
When Ditonto was brought on as a consultant in September 2015 he said the first thing he was asked to do was look at bank reconciliations that didn’t balance — a full review found $1.6 million in misallocated funds.
Ditonto said there was essentially “nobody at the wheel” and the Association never had a CPA on staff.
“You now have three CPAs looking at your books,” Ditonto said, referencing himself, Director of Accounting Don May and former-CPA and board treasurer Janet Danola.
After being hired on in a permanent basis, he said the finance department has provided more efficient financial reports, reconciled all the balance sheet accounts, outsourced collections and liens to the legal staff and brought the board into compliance by having them regularly review full bank reconciliations.
“They are reconciled to the penny,” Danola said.
Both Wasserman and board member Kim Eggleston said that when they joined the finance committee, the Association’s finances were a “mess,” a multi-million dollar organization being run “like a lemonade stand.” Eggleston said there has been a “tremendous amount of work” to straighten everything out.
As an example, according to Ditonto, at the Osuna Ranch, one employee was doing the books on a paper ledger and no invoices went into the accounting system — Ditonto said there was no visibility from an accounting perspective. Now invoices go through the Association system and are tracked — they even know the horses’ names.
As the PPC’s letter referenced the Association spending “in excess of what had been approved” on consultants, Danola said on her own she did her own review, getting out every invoice with every vendor. She said the amount spent was $669,822 which was $100,000 less than what the PPC stated. She said the amount spent in excess is $21,875, not the $50,000 figure that was given. Danola said they are aware of the excess and they have implemented controls for it to not occur again.
In July 2015, at the recommendation of the finance committee, the board hired Gary Porter of the firm Hinricher, Douglas & Porter LLP to replace AKT, the firm that had done the Association’s audits for the past seven years.
In discussing the Management Letter from Porter’s previous years’ audit, Danola said she could not find that it had ever been presented to the board on a regular basis in the past.
Porter’s recommendations in 2015 included more regular reconciliations, capturing the Osuna fund accounting as part of the account accrual system, using a fixed asset accounting system and tightening up the language of the Community Enhancement Fund and what the money could be used for.
Danola said the Association has addressed all of those recommendations except for the Community Enhancement Fund — they plan to allocate funds to specific projects in the coming months, she said.
“The accounting team has done a phenomenal job over the last year,” Danola said, growing emotional. “We’re doing a great job and no one should question the diligence and effort that has gone into it since the last audit.”