Jack Silas, in his most recent addition to the Message Board Discussion, claims that my Trumpets homework skills are in need of some improvement. Here is what Mr. Silas writes:

"As usual, Mr. Johnson talks without in depth knowledge of the 'FACTS'! Neither Mr. Johnson nor anyone else in SCA has taken the time to gather the facts regarding the indebtedness of Trumpets as of April 2005 other than me! In addition, not one fact has ever been presented proving that my accounting is incorrect. I had access to the Association's records on Trumpets and read the lease Agreement thoroughly with those facts at my fingertips. If Mr. Johnson wants to take shots at a well-qualified professional (retired CPA), he better do his homework rather than stating circumstances that are not true. I understand that a number of our community members believe that Mr. Johnson speaks with authority -- boy do they need to do their homework!!!"

Here is my (rather somewhat detailed) response to Mr. Silas, reprinted below from the SCACAI Message Board website.

On Taking Shots at Jack Silas: What, Indeed, are the FACTS?

           While it’s easy for Mr. Silas to challenge my lack of accounting expertise, compared to his admittedly extremely well qualified professional CPA experience, it’s less fair to suggest that somehow I, like the former Controller, missed the boat and got it all wrong when it came to the issue of Trumpets indebtedness and the role he played in this tragedy. As Mr. Silas knows only too well, having access to the data is a world apart from the conclusion that may be drawn, and equally important, how that data is presented to the untrained listener. When Mr. Silas made his Trumpets presentation to the Board in 2005, he told a very interesting, even compelling story. While Mr. Silas was very convincing in his presentation, he managed to leave some of those critical FACTS he talks about out of his presentation. I genuinely believe that Mr. Silas should be congratulated and commended for his past and worthwhile service to the community for his role on the Transition team efforts and his continuing efforts to raise the Association’s accounting standards. However, whether Mr. Silas deserves the same level of praise for his work on the Trumpets indebtedness matter, I’ll leave to your judgment.

           For those who may have forgotten when the community first became aware of $100,000 Trumpets indebtedness issue, it did so, I believe, at the October meeting of the Finance Committee in 2004 when the then controller of the Association, Linda Lee Peterson, made that announcement. While the amount of the indebtedness had been accruing each month since the start of the lease in October 2002 for the lessee’s failure to make their rental payments on a timely basis, the extent of the indebtedness had not been previously disclosed, at least not in a public forum.

           While the announcement of the indebtedness may have been embarrassing, the Board was faced with two lingering problems of far greater magnitude. First, under no circumstances was the lessee going to pay any amounts owning due to late fee penalties. Second, since the lessee was not going to pay one dime, the magnitude of the indebtedness was viewed with some concern if that amount was going to be written off as an uncollectible debt. Was the then 2004-05 Board going to stand up and declare they were about to write off this $100,000 indebtedness as uncollectible? That scenario was viewed as unacceptable. And, in particular, would Favil West, who was at that time likely planning to run for re-election to the Board, want to run on a campaign that would be saddled with the Board having to write off as uncollectible a $100,000 indebtedness?

           So what did happen? Now Favil West, then Treasurer of the Association, was no doubt troubled by the magnitude of the indebtedness and what that might mean for a number of parties who were likely at potential risk for one reason or another. But then something quite strange came into play following this indebtedness disclosure. Most people when told by their accountant that “X” is a fact or true will defer to the expertise and judgment of their financial advisor on accounting matters. That’s one reason why we have accountants. But I’m getting a little ahead of myself.

           Following this public disclosure, Favil and I were exchanging emails about this matter back in November 2004. At that time, I provided Mr. West with an 11-column spreadsheet detailing precisely how, month by month over a two year period, just how late fee penalties and interest could readily grow to equal such an amount. In other words, the Controller was correct in her accounting methodology as well as in the overall magnitude of the amount she had computed owing. In that spreadsheet, I computed $97,561.88, a figure, by the way, approximating the amount the then Controller was also quoting as the amount she had determined due. That was no coincidence since it was apparent that we shared the same understanding of what the lease required in how to compute late fee penalties. Actually. the language in the lease seemed pretty straight forward in how to handle late fee penalties.

           So, how did Mr. West respond to this spreadsheet information, information, by the way, that had the appearance of validating the conclusions of the Controller? I mistakenly had thought that I had shared with Favil something he did not already know, but he was way ahead of me. This is where the story gets a little strange, some might say, creepy. Instead of embracing the advice of Pulte’s Controller, Mr. West was about to embark on a mission designed to discredit the Controller, at least insofar as her ability to compute late fee penalties. Either the Controller had gotten it right or she had gotten it all wrong. There was only one way to diminish the magnitude of that indebtedness figure. Make the amount into something more acceptable, or manageable. In order to do that, the Controller had to become the scapegoat, the one who got it all wrong. And in the end, that’s exactly what took place. When the Controller was laid out before the Board in April 2005, her proverbial epitaph, as delivered by Jack Silas, read: 'She got it all wrong.' But we’re jumping ahead again.

           So, what was Favil's response to my spreadsheet calculations showing $97,000 due? He wrote:

           “Try [reworking] your numbers using as a maximum late fee of $1,000 per month . . .”

           While seemingly not earth shattering, Mr. West’s cryptic note tells us a lot about the path down which Mr. West was headed. This was not the note of someone looking for information or validation, but, instead, this was the note of someone who knew very well what he wanted to do. Mr. West had no interest in confirming the accuracy of the Controller's determination. Far from it. Mr. West knew that by placing a 10% per month cap on the maximum late fee penalty, or $1,000 a month, the cumulative amount of late fee penalties would grow by $1,000 a month, rather than by a perfectly acceptable standard accounting rule of compounding such penalties payments over time to arrive at the amount the Controller had determined. No, it would be quite unfair to conclude that Mr. West was in any respect at all naïve in such matters. I wrote Favil back that under his 'cap' scenario, the indebtedness amount would drop to “about $25,000.”

           For those of you who can recall that period, Mr. West then proclaimed to the community that Trumpets indebtedness was now not greater than $25,000. When did Mr. West make this striking announcement? He did so on 2 December 2004, in the Anthem Compendium about a week after we had corresponded on this very matter. Here, in part, is what he wrote:

     'A number bandied around the rumor mill is that Trumpets owes the
      Association about $100,000. I think all will agree that this figure is
      absurd especially in the light that the lease has only been in effect
      for 24 months and if the lessee never paid a single payment on time
      the maximum they could owe, under the terms of the lease, would
      be around ¼ of that figure.' AC 2 December 2004

           All of sudden, Mr. West proclaims that the rumored $100,000 figure to be “absurd” and to bolster his conclusion, Favil tells us that this absurdity is based on the fact that “the lease has only been in effect for 24 months,” misleading some into believing there was some connection between the two. But to a lay person not understanding the dynamics of accounting and compounding, Favil’s proclamation may have made some sense. To further set the stage for what is to come, Mr. West makes the exceptional, no, outrageous claim that “the maximum [amount] they [the lessee] could owe, under the terms of the lease, would be around ¼ of that [$100,000] figure.”

           At the same time Mr. West is making a pronouncement on the maximum amount owed ($25,000), he is also announcing a workshop to be scheduled in January to present, along with other Trumpets matters, findings on “what if any money is owed for penalties and interest.” If you are confused by the timing of Mr. West’s early December announcement on the maximum amount owed as coming at a time well in advance of the Board mandated accounting efforts that will be necessary to gather the data for the forthcoming January workshop, you are not alone. Mind you, Favil has already placed a dollar cap on the outcome of that forthcoming workshop.

           But would the Controller relent, succumb and fall on the sword that Mr. West had so well crafted? Apparently no, since that workshop never took place. However, from that point forward the Controller will be pilloried and hung out to dry as if she had 'got it all wrong.' But did she? Ironically or incredulously, depending on one’s viewpoint, Mr. West ends his Trumpets statement with the following: “At this point nobody has any answers.” Having already laid the groundwork for a mandated cap on the maximum amount owed, thereby hog tying the Controller’s ability to do her job, and with no mea culpa forthcoming from the Controller, Mr. West had to look elsewhere in an effort to validate his pronouncements about the indebtedness.

           With no January workshop to put some answers on the indebtedness dinner table, at least not the ones that Favil was looking to present to the community, Plan “A” would have to be abandoned. Mr. West would now have to look elsewhere. January had come and gone and there was no acceptable resolution in site. The word of Mr. West, as authoritative as it was, standing alone would not be sufficient to carry the day on such a technical matter as how late fee penalties should be computed. There was only one thing left to do. That would be Plan 'B.'

           Plan 'B' called for an independent audit of the books, one that would satisfy and settle the Trumpets indebtedness issues for all concerned. And to perform that independent audit, Mr. West would call on his close friend and SCA resident Jack Silas to perform that task. No sense spending the Association’s money for an outside audit when Mr. West, by executive fiat, had already reduced the indebtedness by $75,000 to no more than $25,000. And beside, an “outside” audit might have gotten in the way with Mr. West’s December findings of fact that had already trashed the work of the Controller. And besides, no one could ever assail the work or bona fides of Jack Silas. The announcement bringing Mr. Silas on board was made at a Resident’s Forum on 7 February 2005. Mr. Silas would present his conclusions at a Board workshop on the 26th of April 2005.

           So, what did Mr. Silas do? Mr. Silas performed an audit and concluded the lessee owed an indebtedness for late fee penalties and interest amounting to roughly $14,000.

           Here is what Mr. Silas states: “not one fact has ever been presented proving that my accounting is incorrect.” While Mr. Silas is apparently attempting to portray something here, what that might be is unclear. Since I cannot tell what Jack is referring to when he writes “my accounting,” I assume others will have a similar problem.

•     If Mr. Silas is telling us he knows when to add and when to subtract items, no one can dispute his expertise.

•     If Mr. Silas is telling us which accounting rule he applied in the case of computing unpaid interest, I’m more than willing to agree with his judgment. Actually, as best as I can recall, Jack said that he applied the “correct” rule in computing unpaid interest, an important distinction needing your attention when reading the following. According to Mr. Silas, the Controller had made a mistake.

•     If Mr. Silas is telling us he followed what he claims to be an alternate accounting rule to compute late fee penalties instead of the standard accounting rule to compute late fee penalties, I am willing to agree with Jack that he, indeed, came up with the correct accounting figures in arriving at his determination of liability, based solely on his use of that alternate accounting rule. However, readers should be acutely aware that Mr. Silas' conclusions are dependent on his use of that alternate accounting rule rather than the use of that equally good accounting rule that would show that the lessee owes a far greater amount due to the impact of compounding.

           Would you be surprised to learn that in making his presentation to the Board, Mr. Silas was moot, deadly silent on his decision to adopt what he claims to be an alternate accounting rule in computing late fee penalties. If Mr. Silas wanted to be more forthcoming, he might wish to share with the community why he chose NOT to adopt the rule that Pulte’s Controller employed. Why, after all, adopt a different rule? I assume his answer might be because his alternate rule produced a lower amount owned. If we were not going collect on the indebtedness in any event, it just looks better to declare that indebtedness uncollectible at $14,000 rather than at more than $90,000.

           But Mr. Silas did something much more than to make his determination based on an alternate accounting rule. He failed to tell us that is what he had done. Had he bothered to explain to us that his accounting ($14,000) was just as correct as the Controller’s (at more than $90,000), that would have taken the wind out of his sails in attempting to reach the indebtedness “we’re finished” line. Who, think about it, would have accepted the argument that the Controller had gotten it all wrong if Mr. Silas had announced that the Controller was just as correct as he was in calculating late fee penalties? No, we were not going to hear that disclosure from Mr. Silas. To do so would have invited unwanted questions, produced uncertainties, and created doubts about the outcome, if not the motivations of the parties. No, the public would be kept in the dark.

           While I happen to believe Mr. Silas had a duty to present this information at the Board workshop, he apparently felt otherwise. I believe the unmistakable impression conveyed at that workshop was that our Controller had got it all wrong, when, speaking of FACTS, that was not the case insofar as the methodology used in computing late fee penalties.

  So where does this leave Jack Silas. The reality of what Mr. Silas accomplished for his friend was that he generated an outcome, one that was more politically acceptable than the one produced by the Controller. The interesting FACT is that the Controller did not get it all wrong, as alleged by Mr. Silas. What Jack did was to generate an outcome based on a particular accounting rule. What Jack did not do was to produce an outcome based on “the” rule or an outcome that was based even on the “correct” rule for computing late fee penalties. Mr. Silas knows that. In adopting an alternative rule for computing late fee penalties, the only thing Mr. Silas did was to produce an outcome. This was NOT, as was claimed in the presentation, the right or correct outcome, implying that the Controller’s outcome was “wrong.” The simple FACT is that the accounting of Mr. Silas was no more right or wrong than the accounting of the Controller in computing late fee penalties. Each had adopted acceptable but different methods of computing late fee penalties, one relying on compounding and the other not.

As to which method is the prevailing industry practice here in Nevada is unknown.