United States

Disaster preparedness and disaster recovery at private clubs


McGladrey’s Phil Newman recently had the pleasure of participating in the first Club Managers Association of America (CMAA) Florida Chapter Summer Conference of 2013. Among other timely topics, participants were able to hear panelists from different disciplines discuss disaster preparedness. On the back of recent Superstorm Sandy, which devastated many communities in the northeast, and at the start of Florida’s traditional hurricane season, the issues discussed were timely for private clubs.

Legal and insurance professionals discussed various regulatory and business considerations of which private clubs need to be aware during a disaster while Newman shared insight based on the experience he and other McGladrey professionals have had in assisting clients cope with damage from past hurricanes in the area.

Newman noted that, while most private clubs have business continuity plans, one of the major flaws in all such plans is that they are never, or rarely at most, tested. Best practice dictates that such plans should be tested at least annually. For more on this, consider revisiting the McGladrey whitepaper titled, Protect against a potential disaster with an effective business continuity plan.

Some additional areas worth attention include:

  • Information systems. Private clubs should ensure that their systems are secured, properly backed up and accessible in a disaster scenario. However private clubs choose to back up their systems, they should regularly check to make sure that they are working.
  • Key permanent records. Items such as Board minutes, formation documents, byelaws can be critical when making decisions during and after a disaster. Club’s need to know how to access them in a time of crisis.
  • Property and equipment records. Private club accounting for property and equipment has improved greatly in recent years with many private clubs taking full property inventories and investing in tracking software. This becomes critical in a disaster, not only for insurance purposes but also to allow for accurate accounting of damaged assets.
  • Hurricane assessments. While it was impressive to see most private clubs at the conference indicate they had reserves in place to cover insurance deductibles, many clubs that suffer hurricane damage will need to assess their homeowners and members to cover the cost of asset replacement. In Florida, those clubs should be cognizant of how that assessment is structured so that it is not subject to sales tax. Following the Florida Department of Revenue rules for capital assessments should protect private clubs, so management and boards of directors should be clear on their understanding of those rules. Controllers of private clubs should also explain in advance to their boards of directors how the accounting treatment and timing recognition of any such assessments will operate as well as how items such as insurance proceeds are treated in the financial statements. A good starting point would be to review the audited financial statements from the last major hurricane seasons of 2004-2005.

While bundled community clubs (i.e., CIRAs) do not have to be as concerned about the sales tax issues surrounding assessments, they should be current with the latest Florida statutes concerning reserves and expenditure of those reserves. The last thing any private club needs after surviving a natural disaster is a man-made one involving member/club litigation. Private clubs should consult with their legal counsel in advance on the restrictions, if any, on their reserve expenditures.

Newman’s final comments to the audience shed a different light on an old topic—internal controls and fraud. He cautioned attendees to consider their emergency policies and procedures before, during and after a disaster event. Procurement procedures, authorization protocols, cash handling and accounting procedures all need to be considered so that operations can be resumed while still retaining acceptable levels of control over club assets. Thinking of those items that become even more valuable after a disaster, the audience was asked to consider fuel controls, inventory controls, and the security of golf course maintenance and landscaping materials and equipment in the aftermath of a hurricane.

While it is hoped that private clubs will never have to deal with major weather events, an old adage continues to apply. “Fail to prepare and prepare to fail.”