The Front Royal-Warren County Economic Development Authority accepted audits Tuesday from the last year and a half that former Executive Director Jennifer McDonald led the agency.
The EDA Board of Directors held a special meeting via Zoom with the original plan of accepting and releasing the audits for fiscal years 2018 and 2019. However, the board instead went immediately into a closed session to discuss the audits with legal counsel Sharon Pandak. Members came out of the closed session and voted to accept the audits.
Chairman Jeff Browne spoke by phone Tuesday about the audits.
“A lot of the things that went wrong happened in ‘18 and ‘19,” Browne said. “There was a lot of confusion on it and it took a lot of hard work to sort it out and get it, you know, accurate to where the auditors, who are very conscientious about it, were comfortable with it.”
The EDA issued a media release and the auditors’ financial reports Tuesday evening.
“The auditors’ letter points to three areas for improvement of internal controls,” Browne states in the media release. “It was important to make each improvement recommended by the CPAs, and we have done just that. The Warren County staff now administer the check writing duties, collection of rents, and have layers of approvals for expenses within EDA and the County administration that were not there three years ago.”
The audited financial statements show that, at the end of fiscal year 2019, the EDA’s total net assets were $38,036,737, and its net liabilities were $44,575,435, resulting in a deficit net position of $6,538,698, Browne states, citing the documents.
The EDA hired auditing firm Brown Edwards to conduct the financial audit for the two fiscal years. The authority contracted Brown Edwards at a cost of up to $15,000 for each fiscal period or a total of $30,000. The EDA board voted in July to increase the contract amount by $10,000.
“We worked with them on the whole process,” Browne said. “It gives people a better sense of where we are and that we are continuing to move forward and now we can turn our attention to doing more things that this board oughta be doing, which is even more economic development issues ...”
The audit is “another item to tick off” the EDA’s list of matters the board needs to clean up, Browne said.
The chairman cited reasons for the delay in receiving the audit.
“A lot of it was ... there were unauthorized expenses during both years (of the audit) and there were concerns over the validity of the invoices and agreements,” Browne said.
Also, the first firm hired by the EDA to conduct the audits backed out at the last minute, Browne said. That set the process back about a year and the EDA hired Brown Edwards.
“This firm picked it up and did, you know, we think a very good job of showing our financial picture,” Browne said. “So there were things that slowed (the audit) down quite a bit.”
McDonald worked as the EDA’s executive director from April 2008 to December 2018. She resigned amid an investigation into the EDA’s finances. The EDA filed a lawsuit against McDonald in Warren County Circuit Court in late March 2019 alleging she and multiple co-defendants used more than $20 million in authority funds without permission to conduct various schemes for their own benefit. McDonald also filed for voluntary bankruptcy protection in federal court in late September, putting a temporary hold on the local civil lawsuit.
Earlier this year, McDonald and the EDA reached a settlement in which she agreed she was liable for $6 million.
State authorities also indicted McDonald and co-defendants on charges of embezzlement and others related to the same allegations. The circuit court dismissed the local charges at the request of the state prosecutor. A federal grand jury indicted McDonald in U.S. District Court for the Western District of Virginia in late August on charges of wire and bank fraud, money laundering and aggressive identity theft.
The federal indictment accuses McDonald, through her access to EDA funds, of participating in a scheme to defraud the authority from June 2014 through December 2018.
The audits coincide with roughly the last year and a half that McDonald worked as the chief administration official for the EDA.
The county’s 2020 audit is underway and the administration has the same firm conducting the process for the EDA, Browne said. The county’s audit should also include the EDA’s report when released, he added. The county and the EDA will start the audit work simultaneously in the future.
The EDA’s attorneys also looked over the audits to see how or if the financial reports could affect ongoing civil litigation the authority has against its former executive director, Browne said. The EDA didn’t coordinate the audit with the active federal criminal case against McDonald, Browne added.
Work on the EDA’s fiscal 2020 audit has been aligned with the county’s, Browne said.