FRONT ROYAL – Cherry Bekaert, the firm reviewing the Front Royal-Warren County Economic Development Authority's finances, states in a report detailing its findings that its investigation is incomplete and $14 million worth of questionable transactions have yet to be reviewed.
The filing states this meant Cherry Bekaert “was unable to complete all the procedures we considered necessary to fully investigate and examine certain EDA transactions that, based on evidence and belief, appear irregular and likely conceal additional defalcations.”
The report states that this includes 80 questionable transactions totaling $11 million that were “recorded as capital expenditures in debit entry increases in several capital project accounts.” The filing further states that Cherry Bekaert “did not examine the underlying supporting documentation” of questionable transactions totaling $3 million that were “recorded as 12 different general ledger capital and deferred revenue accounts credit entry transactions."
The filing states that Cherry Bekaert could not review these questionable transactions due to "scope limitations" implemented by the EDA board and the board of supervisors. Three supervisors said during Thursday phone interviews that these limitations were the result of the EDA board and supervisors not wanting to pay Cherry Bekaert more money.
Cherry Bekaert, so far, has been paid $460,000 by the EDA to perform a fact-finding mission into the authority’s finances. The firm was paid on an hourly rate, which ranged between $60 and $450. That money was loaned to the EDA by the county, and authority officials have said the organization will make its best attempt to pay it back. The county has also approved a $500,000 cap that will be used to pay the Sands Anderson law firm to represent the EDA.
Supervisor Tony Carter said during a Tuesday phone interview that Cherry Bekaert "did a great job" and "found a lot of major discrepancies.” He said the EDA and Board of Supervisors ultimately concluded that continuing to pay the firm to further investigate would result in “diminishing return,” noting that it does not make sense to spend $8,000 to recover $10,000.
He added that Cherry Bekaert’s findings were turned over to the FBI and the Virginia State Police, both of which will continue investigating, and the matter will eventually work its way through the judicial process.
Supervisors Chairman Dan Murray, during a Thursday phone interview, seconded Carter’s opinion, noting that Cherry Bekaert is a business and “they will work forever if you pay them.”
He said it would not be fiscally responsible to continue paying the firm, and asked: “How much money do you spend to chase $200 or $1,000?”
Murray added that “nothing has been swept under the rug” and the EDA is seeking to recover as many stolen funds as possible.
Supervisor Tom Sayre said during a Thursday phone interview that “there is a cost involved in the forensic investigation that the Board of Supervisors started and have already invested a great deal in.”
“The FBI and the state police are still currently investigating, and the county is actively assisting and digging for more information. We are trying to be transparent as quickly as possible,” Sayre said.
Supervisor Linda Glavis said she did not know what that was referencing and that she did not remember the supervisors telling Cherry Bekaert not to proceed further into its investigation.
The firm began its work in September, which led to the EDA's filing of a $17.6 million lawsuit against nine defendants. Recently, that total leaped to $21 million as Cherry Bekaert revealed additional alleged embezzlement schemes.
Although the filing does not cite exactly why the scope limitations were imposed, it does note that there were “time constraints” from Sands Anderson and the authority’s board. For example, a scope limitation detailed in the filing states that time constraints prevented full review of an alleged $3.5 million embezzlement scheme involving the New Markets Tax Credit projects, and that time constraints prevented Cherry Bekaert from filing a civil claim against “suspected perpetrators.”
Other scope limitations cited include:
• The firm did not “verify the propriety of certain questionable transactions" in an "off-book spreadsheet" kept by Missy Henry, a former EDA administrative assistant. Henry said over the phone that although she "would love to discuss" her time at the EDA, she has been advised not to say anything.
• The firm did not interview former EDA bookkeeper Josie Rickard. Attempts to reach Rickard were unsuccessful on Thursday.
• Bank representatives were not interviewed regarding documents McDonald may have supplied them.
• The firm was “unable to complete a reconciliation of bank loans and lines of credit against individual, EDA-only, town and county capital projects.”
• McDonald’s credit card transactions and expense reimbursements were not reviewed.
• The firm was not provided with copies of items the FBI removed from the office.