Bookkeeping anomalies cited in ‘Payments to Relatives’ EDA allegation

Interim Executive Director John Anzivino, right, told the EDA board he found their past financial record keeping outside ‘standard budget practice’. Royal Examiner File Photos/Roger Bianchini

During his tenure as Front Royal-Warren County Interim Executive Director, John Anzivino observed during one monthly report that he found the way EDA records had been kept as not “standard budget practice”.

On February 22, Anzivino told the EDA Board of Directors that he had “reconstructed your budget to a simpler format, a more understandable format but with more detail” pointing to “a past tendency to mix operational and capital expenditures in the EDA budget” adding that he had separated the EDA’s operational, capital and debt services budget from their previous mixed format.

A clue as to the convoluted nature of the EDA books may be offered in newly-revealed information contained in the “work papers” (aka “forensic audit”, aka “intrinsic fact finding”, aka “historical study of EDA finances”) of contracted investigative public accounting firm Cherry Bekaert.

“McDonald is suspected of (possibly in collusion with other parties) embezzling approximately $457,000 in monies obtained from bank credit facilities designated for Town and County-sponsored capital improvement and development projects, to conduct undisclosed and unauthorized non-arm’s length (conflict of interest) transaction payments for maintenance type services to individuals believed to be relatives of McDonald,” Allegation 12 – Payments to Relatives begins.

It is important to remember that so far none of the people cited in this section of the Cherry Bekaert working papers filed in the EDA civil case have been charged criminally, nor were they initially named in the EDA civil litigation as liable parties. It is certainly possible they believed they were being paid for approved work, as McDonald attorneys are sure to argue their client also believed.

However, the investigative accounting consultant notes that the prevalence of contracted work with relatives is an indicator of a conflict of interest. It also asserts that the contracted work with relatives was “unknown and unauthorized” by the EDA Board of Directors and that payments were made with funds “designated for Town and County-sponsored capital improvement and development projects”.

The nicely-manicured EDA office complex from Kendrick Lane

The list of eight what it terms “questionable payments”, seven listed as “Maintenance & other” totaling $457,313 includes:

1/ $167,287 paid from 2001-2018 to George Hassenplug (husband of McDonald’s mother Linda Hassenplug, Jennifer McDonald’s stepfather);

2/ $32,175 paid from July 2018 to October 2018 to Myron Smelser (believed to be George Hassenplug’s employer);

3/ $158,267 paid from 2011-2018 to Chris Hassenplug (believed to be McDonald’s half-brother);

4/ $5,675 paid from 2000-2006 to Gail Addison (believed to be McDonald’s sister);

5/ $18,791 paid from 2001-2015 to John Addison (Gail Addison’s husband, believed to be McDonald’s brother-in-law);

6/ $3,938 from 2001-2015 to Micheal Addison, who the filing states is believed to be McDonald’s nephew;

7/ $66,205 from 2001-2015 to Sammy North (McDonald’s husband); and

8/ the one non-maintenance item listed as “B&G Goods Escrow Account & other”, $4,975 from 2010-2016 to Kathy Butler (formerly Kathy McDonald, who while the filing states is believed to be related to McDonald in an unspecified manner, is believed to be another sister who was in a relationship with one of the two B&G Goods principals).

Specifics of exactly what work was paid for and at what rate is absent in the 4-page summary of “Allegation 12” and there is no comment on whether it is believed the contracted work was performed or not.

So if it is determined the work was performed at a reasonable rate of exchange, McDonald’s attorneys are sure to argue that said “maintenance” work was, in fact, a “capital improvement” of sorts accomplished on land the Town and/or County had an interest in as EDA assets; and that the EDA board’s lack of knowledge of the contracts was simply an indicator of the hands-off attitude the board exhibited toward day-to-day EDA business due to its oft-expressed trust in McDonald as the manager of its affairs.

The EDA Board of Directors and its executive director, bottom right, in January 2017.

On the other hand, Cherry Bekaert comments on accounting practices it believes were inefficient at best, or possibly indicative of concealment of the arrangements with relatives or relatives’ business interests.

“We determined there were two methods the EDA used to record check payments to vendors. The common method is through the vendor master file which provides an audit trail of vendor payment histories and direct general ledger coding to record the transactions to respective EDA accounts,” the working papers state of Allegation 12, adding, “The other method is to use the QuickBooks “Other” category which is a selected option in QuickBooks normally to facilitate recording of wire payments., ACH payments, and online banking payment transactions.”

Cherry Bekaert notes that while this method allows “the EDA to issue a manual check” it “does not provide a payment history or audit trail” which the company observes requires that care must be taken “to provide sufficient detail in the description of the transaction and to provide a clear history and audit trail leading to the underlying support of the business purpose of the payment.”

In further support of its allegation of at least a conflict of interest impropriety in these transactions, Cherry Bekaert points to payments to Smalls Plumbing and North Plumbing in the EDA QuickBooks “Other” category, with both companies listing a business address that is also Jennifer McDonald’s home address.

“An undetermined amount of payments may have been made to North Plumbing and other related parties using this method,” Cherry Bekaert writes of how the EDA bookkeeping was done related to its suspicions about these largely maintenance contractual payments.

Much ado about nothing or a link in a chain of widespread financial impropriety the EDA now asserts its former executive director was involved in over a multi-year period?

Stay tuned, that’s what the EDA civil trial – likely at another 26th Judicial District court venue – will eventually set out to determine.