Cherry Bekaert findings on EDA finances went federal in January

Shredded no more – the Cherry Bekaert findings, once shredded by EDA officials after being presented in closed session, are now a part of the EDA civil case court record. Royal Examiner File Photos/Roger Bianchini

Of its findings unveiled in now-filed court documents ordered produced in the EDA’s civil litigation, investigative public accounting firm Cherry Bekaert writes, “As of the date of our working papers, MCDONALD (capitalization in context) appears to have systemically embezzled funds, with and without the apparent aid of collusion, that were accessed through the EDA from bank credit facilities designated and restricted for Town and/or County-sponsored capital improvement and development projects. This resulted in estimated losses of approximately $21,000,000.”

Cherry Bekaert investigative report appears in EDA civil suit files

Uh oh, I know what some of you are thinking – that dirty political “c” (collusion) word right here in River City.

And as some suspected, and was verified by the April 16 search of EDA headquarters, federal authorities are involved in the EDA investigation. In fact fairly reliable Royal Examiner sources indicate a U.S. Western District of Virginia federal grand jury is currently convened in Harrisonburg regarding the alleged EDA financial embezzlements now cited at over $21 million dollars.
April 16 was exactly three months and one day after Cherry Bekaert officials met with state and a variety of federal officials for over six hours in Charlottesville regarding their suspicions of financial corruption at play in the conduct of Front Royal-Warren County Economic Development Authority business.

The EDA situation has garnered Federal and State law enforcement attention.

That January 15 Charlottesville meeting with state and federal officials was the culmination of a nearly six-week series of meetings, presentations and interviews culminating with two major developments occurring on December 20, 2018 – Jennifer McDonald’s resignation and admission by email of liability for the return of $2.7 million of EDA assets; and the EDA Board of Directors’ authorization for Cherry Bekaert officials to meet with federal authorities.

Federal climax …

In its report summary, Cherry Bekaert presents a chronology of its presentation of its findings to EDA and County officials. That chronology includes:

– a December 5, 2018, briefing of the EDA board on its findings of irregular activities, including questions to the board about its knowledge of potential fraudulent activities;

– a December 6 interview with McDonald during which she was confronted with evidence, and “admitted to using funds sourced from bank credit facilities restricted for Town and County projects”;

– a December 14 briefing of the EDA board “and certain members of the County Board of Supervisors on the results of our discoveries to date and concerns of suspected criminal activity”;

– the scheduled December 20 EDA board closed session discussion of the Cherry Bekaert findings after which Cherry Bekaert was informed of McDonald’s resignation AND after which the EDA authorized the firm to contact the U.S. Attorney for the Western District of Virginia;

County Supervisor Tony Carter and County Administrator Doug Stanley await an EDA closed session briefing.

– then there was Cherry Bekaert’s December 21 contact with U.S. Attorney Thomas T. Cullen and several assistants during which the company “verbally conveyed our evidence and findings to date regarding the EDA financial irregularities and the fact MCDONALD had admitted personal liability for $2,700,000 in an email to (the EDA);

– and finally, the January 15, 2019, six-hour meeting in Charlottesville with “Assistant U.S. Attorney Sean Welsh, Western District of Virginia, Special Agents from the VSP, a representative from the Department of Justice Public Integrity Section, and the Federal Bureau of Investigations (‘FBI’) on our findings.”

As we have alluded to in past stories there are multiple reasons federal officials could be involved in the EDA situation. They include, though may not be limited to, the potential of illegal wire transfers of money or the movement of misdirected cash across state lines – both federal offenses; the involvement of a former federal superfund site; the potential involvement of federal EB-5 Visa Program funds in some involved transactions; and perhaps even the potential of federal racketeering charges coming into play were the above referenced “collusion” to accomplish some of the alleged embezzlements proven to be true and far reaching enough.

McDonald civil attorney Lee Berlik has asserted that his client is being smeared by her former associates as the architect of “implausible conspiracies” involving all of the eight other EDA civil suit defendants to cover for “every bad decision made by the Warren EDA board over the last several years”.

And however it came about, the Cherry Bekaert findings raise the possibility that the conduct of EDA business in recent years appears to have brought the quasi-governmental organization created to facilitate economic development in the Town and County to the point of insolvency.

Nice centrally-located office space, may soon be available off Kendrick Lane. Royal Examiner File Photo/Roger Bianchini Courtesy of CassAviation

“As of the date of our working papers, the EDA appears to be insolvent,” Cherry Bekaert writes, adding, “The monies suspected to be misappropriated by MCDONALD will likely result in shortfalls of funding to complete duly authorized construction projects for the Town and County.

“Based on our analysis of the EDA’s annual financial reports for the years ended June 30, 2018 (Audited); 2017 (Audited); and 2016 (Unaudited), the EDA’s operating expenditures … exceed EDA operating revenues in all three fiscal years, resulting in operating losses of approximately $427,000; $559,000; and $694,000, respectively … We could not find evidence that the EDA maintained sufficient cash reserves available to offset any operating losses apart from the periodic sale of any property unencumbered by debt,” the report page titled “Consideration of Insolvency” continues.
“Contrary to paying down outstanding bank debt, MCDONALD instead appears to have convinced EDA BOD (Board of Directors) Members, the Town, and the County to initiate more capital projects through increased bank financing channeled through the EDA by using various ruses, such as questionable tax incentives that have yet to be realized and bogus budget representations of the EDA’s financial ability to pay for debt servicing,” the Cherry Bekaert report states.

BOY, falling back on some of my preferred reading material over the years I can’t figure out if this is a chapter from “The Godfather” or “A Confederacy of Dunces”.

See more on the Cherry Bekaert report and allegations contained in the newly-filed EDA civil case documents in upcoming Royal Examiner stories.