Cherry Bekaert investigative report appears in EDA civil suit files

The Warren County Courthouse – some reporters are beginning to feel like the live there. Royal Examiner File Photo/Roger Bianchini

A trove of new plaintiff documents hinted at by Judge Clifford L. Athey Jr. during Jennifer McDonald’s second unsuccessful criminal case bond hearing on June 10, details circumstances surrounding embezzlement allegations against the former Economic Development Authority executive director. Also described are McDonald interactions with relatives, co-workers, and past private and EDA business associates related to some of the alleged illegal use, transfers or embezzlement of EDA assets.

Included in those allegations detailed in a 101 page summary of an estimated 2900 pages of documentation assembled by national public accounting firm Cherry Bekaert are “Payments to Relatives”, “Payments to Known or Suspected Business Partners”, as well as the use of the New Market Tax Credit Program and two USDA loan programs, among others.

What has brought this flood of thus far hard-to-find evidence forward?

It appears to have been Judge Athey’s May 22 civil case hearing admonition to EDA attorneys that it was “time to put up or shut up” as far as producing the evidence upon which its case against the nine named defendants is based.

May 29, July 17 set for further motions arguments in EDA civil case

And in apparent reaction to the production of that evidence he sought in the civil case, during McDonald’s June 10 bond hearing Judge Athey noted that the total amount cited for recovery in the EDA civil complaint against McDonald and eight other defendants, both people and LLC’s tied to those people, had risen from the initially-cited minimum of $17.6 million to $21 million dollars.

A consequent search of the EDA civil case records in the Warren County Circuit Court Clerk’s Office revealed the nearly 3,000 pages of the Cherry Bekaert report, and fortuitously a 101-page summary of those findings.

Those finding are the result of an investigation begun in mid-September 2018, now at a cost of $600,000 that has been called at various points by involved attorneys, EDA or municipal officials a “forensic audit”, a “Historical Financial Study”, an “Intrinsic Fact Finding” mission, a “final audit gap complaint” and finally perhaps out of frustration by Town of Front Royal staff as read into a June 10 motion authorizing litigation to recover Town assets lost to the EDA, “The Study”.

EDA officials lock down Jennifer McDonald’s office, computer and other belongings following her Dec. 20 resignation by email.

By whatever past names have been attached to it, what is outlined by Cherry Bekaert in a 101-page summary titled “Working Papers of Internal Review and Fraud Examination” of the Front Royal-Warren County EDA are 16 alleged areas of suspected misuse or illegal transfer of EDA assets.

Some of those are familiar and were pivotal in the initial EDA civil complaint. They include the Workforce Housing Project ($653,000 in lost assets), Afton Inn Property Improvements ($380,000), the Criminal Justice Training Academy ($619,000), Bargain Land Sale and Issuance of a $10-million dollar loan to ITFederal (listed at $10 million, though you could add to that total if the $1 gift of 30 commercial acres to ITFederal is calculated against at least part of the EDA-estimated $2.1 million value of that 30 acres), Payments on Behalf of ITFederal ($2,005,000), Payments to Earth Right Energy ($1,280,000).

Added to that list are 10 more transactions or EDA-related projects which appear to have added the additional $3.5 million raising the total sought for civil recovery to $21,152,000. Those transactions also include some familiar names, if not in this context, like the New Market Tax Credit Project ($3,501,000 lost assets), Leach Run Parkway Easements ($110,000) and Stokes Mart/B&G Goods ($21,000); as well as new ones.

Those new ones are Wetland Credits ($1,127,000), New Hope Bible Church ($345,000), 999 Shenandoah Shores Road ($6,000), Payments to Relatives ($457,000), USDA Intermediary Relending Program ($25,000), Payments to Known and Suspected Business Partners ($320,000), and USDA Rural Business Enterprise Loans ($304,000).

Of its investigation Cherry Bekaert writes in a cover letter to EDA and County Attorney Dan Whitten, “Our scope and internal review procedures were limited in nature and used to determine predicates of irregularities indicative of embezzlement in the form of corruption activities and billing scheme sufficient to warrant a fraud examination. The irregularities discovered included material misrepresentations, falsifications, and evidence used to conceal suspected defalcations perpetrated by the former EDA Executive Director, Jennifer R. McDonald (“MCDONALD”), and other parties acting together, discussed in these working papers.”

The cover letter dated May XX under a Raleigh, North Carolina site of origin concludes, “These working papers are for Daniel Whitten, Esq., County Attorney and Counsel for the Economic Development Authority and not for distribution without our expressed written consent.”

One guesses Judge Athey’s order that plaintiff civil litigation evidence be produced provided that consent, lest Cherry Bekaert officials risk facing the same sort of contempt citations now facing some recalcitrant congressional witnesses at the federal level.

And speaking of the federal level, see Royal Examiner’s related story on a federal climax to Cherry Bekaert’s chronology of its presentation of its findings to the EDA and “certain” County officials in December, culminating in a six-hour sit down with state and federal officials early this year.

Cherry Bekaert findings on EDA finances went federal in January

Agents of the Virginia State Police and FBI searched the EDA office complex and the former executive director’s still-sealed office on April 16