EDA Reform Committee receives audit update; reviews properties

Fork District Supervisor and EDA Reform Committee Chairman Archie Fox mulls the Sept. 12 committee agenda while Town Council Clerk Jennifer Berry preps for the start of the meeting. Photo by Kim Riley. Video by Mark Williams, Royal Examiner.

FRONT ROYAL — The Reform Committee of the Front Royal-Warren County Economic Development Authority (EDA) learned during its September 12 meeting that the Fiscal Year (FY) 2018 audit of the authority’s financials — which currently are at the center of a major fraud and embezzlement scandal — should be ready by year’s end.

EDA Executive Director Doug Parsons told committee members that in-house accountants are finished reviewing the proposed adjusted journal entries on the asset side of the balance sheet done by investigative public accounting firm Cherry Bekaert, and now are working to finish the adjusted entries for debt on the capital side of the balance sheet.

“It’s going to be their best effort to represent what has happened,” Parsons said. “We are hopeful by September 27 that they’ll have everything ready to go … for the audit,” which will be completed by the EDA’s auditing firm, Yount Hyde and Barbour (YHB).

The EDA Board of Directors first will need to sign off on what gets submitted by the accountants to YHB, which will conduct the audit and inform the EDA about its current financial standing.
Fork District Supervisor and EDA Reform Committee Chairman Archie Fox asked whether, at the end of the audit, the members would know if the EDA was solvent. “Is that a fair question?” he asked.

“We have cash,” answered EDA Board Chairman Ed Daley, “but we’re like the federal government. If somebody called the federal government and said, ‘We want you to pay all of your bills today,’ the federal government’s in trouble; they can’t do it. We’re in that type of a position where what we owe, our liabilities, exceed our assets, but we have cash.”

In fact, according to Parsons, the EDA is $41.9 million in debt with roughly $1.8 million in the bank.

Front Royal Town Councilman Jacob Meza, another reform committee member, asked what the plan is for getting the EDA back to a normal operating level.

Parsons said EDA properties will be sold in order to recover as much taxpayer money as possible, and funds should be recouped through lawsuits. He said most of the EDA’s debt is covered.

“The First Bank and Trust IT Federal Loan, for example, is covered by Mr. Tran’s payment. From cash flow we’re covered on that loan and that’s big; that’s a pretty good-sized loan and that’s a huge payment. Thank goodness he’s making his payments faithfully,” said Parsons.

Going forward, Daley said that one of the future conversations to be had by the EDA Reform Committee must regard the role the EDA should play in the acquisition of properties “and how speculative, if you will, we should be.”

He suggested that the EDA, Town Council and Warren County Board of Supervisors come up with a recommendation around that idea.

During his updates, Parsons also provided committee members the status of several EDA properties, including 404 Fairground Road.

“We’ve been marketing that property and we have a fully signed and executed letter of intent to sell that property and we’re working with the client on a sales contract,” Parsons said, adding that the buyer wishes to remain anonymous until the contract and subsequent sale are finalized.

A potential buyer also exists for the EDA’s warehouse at 426 Baugh Drive, where Parsons said, “We have a very interested party that we are in negotiations with at this time.”

It’s an entirely different situation for the EDA’s properties at 506 and 514 E. Main Street, which are the old Stokes Mart and nearby apartment building, which remain on the market.

“We thought we had a buyer, but they backed out,” said Parsons. “We will continue to market those two properties.”

Meza asked if there’s a strategy that the EDA has adopted to select certain properties for sale and for what reasons.

“If I had a magic wand,” Parsons said, “the ones I’d want to sell first and foremost would be Stokes Mart and the apartment building, which the EDA has no business owning, in my opinion.”

And while 404 Fairground Road is a fine property, Parsons explained it also isn’t in the realm “of what EDA should be owning and marketing in an effort to create new jobs and bring in a new tax base.”

Comparatively, Parsons said that the EDA’s 426 Baugh Drive is “exactly the kind of property the EDA should own and I’m glad that we do; of course the idea there is to bring in a major employer to make a significant contribution to the tax base so we’re actively marketing that property. We have the ability to be a little discerning about who we sell it to and make sure we get the most bang for our buck.”

Daley added that it’s very important to the EDA Board that the Baugh Drive property is bought for its intended use, which should be “some type that’s going to develop jobs and the tax base.”

Meza said it seems that the EDA has put its properties into two categories — to get rid of the ones that it shouldn’t hold on to and to identify the most strategic properties to market to companies. He also asked if there’s another category, like one that’s designed to maintain EDA solvency by just selling off properties and keeping the monies.

While that is part of the overall strategy, Parsons said “it’s not a desperate fire sale for all of the properties.” Instead, there’s a “sliding scale” of priorities or more of a willingness to be more discerning about who buys the properties. “You can only sell them once,” he said.

Other EDA Reform Committee members present Thursday were Town Attorney Doug Napier, County and EDA Attorney Dan Whitten, County Administrator Doug Stanley and Council Clerk Jennifer Berry.

Watch the Royal Examiner video to hear the discussion between Whitten and Meza about whether the EDA can be dissolved or file for bankruptcy. Hint: Bankruptcy for such an authority as the EDA isn’t legally permitted, according to Whitten.

[embedyt] https://www.youtube.com/watch?v=MdKTszrzWq8[/embedyt]