Resolution commends Town staff for uncovering over-payments to EDA

FRONT ROYAL – The ever-wise “they” say “follow the money” and you’ll get to the bottom of any story.

On Monday night, November 26, a resolution commending town staff for uncovering financial irregularities totaling hundreds of thousands of dollars in Town over-payments past, present and apparently future in its dealing with the Front Royal-Warren County Economic Development Authority was presented to the town’s elected officials.

A divided Front Royal Town Council approaches vote on resolution detailing several months of staff work uncovering financial irregularities in Town dealings with the EDA over a 9-year period. Second from left, William Sealock explains his coming negative vote. Photos/Roger Bianchini

And by a 4-2 margin, the Front Royal Town Council approved that resolution titled “Resolution Regarding Town’s Finances with EDA”. Approval of the resolution appears to put, if not a period, at least a semicolon on months of closed meetings on the subject of past, present and future Town loans or debt service payments to the EDA.

The two dissenting votes were Vice-Mayor Eugene Tewalt and Councilman William Sealock. Both prefaced their negative votes with explanations that lauded transparency while criticizing either the resolution’s form or content as incomplete.

Sealock was particularly critical of the release of what has thus far been discovered, but without all the facts – as in every penny the Town has overpaid the EDA over the past nine years, as well as a clear-cut explanation of exactly how the accounting mistakes happened. Elected to council two years ago from a seat on the EDA board of directors, Sealock wondered at what junctures town staff may have failed in the past to uncover the accounting errors.

Jacob Meza countered those arguments from the majority perspective. He said the three-plus page resolution’s accounting of what has been discovered by Town Finance Director B. J. Wilson and contracted auditor Jeff Mitchell of Mitchell & Company was both factual and an outline of what has thus far been discovered.

Pictured at recent work session, William Sealock and Jacob Meza, center foreground, were at odds Monday over full disclosure of the status of the Town’s investigation into mistakes or irregularities in its financial dealings with the EDA.

While details may remain to be determined, Meza reasoned that release of a factual, Town staff-assembled summary of the step-by-step accounting of the nearly six-month discovery process was preferable to portions leaking out to the public in a piecemeal fashion.

That “piecemeal” fashion began with Royal Examiner Editor Norma Jean Shaw’s October 31 – trick or treat – published story revealing that the EDA could owe the town government $291,278.64 due to over-billings beginning in 2009. The factual basis for that story was acquired by a Royal Examiner Freedom of Information Act (FOIA) request.

Piecemeal as either that initial public revelation by Royal Examiner or Monday’s approved “Resolution Regarding Town’s Finances with EDA” may be, as Meza said of the resolution – the content is all factual.

And from an accounting standpoint, the content of Monday’s resolution is troubling, even if the primary fault, cause and source of that trouble has yet to be fully determined.

Of the accounting discrepancies, EDA Executive Director Jennifer McDonald told Royal Examiner on Tuesday, “We have acknowledged the issue and are working on it and are committed to making it right.”

According to the resolution, Town Finance Director B. J. Wilson came across EDA billing irregularities as a result of council’s request that he examine the feasibility of financing recent departmental purchase requests through internal loans that would be free of interest payments.

The three-plus page resolution documents a series of meetings and communications beginning in May that led, first Wilson, and then contracted auditor Jeff Mitchell, to question the EDA’s billing of the town government on a number of fronts.

Discovered were: the EDA “mistakenly billed the Town for a portion of a $1.9 Million Virginia Department of Transportation performance bond related to Leach Run Park Parkway; further, the EDA had mistakenly billed the Town for an agreement related to debt service on the Avtex Administration Building …”

Also uncovered was another reported EDA inaccuracy the resolution states is likely to continue to cost the town hundreds of thousands of dollars per year over the lifespan of recently approved capital improvement projects like the new $11-million police station. That failure involved the New Market Tax Credit Program.

Greg Drescher and Jennifer McDonald were a glum couple during questioning about its workforce housing project at a June 2017 WC Board of Supervisors work session.

Of that issue the resolution states, “and further, the EDA had not closed on a more than $24 Million New Market Tax Credit Program low interest loan to finance a number of very important Town major capital improvement projects even though the EDA had previously represented multiple times to the Town that the New Market Tax Credit Program loan had been closed and the EDA already had that money in its bank accounts.”

Front Royal Finance Director B. J. Wilson is credited with discovering years of Town overpayments to the EDA on a variety of projects.

If the Town Finance Director’s assessment was that for years the Town had been overpaying the EDA “by approximately $87,000 annually for projects listed on (previous) invoices” the assessment of the New Market Tax Credit problem resonates into the town government – and its taxpayers – futures: “As a result of the EDA not having closed on the New Market Tax Credit Program loan, the resultant increase in interest rates now likely will cost the Town hundreds of thousands of dollars per years in additional borrowing payment amounts over what Town Council had allocated in its annual budget.”

The revelation of the VDOT/Leach Run Parkway, Avtex Administration Building and New Market Tax Credit mistakes are dated to an August 23 meeting regarding a Town FOIA request attended “by the Town’s Mayor, another Town Council Member, the Town Manager, the Town’s Finance Director, the Town’s Auditor, and the Town Attorney” on one side and “the EDA’s Executive Director, the EDA’s Chairman of its Board of Directors (Greg Drescher), and the EDA’s attorney (County Attorney Dan Whitten).

The following day after an August 24 closed session at an EDA board meeting, Drescher announced he would step down as chairman of the EDA board of directors. He cited conflicting work schedules with his “real job” as superintendent of Warren County Public Schools. Other recent turnovers at the EDA include the resignation of 76-year-old Board Treasurer William “Billy” Biggs on October 8 – citing health issues after 30 years on the board, 28 as Treasurer; and the announced retirement of bookkeeper Josie Rickard effective in December. Following Rickard’s announcement, in October the EDA announced the hiring of the accounting firm of Hottel & Willis.

County and EDA Attorney Dan Whitten, right, said he expects the EDA’s new accounting firm Hottel & Willis to perform a thorough review of EDA finances, including with the county government.

The council resolution of November 26 also points to what are perceived as accounting irregularities and inconsistencies in the EDA’s response to requests, including FOIA requests from the town finance department and auditor.

Referencing a June 25 EDA reply to a request for clarification on earlier explanations of how the miss-billings occurred, the resolution states, “… in the June 25 correspondence, the EDA sent several amortization schedules that appeared to have been created by the EDA itself, and not by the originating bank, and copies of various bank coupon payments for loans.

“Based on previous correspondence the Town had been informed by the EDA that all of the EDA’s debt was refinanced into one loan. Upon receiving copies of multiple bank coupon payments, the Town requested an explanation for the multiple coupons and the response received from the EDA’s Executive Director was ‘I am just sending you everything we have.’ ”

And “everything we have” is now being scrutinized by the town finance director and auditor seeking additional clarification for nine years of miss-billings and the Town’s belief it had been assured by EDA Executive Director Jennifer McDonald that a $24-million New Market Tax Credit Program capital improvement loan had been closed on and its 9 years of interest-free payback would be available to the Town for projects including the new Front Royal Police Station under construction across Kendrick Lane from the EDA office.

The resolution concludes by trying to assure town taxpayers that their money will be protected and utilized only per approved projects, stating: “the Town will continue to pursue this matter, and will continue to carefully monitor all future financial transactions between the Town and the EDA, between the Town and all other government agencies, and between the Town and all other entities … so that the hard earned tax dollars of the taxpayers of the Town of Front Royal are protected and paid wisely and in the manner for which they are voted upon by Town Council.”

Through the resolution council also commended “Its Finance Director and the Town’s Auditor for their vigilance and their tireless pursuit of the true status of the historic amounts the Town should have paid the EDA.”

On the lighter side of Monday’s town council agenda was the introduction of the newest FRPD ‘officer’ – Maverick the drug-sniffing dog, pictured with partner Officer Olivia Meadows and Police Chief Kahle Magalis.

Norma Jean Shaw contributed to this story.