Near the outset of the October 9 Front Royal Town Council meeting, Melanie Salins revisited her criticism of what she believes is a “sweetheart” deal delivered to Valley Health on a $60-million construction loan for a new Warren Memorial Hospital by the Front Royal-Warren County Economic Development Authority.
Salins is a founding member of “Birth Local” a grassroots group that unsuccessfully lobbied town and county government and Valley Health to preserve full women’s health services, including a maternity unit, at a new county hospital.
EDA officials and bond consultants have insisted that forgiving annual fees stretching over the life of a bond issue in favor of a one-time fee paid up front is business as usual in a competitive municipal market.
But during the public concerns portions of this week’s town council meeting, Salins said the agreed-upon one-time payment of $240,000 equates to a little over two years of annual fees on the front end of the loan. She estimated an annual loss in the range of $75,000 per year.
Paperwork on the Valley Health Industrial Revenue Bond issue through the EDA states that a “final maturity date” will occur “no later than January 1, 2050 – 32 years away. However, EDA Executive Director Jennifer McDonald said such bond issues are “typically” paid off or refinanced, removing the EDA’s original loan from the equation, in from 5 to 10 years. McDonald has also noted that the annual fee is based on 1/8 of 1% of the remaining annual balance of the loan.
Regardless of such explanations, Salins told town officials that municipal officials in other jurisdictions she had contacted around the commonwealth contested the up-front, one-time fee rationale as business as usual, one going so far as to laugh at the idea.
See Salins side of the argument in this video courtesy of Dewaye Coats, Warren County.
Judge allows Shaw-Sayre communications Discovery, but not third-party
FRONT ROYAL – Attorneys for Jennifer McDonald, Tom Sayre and one involved third party argued motions related to plaintiff Discovery filings and responses in Warren County Circuit Court late Wednesday morning. The motions involve McDonald’s $600,000 defamation lawsuit against Sayre filed in February.
Five months earlier in September 2018 while McDonald was still EDA executive director, Sayre filed a $25,000 defamation suit against McDonald. Both suits revolve around the name “Tom” accompanied by Sayre’s phone number found in McDonald’s yard following a reported vandalism on her property on June 15, 2017.
At issue Wednesday were responses or a perceived lack thereof to plaintiff McDonald attorney’s request for social media and other electronic communications records of Sayre and that third party, Royal Examiner Editor Norma Jean Shaw.
Sayre’s and Shaw’s first names, as well as Sayre’s phone number and other names and numbers were on a crumpled note pointed out by McDonald to Warren County Sheriff’s Office investigators responding to her report of a rock-throwing vandalism at her home at 9:02 p.m. Thursday, June 15, 2017.
The note portrays a multi-person conspiracy surrounding, not only incidents alleged to have occurred at McDonald’s Faith Way, county home in the May-June 2017 timeframe, but also an alleged May 18, 2017 break-in at the Kendrick Lane EDA office in Front Royal. The latter was a scene at which there was no forced entry apparent. The latter was a scene at which there was no forced entry apparent, and only three staff members, McDonald, Missy Henry and Marla Jones with keys.
On Halloween Day 2018, McDonald was acquitted of a misdemeanor charge of filing a false police report in the June 2017 vandalism incident in what some cynical observers have called a “Trick or Treat” – as in no available corroborating or motive evidence being presented – prosecution. The case was developed by the Front Royal Police before being turned over the Virginia State Police, based on information received in an already scheduled FRPD interview, at 10:30 a.m. Friday morning, June 16, 2017, with this reporter. That information was that McDonald told Bianchini about the vandalism during a lengthy 3 p.m. meeting in her EDA office the afternoon of June 15, about five to six hours before she reported it occurring.
Among the records McDonald attorney Lee Berlik was seeking in Discovery were three months of social media, online messaging and text communications – May 1 to July 31, 2017 – between Shaw and Sayre, Shaw and Mark Egger, Shaw and a colleague at Royal Examiner (who do you think) and Shaw and Commonwealth’s Attorney Brian Madden.
After much discussion and Shaw attorney David Downes invoking of the press privilege of source protecting, Judge Athey allowed discovery of any Shaw-Sayre communications, but not that of Shaw with a private citizen (Egger), a colleague at work (Bianchini) or the commonwealth’s attorney (Madden).
“Communications with the plaintiff are one thing … but where you cross the Rubicon is requesting communications with other parties. I understand your point that she may have been an accessory but her communications in her professional capacity” with third parties were off limits, Athey told Berlik in prefacing his decision in apparent agreement with Downes that media has a professional right to keep some source communications private in the conduct of their profession.
As for the apparent conspiracy alluded to in the note containing Sayre’s phone number, as well as that of former Town Manager Michael Graham and the names “Tom”, “Norma Jean”, “Matt” and “the Examiner”, Berlik admitted some question exists when he told the court, “Whether it is authentic or not remains to be seen.”
What Berlik did not admit was his client’s connection to any such questions.
In fact, in prefacing his dismissal of the misdemeanor filing a false police report charge against McDonald on October 31, 2018, Judge W. Dale Houff commented, “There is something obviously wrong about the note.”
Following his Discovery Motions decision Athey questioned attorneys on the trial date for the Sayre-McDonald defamation case scheduled in General District Court downstairs. Told August and that both sides have indicated an appeal of the verdict is likely, Athey set a hearing date for the McDonald defamation case on the Motions Date of September 18, at 9 a.m. The judge indicated the likelihood of setting a trial date on the McDonald lawsuit then and observed the two cases could potentially be joined at that point.
The alleged conspirators’ “note” with its names and numbers appearing to implicate “Tom”, “Norma Jean”, “Matt”, Graham’s 202 phone number, and even “the Examiner” is likely to play a big role in both trials.
The note and vandalism it is allegedly tied to, among other incidents of trespass and vandalism at McDonald’s home and the EDA office complex came at a time Royal Examiner staff, then-Councilwoman Bébhinn Egger (Mark Egger’s daughter), and others eventually including Sayre and county board colleague Archie Fox were raising questions about the validity of multiple EDA projects being forwarded by McDonald as EDA executive director.
Shaw, particularly, was deep into an investigation of large amounts of cash being used by McDonald in her personal real estate business transactions. Those real estate transactions, along with questioned EDA projects like ITFederal and Workforce Housing among others, lie at the heart of the EDA civil litigation now seeking recovery of $21.1 million in allegedly misrepresented, misdirected or embezzled assets.
Arrested by VSP on May 24, McDonald is now jailed without bond as a possible flight risk on four felony financial criminal charges, two of Fraud, Obtaining Money by False Pretenses in excess of $200; and two of Larceny-Embezzlement in excess of $200. Those appear related to the EDA civil suit “Afton Inn Embezzlements” allegations of falsifying work invoices to pay off credit card debts. The evidence on those charges appear fairly cut-and-dried evidentiary-wise compared to some other allegations in the EDA litigation.
The Special Grand Jury
However, as the civil defamation motions were being argued Wednesday on the second floor of the Warren County Courthouse, the Special Grand Jury convened to investigate potential criminality tied to the EDA civil litigation was meeting for what appears to be the first of several days of witness testimony this week.
Speaking of social media, the rumor of additional indictments being imminent have been floating on social media for weeks since those initial four indictments were handed down on May 24. One large question connected to any next round of sealed grand jury indictments is whether they will simply pile more on to McDonald’s legal plate, or add additional defendants into the mix.
Not directly related to the above question but more on the familiar faces sightings ledger, one encountered on the second floor of the Warren County Courthouse after the adjournment of the defamation hearing belonged to former County and EDA Attorney Blair Mitchell. Mitchell, who retired in April 2017, told media present he had testified for about an hour before the special grand jury but declined to elaborate on the nature of the questions he was asked.
But noting his retirement date and corresponding EDA business of the previous years, we can probably make an educated guess at some of those questions relating to Mitchell and McDonald’s interactions on projects cited in the Cherry Bekaert accounting investigation of EDA finances over the past decade. High on that list may well be Leach Run Parkway Easements, myriad other real estate transactions, not to mention the advent of the ITFederal and Workforce Housing Projects – (Come on, TELL US, Uncle Blair!!!)
Sayre elicits public comment on alleged McDonald embezzlement scheme
A question posed by Warren County Board of Supervisors Vice-Chairman Tom Sayre to County and EDA Attorney Dan Whitten during Tuesday’s (June 18) supervisors meeting pointed to one interesting aspect of the Cherry Bekaert report on its accounting investigation into signs of fraud within EDA finances. That aspect is the possibility now jailed former EDA Executive Director Jennifer McDonald has used stolen EDA assets to fund her civil litigation battle with Sayre.
Sayre and McDonald are engaged in dueling defamation of character lawsuits launched by Sayre in September 2018 (for $25,000 in small claims court) and in response by McDonald in February 2019 (for $600,000 in not small claims court).
“Is that the last embezzlement found by Cherry Bekaert?” Sayre asked Whitten of a $10,000 wire transfer authorized by McDonald to her civil suit law firm on November 21, 2018, ostensibly to pay for Afton Inn legal work.
“To my knowledge it is,” Whitten replied.
McDonald resigned under increased scrutiny from the EDA board as a result of the Cherry Bekaert financial accounting fraud investigation a month later on December 20, 2018.
The possibility of McDonald’s use of embezzled money to pay for some aspect of her civil litigation attorneys fees was initially raised by Sands-Anderson attorney Cullen Seltzer on the EDA’s behalf during a May 22 motions hearing.
“Is she using stolen money to pay her attorneys,” Seltzer asked Judge Clifford L. Athey Jr. during discussion of McDonald’s civil counsel’s request to quash a plaintiff subpoena of his client’s financial records related to her legal representation.
In explaining the request to the court Seltzer noted that the former EDA chief executive is accused of “defrauding a significant amount of money from the EDA” and wondered if some of that money was being used to fund her legal costs.
And while on May 22 Athey upheld McDonald civil attorney Jay McDannell’s motion to quash that portion of plaintiff subpoenas of his client’s financial records, circumstances have since changed.
Two days later on March 24 McDonald was arrested by the Virginia State Police on four felony charges related to the EDA’s civil litigation initially seeking return of $17.6 million in EDA assets, an amount now up to $21.1 million. McDonald is the central figure among nine defendants, including Truc “Curt” Tran, Donald Poe, Justin Appleton and the late Daniel McEathron, and four LLC’s tied to McDonald and/or those people.
And 19 days after that civil case hearing, on June 11, files ordered produced by Athey on May 22 from the financial fraud investigation at the base of the EDA civil litigation were discovered by media unsealed in the civil case court file.
And in the “Afton Inn Embezzlements” section of the Cherry Bekaert investigation there appears to be a direct answer to Seltzer’s May 22 question to the court about how McDonald was financing her civil attorneys.
“MCDONALD requested a wire draw down from FB&T (First Bank & Trust) for $10,000 with instructions sent via e-mail Rochelle Longnecker of FB&T representing the $10,000 wire request (from funds restricted to Town or County use) was for the Afton Inn Attorney. MCDONALD also attached an invoice with wiring instructions to send the payment to ‘Berlik Law, LLC’ ” McDannell, who successfully argued the quashing of the EDA subpoena of McDonald’s financial records regarding payments to her civil attorneys on May 22, works for Berlik Law, LLC.
But perhaps McDonald discussed the “Afton Inn Embezzlements” aspect of the EDA civil case against her with her Berlik Law attorneys – I guess you might argue such discussion made them “Afton Inn Attorneys”.
Perhaps we’ll ask whichever Berlik Law attorney who shows up for this morning’s hearing on the McDonald-Sayre defamation lawsuit in Warren County Circuit Court exactly what legal work related to Afton Inn redevelopment on the still EDA-owned property they may have done last year.
Whatever it may have been, it appears to have been counterproductive. Work under the auspices of Afton Inn developer 2 East Main Street LLC – not a defendant or named liable party in the EDA civil case – is now stalled due to the project’s alleged use by McDonald to embezzle EDA funds, also to pay off personal credit card debts, resulting in a halt on EDA payments to the developer for already completed contractor work.
Bookkeeping anomalies cited in ‘Payments to Relatives’ EDA allegation
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 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.
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.
RSW superintendent explains McDonald transfer to Fairfax jail
On Friday, Rappahannock-Shenandoah-Warren County Regional Jail Superintendent Russ Gilkison confirmed the transfer of high-profile inmate Jennifer McDonald to the Fairfax County Adult Detention Center four days earlier, on Tuesday, June 11. McDonald was arrested by Virginia State Police on May 24 on four felony fraud-embezzlement charges related to the financial investigation of the Front Royal-Warren County Economic Development Authority.
The former EDA executive director has twice since been denied bond, being deemed a flight risk by Judge Clifford L. Athey Jr. After 10 years heading the EDA, McDonald resigned under increased financial scrutiny from her board of directors on December 20, 2018. According to EDA officials in her resignation email she admitted liability for the return of $2.7 million in assets to the EDA. However subsequent EDA civil litigation filed March 26 now seeking recovery of $21.1 million dollars alleges McDonald’s role in the loss of much more than her admitted liability.
Gilkison said the move was made to normalize McDonald’s jail experience.
“This will allow her to get into the general inmate population. She’s been in protective custody here due to the high-profile nature of her case,” Gilkison told Royal Examiner of the isolated nature of McDonald’s confinement so far.
The RSW superintendent said he had been in touch with McDonald’s criminal attorney Peter Greenspun for about a week prior to the move. Gilkison said the Fairfax City-based Greenspun supported the move and is now in much more convenient proximity to his client while she is incarcerated.
A hearing in which McDonald is slated to enter pleas in her criminal cases is scheduled for July 17 in Warren County Circuit Court.
Asked about costs to RSW of McDonald’s move to another facility, Gilkison said the Fairfax jail is not charging RSW for the transfer.
“It’s called a courtesy hold and we all do it for each other,” Gilkison said of the transfer of inmates for various reasons between area jails. “We would pay for any medication or medical costs but they aren’t charging us to house her.”
Asked if the move could indicate coming arrests of alleged co-conspirators in the EDA financial scandal that has shaken this community, Gilkison said only that he had heard the same rumors that many have about sealed special grand jury indictments, adding, “but not from reliable sources.”
Limitations, assertions in EDA investigative report present a mixed bag
An emailed explanation to the mayor and town council by Front Royal Town Attorney Doug Napier about how he may have appeared on a list of 28 recipients of USDA Rural Business Enterprise (RBEL) Loans given through the EDA between 2005 and 2018, points to certain admitted limitations in the Cherry Bekaert investigation of EDA financial “irregularities” and associated indicators of potential criminality tied to those irregularities.
“Our consulting services may or may not be in accordance with government auditing standards or auditing standards issued by AICPA (American Institute of Certified Public Accountants). We have not audited, reviewed, or compiled any financial information related to the EDA and accordingly, we do not express an opinion or any form of assurance on the EDA’s financial information under such standards …” Cherry Bekaert wrote in its “Transmittal Letter” accompanying its presentations of its finding to EDA Attorney Dan Whitten dated “May XX, 2019” in court-filed documents.
However they do add, “Our services were performed in accordance with the Statement on Standards for Consulting Services issued by the American Institute of Certified Public Accountants (AICPA).”
Napier’s name appears at the top of the list of RBEL loans on page 97 of the Cherry Bekaert summary of its self-described “working papers” accumulated in its exploration of Front Royal-Warren County Economic Development Authority finances. Napier is listed first due to the oldest date – January 25, 2006 – of loans cited on the list. The loan was for $30,000 and carried no balance remaining at the time the list was compiled by the contracted investigative public accounting firm.
“I never sought, nor received, an EDA loan,” Napier writes, adding, “Perhaps it is an EDA deed of trust (loan) for which I was the trustee which would list me in the Clerk’s Office as a party. At any rate, I never got an EDA loan, or any other EDA money for that matter. Even when I represented the EDA from 1996 to 2006, I received no compensation from the EDA. It was part of my County Attorney’s duties.”
Napier cites his naming as a principal in the loan, rather than the involved legal trustee, as one of “a few errors in the EDA Cherry Bekaert report I noticed”. An attempt to reach Napier, who appears to be recovering from eye surgery from one aside in his email to council and the mayor, by email about what other errors he noticed, was unsuccessful prior to publication.
As far as the limitations in its process that might allow such mistakes to occur, the very first line in Cherry Bekaert’s “Transmittal Letter” of its work to EDA Attorney Whitten is, “These working papers do not constitute a report”.
That opening sentence continues to acknowledge to Whitten that the material was “prepared solely at the request of and for Daniel Whitten, Esq., County Attorney and Counsel for the Economic Development Authority concerning matters regarding your client (the EDA) … under the terms of our engagement letter dated September 11, 2018.”
The second paragraph continues, “The following contains our complete working papers of procedures we performed under your direction regarding certain financial matters of the EDA based on information supplied by you and the EDA.”
The final sentence of the third paragraph, of five, in the “Transmittal Letter” adds, “Finally, our engagement cannot be relied on to detect or disclose all errors, irregularities, or illegal acts, including but not limited to fraud, embezzlement, or defalcations that may exist.”
And as reported in our lead story on the release of the Cherry Bekaert materials in the EDA civil litigation court files the company observes of its process, “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 remainder of our working papers contain your allegations, our analysis and findings, along with evidence we obtained under your direction,” Cherry Bekaert concludes of the presentation of its estimated 2900 pages of documentation now in the EDA $21-million-dollar civil case file.
So it appears that nine months and $600,000 later the EDA, Warren County and finally the public (and Town) as a consequence of court-ordered evidentiary production has a national investigative public accounting firm’s detailed analysis of all the materials furnished to it by the EDA to uncover financial irregularities in the conduct of EDA business.
Thus far those provided materials and professional accounting analysis have pointed to the EDA’s former executive director as the central figure in multiple financial irregularities resulting in four criminal indictments against her.
Of the result of its review procedures related to the materials presented to it by the EDA and its attorney, Cherry Bekaert concludes in its “Transmittal Letter” of its assembled materials now included in the EDA civil litigation court files, “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.”
Considering the above “and other parties acting together” representation when and where might the next legal hammers fall?
While keeping an eye out for RSW Jail booking reports, next we’ll delve into the 16-allegation Cherry Bekaert working papers files to see what clues they may offer.
Cherry Bekaert investigative report appears in EDA civil suit files
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.
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”.
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.