On June 11 the Forensic and Integrity Services group of the audit firm Ernst & Young presented the findings of its forensic audit of the prior Board of the Lake Anne Condominium Association (LARCA) to a membership meeting. The audit covered the last three years of that Board, 2017-19. And it was not pretty.
The audit was a major step by LARCA’s new President to fulfill her promise to address the deplorable financial condition of the Association. The members who elected her wanted to know why assessments are so high and the finances so poor, including a depleted reserve fund. EY’s review of payments to the top 10 vendors contracted by LARCA offers some clues. The 10 vendors alone made $2.68 million from LARCA and, according to EY, there were no written bidding, contracting or payment requirements for those activities. Thus, there is little assurance that LARCA gets best price or quality, or that contractors in fact get the job done! The auditor recommended the obvious: that LARCA assess current contracts’ products, consider rebidding larger contracts, and in the future obtain at least 3 bids on larger contracts. An examination of one long-time contractor, Gardner Engineering, revealed mileage billings and other direct costs in excess of standards. Now, a proposed 5-year project would pay Gardner between $1.8 and $2.2 million, “…at least 15 times the amount it was paid 2017-19.” Looking for savings? Here's a candidate.
In May 2019, a LARCA resident was paid $25,877 as reimbursement for overpayment of monthly assessments from September 2017 to April 2019, a period of 20 months, an error of $1300 per month. A major internal control glitch.
Then there are the continually morphing organizations associated with LARCA hosting programs on the Plaza. The organizations are: Friends of Lake Anne; Friends of Lake Anne II (FOLA II), LLC; and The Reston Market (Craft Market). The auditor had a devil of a time sorting out the status of these entities. It was unclear what, if any, legal status they have; or whether they are genuine non-profits…or not. However, they have had free use of the LARCA-owned Plaza, a benefit granted under the prior President for FOLA, FOLA II, the Reston Market, all controlled by him and his wife.
The auditor calculated LARCA’s “potential lost fees” at $243,000 for 2017-19 alone! While FOLA’s request for “free” use of the Plaza indicated that no LARCA labor would be used for setup or take down, a LARCA employee said they were used and paid by LARCA. In addition, on each of the 27 days of the Craft Market per year, these entities collected about $1800 (60 vendors @ $30) weekly or $48,660 per year themselves for many years. The Reston Community Center, not FOLA, paid LARCA directly for some special events. The audit findings note: 1-“numerous organizations involved in use of Plaza at no cost ..all controlled by”…former President and his wife.; 2- LARCA Board minutes approving activities are non-existent or unclear; 3- LARCA may be foregoing revenue & assuming added liability [e.g., for questionable liquor licenses]; 4- “There was appearance of self-dealing…, of their financially benefiting from the events.” Talk about bleeding money! NOTE: A far more transparent and less risky way to manage Crafts Markets and special events would be for LARCA to contract with a competent, legally established and transparent entity to organize, manage and account for the events. All proceeds for use of the Plaza should come directly to LARCA, not through questionable, confusing intermediaries.
Lastly, the auditor reported on a questionable property improvement action on quayside. The project involved a $30,810 no-bid proposal for additions to that area. The Board approved it in March 2017. The auditor defined 3 risk areas for this project: 1 - Potential for self-dealing; 2 - lack of proper bidding process; and, 3 - Lack of vote by residents (required in By-laws for projects over $25,000). The wife of a Board member submitted the proposal for the work fronting their business. He voted to approve the project. LARCA apparently has no bar to such an apparent conflict of interest. The audit recommends LARCA adopt such a policy. What will the members of LARCA do with this report? Will they follow the clear path set forth by EY to clean up a dreadful combination of mismanagement and “self-dealing” in order to stop the financial bleeding and restore integrity and order? Or, will they, as some propose, seek vengeance on an intrepid President for doing an audit, and continue practices that led to LARCA’s downward spiral?
Next-All await the outcome of the Commonwealth Attorney’s investigation!