Reston, VA

A forensic analysis by Ernst & Young (EY) has flagged concerns with past financial practices and decision making by the Lake Anne Reston Condominium Association.

LARCA President Senzel Schaefer said she initiated the review following a board vote after last year’s election brought a new slate of board members who committed to “change and fiscal responsibility.” In-fighting and contention over finances have marred the board leading up to and following the election. Schaefer said she hoped the review would shed light on financial mismanagement, ultimately putting the board on “a new path to financial solvency.”

The review calls on LARCA to establish better internal controls and accountability practices. E&Y reviewed spending and other activities of the previous LARCA board over the last three fiscal years.

Schaefer said the report — which she characterized as an audit — is critical to improving the financial standing of the association. She says she’s been targeted by a “small but vocal group” of people seeking to halt the audit and her work. A lawsuit has been served against her, she said.

“I repeatedly pointed out to these individuals and still believe that good governance starts with transparency of operations and finances and following our bylaws, which were not adhered to in the past, so I will not stop the audit because we need to know where operations broke down and how to fix them,” she said.

“The question should be: in light of our financial irregularity and operational failures; why would anyone be so opposed to an audit which would give us answers and a path forward?” she added.

Others contend the review offers an incomplete and misleading picture of LARCA’s past financial practices. They also state Schaefer acted unilaterally by approaching E&Y with strong allegations against the previous board. Schaefer denies those allegations, saying she acted with the consent of the board.

Karen Jarvis, a property owner at Lake Anne who stepped down from her role as chair of LARCA’s finance committee, said a request for significant additions, corrections, and retractions is in progress. Jarvis, who is a procurement compliance manager and a former finance manager, says that the report is based on limited documentation to E&Y — some of which she says is accessible in LARCA’s administrative office.

“We are still working with E&Y to get a final version signed off with corrections,” Jarvis said. “There were huge amounts of information that were not provided but are readily available.”

The draft report — which was posted publicly by a community advocacy group — was released on May 29 and presented to the membership in mid-June. The Fairfax County Police Department also expects to release a report about its investigation of LARCA by the end of July, according to Second Lieutenant Erica Webb.

When analyzing $2.68 million dispersed to the top ten vendors, EY found “limited written policies and procedures at LARCA,” including the lack of written bidding, contracting or payment requirements. It suggested considering rebidding for large vendors to ensure the most favorable market-competitive rates were secured.

The review hones in on contracts with Gardner Engineering Inc., a vendor with a longstanding relationship with LARCA.

Project costs for a proposed five-year asphalt remediation plan doubled from an estimated $10,000 in a 2019 proposal, according to the report. That figure exceeded $20,000 by the end of the year, according to invoices reviewed by the company. In some cases, mileage was billed at a markup of 12 percent and travel expenses were invoiced at 20 percent more than the direct cost.

No competitive bids were sought for a project to address a leaking a Heron House unit.

In both cases, E&Y qualified its recommendations by noting it was difficult to assess performance and compliance with limited documentation.

Jarvis said that the Gardner Engineering Inc. contract is one example where the report’s findings are misleading or incomplete. Based on her prior experience with LARCA and financial management practices, Jarvis said sole-source contracts are necessary because few vendors are available to complete work for equipment that is obsolete or nearly obsolete.

For example, one specific vendor repairs elevators at the Heron House because the aging equipment is not readily available elsewhere.

The report also highlights overpayments of a monthly assessment by a resident from Sept. 2017 through April 2019 continued “without being addressed.” In May 2019, the resident was reimbursed $25,877.

EY cited confusion over the rules, responsibilities and accountability of five entities that host events at Lake Anne Plaza.

The association may have lost $243,000 in revenue between 2017 and 2019 when these entities were provided the plaza for free while also assuming “added liability pending an evaluation of the insurance coverage.”

The report flagged “an appearance of self-dealing as the previous LARCA president, Rick Thompson and his wife Eve Thompson, held positions in these entities which may have created the appearance of their financially benefiting from the events.”

Jarvis, however, asserted that merchants “have not been required to pay fees for the use of the plaza” and “there is no lost revenue.”

The consultant encouraged LARCA to conduct an open forum with residents, current and former board members, LARCA employees and stakeholders to better understanding ongoing concerns of the community.

A significant portion of the report attempts to understand the ambiguities surrounding several entities associated with LARCA. The report failed to find Internal Revenue Service records for Friends of Lake Anne, a nonprofit organization in Virginia that has been inactive since Dec. 2012, and Friends of Lake Anne II, LLC, a limited liability company registered in Virginia in 2018. Both entities are affiliated with Rick and Eve Thompson, who was interviewed for the report.

“FOLA has not maintained financial integrity by causing sponsorships to be commingled with LARCA accounts in at least one instance,” the report stated. “This activity undermines the credibility of the transactions and entities among certain stakeholders.”

Although Eve Thompson declined to comment on the report to Reston Now, she stated that she is confident that when FCPD releases its investigation, “everything will be clear and there will be no findings of wrongdoing at any level.”

E&Y made a number of recommendations in the report, including:

  • Promulgate policy by creating policies around bidding and contract requirements
  • Strengthen policy where it is “weak and nebulous”
  • Comply with policy
  • Exercise oversight and accountability
  • Address additional listed items to consider to satisfaction of the board

In response to E&Y’s findings, Jarvis offered additional context:

Prior to Mrs. Schaefer’s tenure, the LARCA Board employed the 3-bid process best practice recommended by E&Y.  LARCA maintains board packets and engineering department proposal requests. Vendors are chosen for their expertise & pricing and responsiveness to our requests. 

In February 2020, the Board Treasurer submitted a budget for the current year that removed the use of Gardner Engineering as a vendor. The Board Treasurer already conducted the assessment re-reviewed in the forensic review.

In January 2020, the Board Treasurer submitted research on an appropriate resident refund for assessment overpayment. Her research was used to validate the transaction.

The owner of FOLA/FOLA II/The Reston Market now enveloped in the Core Foundation’s umbrella of missions as a “doing business as” The Reston Market is a Plaza Merchant. To date, Plaza merchants have not been required to pay fees for the use of the plaza. There is no lost revenue. All applications for use of the plaza are board approved and if a conflict of interest is noted, the board member has abstained from the vote.  

A review of the January-April 2017 LARCA Board Packets identifies multiple projects combined to repair and improve property. The proposal was not specific to any one specific business and did not rise to the level of “insider dealing” notion as it was publicly discussed over 4 board meetings and there was no conflict of interest. The vote was a 5/5 unanimous approval. Additionally our Bylaws, formed in 1983, has a provision that the amount of improvement of $25,000 requires membership vote. However, it also states that the $25,000 is increased annually based on our budget increase. The amount in 2017 would be approximately $61,000 and does not require a vote.

Schaefer said she looks forward to implementing the recommendations in the E&Y report.

I feel confident that once we implement the auditor’s recommendations, LARCA will flourish again. Lake Anne Plaza is a wonderful place to live, work and play and with this audit we will reset our condo for the better,” she said.

Photo via vantagehill/Flickr

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