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After Tetra Purchase, New Financial Controls in Effect at Reston Association

After months of discussion, Reston Association’s Board of Directors unanimously approved stricter financial controls, a need flagged by two in-depth reviews of RA’s $2.65 million purchase of the Tetra property.

StoneTurn Group, an independent firm contracted to review the purchase and associated cost overruns, and a review by two RA members cited the need for updating RA’s purchasing and procurement policies over the last year.

The approval expands RA financial controls by requiring the involvement of multiple stakeholders in the review and approval process of contracts. The changes also clearly delineate steps required before and as contracts are considered. Major purchases require additional scrutiny and a greater emphasis is placed on competitively bid contracts.

Current policies have been criticized by some members as ambiguous and lax, resulting in a decision on the Tetra property that reviews indicate was not up to par.

All purchases above $2,500 require documentation justifying the need for purchases, at least two written quotes from competitive sources, an agreement reviewed by legal counsel and a purchase order signed by the department director, CFO and CEO.

Purchases between $5,000 and $24,999 require at least three written quotes from competitive sources. Major purchases of $25,000 and above require the issuance of a request for proposals, at least three written bids, a closed session meeting and final approval of the scope and pricing of the contract at an open board meeting.

For approval of those contracts, the approval of majority of board officers – defined as the president, vice president, treasurer, secretary and a board liaison for RA’s fiscal committee — is required. Earlier versions of the resolution allowed the fiscal committee chair to partake in the approval process — a move that RA Board Director Julie Bitzer said was inappropriate because it elevated the rank of a volunteer members to that of an elected board member.

Bitzer said she was amenable to allowing the fiscal committee and its chair to contribute by providing a general review.

In order to prevent the board from micromanaging the work of RA’s staff, Bitzer also suggested receiving an annual review of contracts awarded by staff, including a categorical breakdown based on cost brackets created by the resolution.

A move by Board Director John Mooney to require all contractors or service agreements to include provisions that prevent employees from discrimination based on factors like sex, race, color, national origin and religion also passed.

“These are times that we need to speak on such matters,” Mooney said.

Board director Victoria White objected to the proposal because she said it was more appropriate to include the provision in contractual language.

“Bottom line is, it needs to have teeth.” White said.

Other board members said the inclusion of Mooney’s amendment sends a strong message of RA’s position to the community.

A complete breakdown of the resolution is available online. A recording of the board’s meeting is also on YouTube.

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RA Board Continues Negotiations Over Lake House Budget Review Contract

New Lake House(Updated at 3:40 p.m.) Members of the Reston Association Board of Directors held an executive session after a public meeting Wednesday night to continue contract discussions with MediaWorld, the firm it voted to put in charge of a review of the Tetra/Lake House’s budget overrun.

According to RA’s director of communications, Mike Leone, the board ended up taking no action at the meeting.

That means the matter continues as it has for roughly two-and-a-half months since the RA board voted 4-3 to task MediaWorld with the review.

The board has not yet announced any future meetings.

If you’re just catching up to speed with the issue, here’s a little background:

After renovations at Lake House (formerly the Tetra Building) were found to be nearly triple what was originally budgeted, a review of the handling of the funds was deemed necessary. Earlier this year, RA moved $430,000 from its operating budget to help cover the project’s deficit.

All of that came after many citizens said they feel the RA overpaid to purchase the building in the first place. Fairfax County tax estimates put its value at closer to $1.2 million.

Following completion of the project, the RA Board formed a panel consisting of residents and staff to audit the entire project’s books, though many citizens and staff members urged the board to hire an independent firm to ensure the process was completely impartial. An initial search found, however, that such a firm could cost in the six figures.

A compromise was found in MediaWorld, who agreed to do the review for just $1 if RA members could be used to perform some of the necessary work.

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RA Board to Hold Meeting on Lake House Budget Review Contract

Lake House May 2016The Reston Association Board is scheduled to hold a special meeting Wednesday at 7:30 p.m. to discuss contract issues with MediaWorld, the firm it voted to put in charge of a review of the Tetra/Lake House’s budget overrun.

It has been more than two months since the Board voted 4-3 to go with MediaWorld for the budget review but the Board has yet to approve an official contract with the firm that would allow them to begin work.

After renovations at Lake House (formerly the Tetra Building) were found to be nearly triple what was originally budgeted, a review of the handling of the funds was deemed necessary. Earlier this year, RA moved $430,000 from its operating budget to help cover the project’s deficit.

All of that came after the RA took out a $2.7-million loan to purchase the building from its former occupants, Tetra Partners, which many citizens said they thought was too much to pay for the property in the first place. Fairfax County tax estimates put the building and land’s value at closer to $1.2 million.

In August, RA organized a panel to choose a professional firm to “review of the processes and internal controls that were followed across the organization in handling all decision-making, governance, administrative and financial aspects of the Association’s purchase, including the referendum, planned use, and renovation of Tetra (now known as the Lake House property), that have led to cost overruns and revenue shortfalls.”

Originally, citizens and RA staff members urged the Board to hire an independent firm to conduct the review in order for it to be completely impartial. But when it became obvious that the hiring of an outside firm could cost as much as six figures, the Board voted on a compromise — namely, going with MediaWorld but offering the help of RA members.

MediaWorld is a Reston-based company that offered to conduct the review for a fee of just $1 with the understanding that they could use RA members to help do some of the work.

In Wednesday’s special meeting, the RA Board said it will continue discussions over a potential contract with MediaWorld to spearhead the Tetra/Lake House review.

It is expected that the Board will go into executive session to conduct the contract negotiations–meaning it will be closed to the public due to attorney-client privilege, RA staff said.

The meeting could go a number of ways. The Board could come to an agreement with MediaWorld and vote to approve the contract, meaning work on the review could begin soon.

Or, if the two parties are unable to come to an agreement, the Board could decide not to continue negotiations with MediaWorld and decide to seek another company to work with.

At that point, they could go back to the list of firms that originally submitted proposals to the RA and decide to open negotiations with one of them. Or, the Board could decide to start a new search and allow other companies to submit proposals.

Wednesday’s meeting will begin at 7:30 p.m. at RA Headquarters, located at 12001 Sunrise Valley Drive.

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Reston Association Will Move $430K to Cover Lake House Deficit

 Lake House May 2016

The Reston Association Board of Directors voted on Thursday to move $430,000 from RA’s 2016 Operating Fund to cover the cost overrun from the Lake House project.

But before the vote, there were hours of discussion about how a nearly half-million dollar error occurred and what the organization can do to ensure such a mistake does not happen again.

RA purchased the building, formerly Reston’s Visitor Center, on the shores of Lake Newport for $2.6 million last summer. Acquiring the property would fend off commercial development and add to RA’s open and community space, RA said.

The purchase was narrowly approved by a member referendum, but there was lots of concern among community members that RA was overpaying for the building and its three acres of land, and that members would ultimately bear the burden — with higher annual assessments — of paying for the acquisition.

RA staff estimated that renovating the then 32-year-old building would cost $259,000. That number quickly jumped to $655,000.

“It was incredibly unfortunate the mistake that was made in the pro forma,” RA CEO Cate Fulkerson said at Thursday’s meeting. “I own that mistake, along with my staff. It was an error that should not have been made.”

Fulkerson outlined to the board some of the things that went wrong:

RA was counting on two six-month rentback periods from former owner Tetra Partners. That would have given RA more than $100,000 through 2016. But Tetra President Bill Lauer died in spring of 2015, and his widow chose not to continue at the space. Tetra, which had its offices at the building for more than 10 years, departed at the end of 2015.

That departure accelerated renovation plans by more than a year in order for RA to begin making money at the space.

Renovation costs that ended up being more expensive than estimated. Adding to expenses were LEED certification modifications ($60,000), preferences of the Lake House Working Group ($217,000), and Fairfax County requirements ($26,000), as well as construction inflation costs.

Fulkerson said value engineering — reusing some materials and redlining some planned changes — saved the association more than $200,000 as the Lake House budget was climbing towards $1 million earlier this year.

Fulkerson said she is trying to get RA to change habits — and that the Lake House situation shows the urgency for that.

“We have been licking a finger and sticking it in the air and taking a guess as to what something costs,” she said. “I recognized this last year. We are going to change the way we do business, but this is not an overnight process.”

Fulkerson also said she is going to work on identifying “permanent operating variances” that will save the association money and make up for the mistake. For instance, RA will put off plans to hire a land use assistant until 2017, she said.

She also said she will have a full list of money-saving ideas in June. She will also deliver the association’s 2015 audit next month. She continues to say that RA members will not see a rise in assessments (related to the Lake House) until 2018. However, assessments may rise routinely and markedly anyway, according to RA budget forecasts.

RA Board members said they had mixed feelings about the situation, which they called an error with no ill intent. Some said they may not have voted for the purchase if they knew how much the costs would climb.

They also said it was too late to turn back — RA has to find the money to do the renovations, followed by new systems to ensure it would not happen again.

“I feel extremely hoodwinked that I supported this,” said At-Large Director Ray Wedell, who was an enthusiastic advocate for the purchase a year ago. “We need to have a thorough look by accountants — separate people who have not been involved — to evaluate where we are and give us a recommendation.”

Said South Lakes Director Julie Bitzer: “I wish we all had a crystal ball and we all know more than we know. But I believe in the honesty and integrity and intent of folks. Now we must put in place new processes and procedures.”

Hunters Woods/Dogwood Director Lucinda Shannon said she feels the board and the community were misled.

“That’s a huge concern for me,” she said. “I am also concerned we can find an extra half-million in the operating budget. Assessments are $650. That is a lot of money for some people. For us to think we can go around buying lake houses is very concerning. … If we have made these mistakes, what other mistakes have we made? We need to accept the consequences, accept responsibility and look into what is really happening in our books.”

To that end, the board passed a motion to have the governance committee start the process to review the 2016 budgeting for the Lake House.

The board also approved a revised 2016 budget for the Lake House. When promoting the purchase in 2015, RA said it expected $55,000 net income in the first year. However, the latest budget proposal projects a $4,000 operating loss due to the unexpected expenses.

RA has projected income from the Lake House of more than $100,000 annually from after-school care and event rentals, which will begin in the next several months. Fulkerson said RA has already received 10 rental applications, though renovations on the building are not yet complete. At-Large Director Michael Sanio said he would also like to see a complete review of revenue projections.

The board turned down a request by members to speak after the long Lake House discussion. However, earlier in the meeting, several weighed in during the general member comment period.

“It saddens and angers me where we are,” said resident James Dean. “We are already at a place where we are $430,000 over budget. Many of us told the board not to rush into the referendum. This bears that out.”

He added that if the board has $430,000 available to move over “then the assessments the board voted for are too high.”

Resident Laura Calacci said the overrun is “gross malfeasance; it is sinful and shameful.”

“It blows my mind,” she said. “How does a project go from $260,000 to almost $700,000? RA has legal [staff and consultants], accounting, and countless studies, like we are running a big, rich business. We are not a business.”

“You talk about sustainable? This is the opposite. It is like a runaway freight train.”

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