Cider Mill's Ballot Valid?

The decision to disqualify Cider Mill Apartments ballot with its 864 votes for three (3) seats on the MVF Board of Directors “because of $334 it owes the foundation in late fees” is not supported by the Foundation’s assessment collection records dating back to 1991.

Ballots are disqualified and not opened or counted if there is a delinquency balance owed to the Foundation of $25 or more. Assessment payments for the Montgomery Village Foundation (MVF) and Designated Users Facilities (DU) funds from 8,480 homeowners of the eleven (11) Homes Corporations are collected quarterly and according to MVF Collection Policy assessments are delinquent if not received by the last day of the first month of each quarter and is subject to a $25 administrative fee plus interest at an annual rate of 6%.

The nine (9) Condominiums with 2013 units and four (4) Apartment Rental communities totaling 1400 units are invoiced each month for the Montgomery Village Foundation (MVF) fund assessment charges for its units.

The MVF Collection Policy only applies to assessments paid to the Foundation from homeowner members of the Village’s Homes Corporations. It is unclear what are the Foundation existing policies or practices concerning overdue unpaid assessment charges to Condominiums and Apartments. Does the Foundation charge Condominiums and Apartments late fee for passed due amounts based on a fixed amount per unit, a percentage of the delinquent amount and or an annual interest cost?

The $25 threat hold for ballot disqualification is equal to 8.3% of the annual assessment of Homes Corporation owners while ranging 00.05% for the Heron’s Cove 408 units to 00.19% for Thomas Choice 103 units for Condominium communities and 00.0015% for Cider Mill 864 units to Sunrise Village 00.13% with its 147 units.

The “Fourth Quarter 2007 Delinquency Report” given to MVF’s Board of Directors before it January 24^th board meeting included an “Analysis of Delinquent Accounts December 31,207 and a “Comparison of Delinquency Rates 1991-2007” summarized by Homes Corporations and Condominiums/Apartments.

These reports indicate Cider Mill has had a zero unpaid balance on its account since December 2002 and there is no indication Cider Mill has not paid its monthly assessment on time since 1991.

Is there any reason why Cider Mill’s Ballot should not be opened and its 864 votes included? Is there any reason why the owners of Cider Mill Apartments should not be given a public apology? Can anyone at MVF count or account?

Deye, Bort and Perley Winners!

The Results

Reform candidates Jim Deye and Pam Bort lead a field of ten (10) as Whetstone Homes Corporation President Linc Perley edged out Mark Firley for the final position for a three (3) year term on the Montgomery Village Foundation’s Board of Directors.

The results signaled for the second year in a row homeowners’ dissatisfaction with the board leadership as incumbents Jerry Donegan and Scott Frohman ran 8^th and 9^th only besting first time candidate Steward Merritt who was not a factor in the campaign.

Candidates		Votes	% of Vote
Deye, Jim	1	1,836	18.1%
Bort, Pamela	2	1,478	14.6%
Perley, Linc	3	1,208	11.9%
Firley, Mark	4	1,120	11.0%
Musante, Marie T	5	938	9.3%
Negro, Toni	6	864	8.5%
Greenspan, Steven	7	840	8.3%
Donegan, Jerry*	8	766	7.6%
Frohman, Scott*	9	742	7.3%
Merritts, Stewart	10	346	3.4%
Total		10,138	100.0%
Bort – Deye – Firley		4,434	43.7%
Perley-Negro-Frohman		2,814	27.8%
Donegan – Frohman*		1,508	14.9%
Traditionees		5,358	52.9%
Reformits		4,780	47.1%
Unaffiliated		2,890	28.5%
Previous board experience		4518	44.6%
*incumbents

The final outcome and margin of victory may well have been determined by which of the 1700 block vote ballots from the four (4) Apartment communities were voted or counted. - Breckenridge Apartments (178), Cider Mill (864), Sunrise (147) and Walker House (211)

In past elections these communities seldom participated in the MVF Board elections. The year Cider Mill with its 864 votes to cast for three (3) candidates and one other unidentified Apartment community voted. However, the ballot of any eligible voter delinquent $25 or more is disqualified. According the MVF records Cider Mill’s was one of four (4) eligible voters in arrear of more than $25 whose ballots were not opened or counted.

If Cider Mill’s votes were counted it would determined the outcome of the election except for Jim Deye who would have won with or without Cider Mill’s support and last place candidate Stewart Merritts. It is the Observer’s speculation that the other Apartment community that voted, probably Walker House which voted for Deye, Bort and Perley electing Linc Perley instead of Mark Firley.

The Winners

James Deye is a 32 year Village resident, PhD hospital administrator, and a member of the MVF Audit Committee. He campaigned for full examination of MVF’s fiscal infrastructure, a reinvigorated and expanded communications with Village residents, a more transparent and routine review of the monthly finances, creating a MVF budget and finance committee to monitor and advise the board on financial matters, streamlining and MVF website and electronic communications.

Pamela Bort for the past 28 years has been a senior paralegal with experience in corporate law, banking and public finance and is a member of the South Village Board of Directors. Her campaign focused on restoring MVF financial health, improving communications and relations between the MVF Board and residents, enhancing the Foundation’s imagine, addressing safety concerns, balanced budgeting and adequate fully funded reserves.

Lincoln Perley is a retired Information Technology executive and returns to the Foundation’s Board after eight when he served as MVF President and Vice President. He campaigned on expending the current President’s Council influence, organizing the Village against M-83’s negative impact, safeguarding MVF finances and lobby elected officials in the Village’s behalf.

The New Alignments

With the election of two (2) reform candidates and the defeat of four (4) candidates who have served on the MVF board in the recent past, the control of the board has shifted to a 6 to 3 voting majority that favors fundamental reform and change.

Current members Bob Hydorn, Jim King, Katherine Gray and Scott Johnson will join new members Pam Bort and Jim Deye as the new voting majority. Keith Silliman and Dick Wright will team up with Linc Perley to oppose any change.

A word of caution to the new voting majority

The March 2007 MVF board election the 3 Reformits candidates received 81% of the votes cast and supported Bob Hydorn for President winning with a temporary and fragile 5 to 4 voting majority.

Despite the good intentions and valiant efforts by Bob Hydorn and last year new members over the last year the little was accomplished because Reformits action plan and program was not well planned or articulated. The Traditionees still controlled the finances, the staff and the agenda while opposing and derailing those few initiatives that came before the board for vote.

As Nancy Pelosi and Harry Reed have learned a voting majority is not sufficient unless you can control the decision making, governing and communication processes; have the loyalty, support and compliance of the staffing organization and are synchronized and in concert with the committee organizations.

The new committed voting majority has only a total of five (5) years experience on the MVF Board of Directors while the minority has close to forty (40) years.

And let us not forget 2008 is the year the sleeping giant Apartment owners especially Cider Mill with their 1700 votes can determine the outcome of any election if the MVF leadership doesn’t behave and not take them for granted.

But what do I know. I’m only the 800 pound gorilla in the Village.

It's the 2008 Budget Stupid!

The 2008 annual fiscal year $9,000,000 free spending budget is a flawed document and should have been rejected and re-examine before accepting it as the Foundation’s operational and financial plan for this year.

MVF’s tradition of arbitrarily setting unsubstantiated multi year future spending entitlements and then bully and beg Homes Corporation and Condominium representatives to bestow their blind faith-based blessing and approval defies any reasonable or commonly accepted budgeting principles or practices.

When establishing the annual assessments for Common Interest Real Estate Associations (CIRA) such as the Montgomery Village Foundation, Boards of Directors:

1. First, determine the expenses necessary to meet the obligations and requirements to preserve, enhance and maintain the association’s assets, facilities and property; deliver required services and set aside reserve funds for current and future use to maintain all assets in a like-new condition.
2. Next, make realistic estimates of non-assessment income for the budget year.
3. Then, subtract the non-assessment income estimates from the expense requirements to arrive at the amounts necessary to be funded by assessments.
4. Finally, they mail the proposed budget to the membership and at a public meeting discuss the merits of the proposed budget and funding proposals.

The MVF power structure has rejected such a silly concept and believes that:

1. First, arbitrarily set unsubstantiated future spending entitlements known as “assessment ceilings limits” for a 5 year period;
2. Next, without discussing or presenting the details of non-assessment income, expenses or reserve funding line item categories, engage in a six month public relations campaign in The Village News to convince Homes Corporations and Condominium elected representatives to bestow the future “ceiling limits,” a blind faith-based blessing and approval.

The campaign rationale resembles a desperate consumer pleading with his or her various credit card holders for a substantial credit limit increase or Congress’s annual vote to raise our nation’s debt limit ceiling.

3. At public budget information meetings and meetings of MVF representatives to discuss the proposed assessment ceiling limits, treat those who express an opposing opinion rudely and ignore all questions, suggestions and comments.

Questions and concerns raised by those in attendance at the September 25, 2007 budget information meeting and the October 18, 2007 meeting of MVF representatives were dismissed as not germane to the vote to raise the assessment ceiling. The case to reject and re-examine the 2008 budget as presented was made by North Village Homes Corporation in its North Village View column in the November 2, 2007 edition of The Village News.

The 2008 budget information provided was very limited, whereby no expenditures data was provided for fiscal years 2006 and 2007 in order to generate a more accurate comparison with the requested fiscal year 2008 budget increase. In addition, there was no breakdown of capital projects provided, including no strategic plan for future year guidance on capital projects.

Unfortunately, the North Village’s View on page 15 of The Village News, the dismissal of its comments and the concerns addressed at public budget meetings and in the letters printed in The Gazette and The Village News were answered with two front page articles by staff writer, Jaime Ridgley, in the same November 2, 2007 edition.

Headlined “MVF Board Passes 2008 Budget,” Ridgley writes “Board President Robert Hydorn commented that he was not completely comfortable with the budget, but he would vote for it. Board members Kathy (Katherine) Gray and Scott Johnson voted against the adoption of the budget, but it passed with five Board members in favor. Board members Jim King and Neville Levi were absent from the meeting.”

The outcome could have been different if King and Levi, whose previous vote had supported financial reform, weren’t missing and comforted Hydorn enough to vote against the budget.

The lead front page “In the News” feature broadcasted “Reps Vote on $3.14 Assessment Ceiling Increase to Cover 2008” and announced “Newly appointed EVP Dave Humpton is pleased that the representatives voted to cover the 2008 budget with the assessment ceiling increase.

“He and the MVF Board will focus on the 2009 budget in December and January to map out the potential budget increases and define the assessment ceiling needs for the next 5 years. Then, from January to March, residents will receive more information about the need to raise the assessment ceiling further, with a vote on another increase tentatively scheduled for the end of March.

“The Foundation must have the ceiling increase decided before 2009 guidelines are set in May. Two information sessions will take place for residents before the next assessment ceiling vote.”

Was this an accurate account by Ridgley of what happened at the October 18, 2007 Board meeting? Did Dave Humpton and the Board endorse at that meeting a plan to embark on another ill-advised assessment ceiling campaign, ignore the expressed concerns of so many about the inadequacy of the 2008 budget before “mapping out potential budget increases and assessment ceiling needs for the next 5 years?”

Or was this just MVF Consultant Lois Campbell in her capacity as MFV Communications Czar still very much in control?

Montgomery Village Observer 2007 Citizen of the Year

Officer Diane Tillery

Community Services Officer
Montgomery County Police

All in a Day’s Work In a letter published in the January 18^th Village News, Diane Tillery, Community Service officer assigned to the Village, commented on a recent article on “Smash and Grab” burglaries, updated the community on the incidents, explained how the Police Reporting Unit response system works, detailed what the 6^th Police District is doing to combat the county-wide increase in vehicle thefts as well as educated and encouraged citizens on what they should do to avoid being a victim of theft. The letter is just one example of Officer Tillery’s pro-active energy force and dedicated determination to keeping Montgomery Village citizens safe, informed and secure.

No one is more knowledgably and aware of what is happening in the Village than Diane Tillery. She is connected, informed and sensitive, not just of matters of security and safety, but also the critical concerns, issues and activities of the homes corporations, condominiums, residential rental, commercial, and educational communities of Montgomery Village.

She has daily contact with community, resident and commercial property representatives, and private security guard personnel as she answers e-mail and phone inquiries, identifies owners of vehicles, discusses incidents and exchanges information.

Memorable Service to the Village Officer Diane Tillery’s most memorable service was her outstanding police work to uncover the full extent of the series of embezzlements and thefts of funds from the Montgomery Village Foundation.

During the first week of May 2007, after the sentencing of Laura Buttry with a $1,000 fine and probation for embezzlement of $14,000 Village leaders and spokesperson were assuring the Village that “all transactions and monies have been accounted for.” As MVF Board President Keith Silliman was quoted in the February 14^th Gazette “I think it’s been methodically pursued and based on what I’m seeing, it will be resolved and there will be no loss to the Foundation. I think under the circumstances, this is as reasonable an answer as we can expect.”

However, under the circumstances, Officer Tillery and Prosecutor Tracy Bortnick of the Montgomery County State’s Attorney’s office were not convinced. For the next three months, Diane worked with her usual determination and tenacity to uncover 44 additional, separate transactions of theft and embezzlement with an estimated loss to the Foundation of $266,000.

As reported in the October 24^th Gazette story on the sentencing, “I can’t tell how many people have called my office to say ‘Go after this lady; this is my money she stole,’ testified Officer Diane Tillery, community services officer for the county’s 6^th District police station who led the police part of the investigation.

“Tillery said Buttry’s tactics included false invoices, duplicate checks, unauthorized wire transfers and falsified documents that drew $38,000 from a co-worker’s retirement account. She also discovered that Buttry’s embezzlements paid for a family trip to Disneyland, several airline tickets and two week-long vacations to the Outer Banks of North Carolina, where the family rented luxury homes for $4,000 a week”.

Profile of a Professional Police Officer In an article in The Gazette on her 25^th anniversary on the Montgomery County police force, Officer Tillery shared with staff reporter Sebastian Montes that she was a graduate of Winston Churchill High School in Bethesda, Maryland and had earned degrees in criminal justice and sociology from Pfeiffer University in North Carolina.

Diane spent two years working with delinquent children before she was recruited to join the county police force.

After more than 10 years patrolling in Wheaton, Rockville and Bethesda, she worked child abuse cases in the department’s family services division. She became the Sixth District’s community services officer four years ago.

Officer Tillery was the subject of a featured profile in the Montgomery County Department of Police 2006 Annual Report., commending her for excellent police work by continually “initiating community outreach efforts and building partnerships in order to alleviate community problems and issues.

“As a direct result of her work, 6th District patrol officers have seen a dramatic reduction in the calls for service in many areas. She truly goes above and beyond the call of duty in the spirit of community policing. Officer Tillery has done an incredible job reaching out to all aspects of the community.”

Officer Tillery received the coveted Governor’s Crime Prevention Award for Law Enforcement Officers from Governor Martin O’Malley at the 2007 Annual Governor’s Crime Prevention ceremony.

First Runner Up
Robert Hydorn

President Montgomery Village Foundation Board of Directors

Motivated to run for the MVF Board to do something about the Foundation’s sub- standard maintenance and care of the Village’s ball fields, parks and recreation facilities, Bob Hydorn was elected to the MVF Board in March of 2006.

During his first year on the Board, he found himself many times the lone concerned voice questioning MVF’s failing financial, operating and personnel policies and practices. From his first day as a member of the Board, Hydorn was considered an “enemy of the Foundation” by veterans on the Board and senior staff.

His surprising and dramatic election as Board President by a 5 to 4 vote sent mixed messages of hope and concern to a community very much divided.

Bob’s immediate and critical priorities as announced in his President’s Message feature in The Village News were to: open two-way communication between the Board and the community; bring order, transparency, control and effective management to the Foundation’s financial affairs; hire the best Executive Vice President and Director of Finance & Administration available; and improve the quality and management of the Foundation’s services.

In his first President’s Message feature in The Village News, Hydorn listed his e-mail address, Bobhydorn@comcast.net and invited the Village community to send their comments, concerns and complaints to his attention.

At his second meeting as President, Bob called for Board approval of the appointment of an ad hoc Personnel Selection Committee after 288 days of inaction following the resignations of John Zakian and Geraldine Barber.

Despite the challenges to the Selection Committee’s composition, legitimacy and competency that followed, the members of the Selection Committee worked tirelessly over the next six months to make the capable leadership team of Dave Humpton and Bill Blum a reality and a blessing for the Village.

As MVF Board President, Bob Hydorn has done a remarkable job of leading the Foundation during an exceedingly difficult time. He has conducted himself with dignity. Thanks to his dedication to the Village, his outgoing personality and accessibility to Village residents, he has begun the renewal of Montgomery Village. Finally, Bob’s many community and professional contacts have expanded the influence of the Village in Montgomery County and elevated Village views and concerns before state and county decision-makers in a way we have not seen before.

Second Runner Up
Sebastian Montes

Staff Reporter, The Gazette

Information about what’s happening in Montgomery Village comes almost exclusively from two sources, The Village News, the official newsletter of the Montgomery Village Foundation, and articles written by staff reporter Sebastian Montes for the Gaithersburg-Montgomery Village edition of The Gazette.

The Village News is not trusted by many as a source of accurate, fair, useful and critical information. There is a feeling that The Village News’ editorial, reporting and communication policies are geared to self promotion over effective communication. Its news and features, more than likely, attempt to create an illusion of favorable property conditions, superior service performance by the Foundation’s staff and contractors or to justify past and current board decisions and actions.

Since the summer of 2006, Montes’ in-depth reporting has brought focus to the Village’s crippled governing process, community divides, financial follies, and crumbling infrastructure.

In the seventeen months since John Zakian’s resignation, staff reporter Sebastian Montes has written six feature articles that covered the state of the Village’s troubled financial affairs, nine articles on the series of embezzlements and missing funds, five on the search and selection of an Executive Vice President and Director of Finance and Administration and five on the controversy over approving the appointment of the Ad Hoc Personnel Search Committee and appointing newly-elected Katherine Gray as Treasurer.

Taken collectively, these articles spurred reform in the Montgomery Village Foundation by focusing attention on the financial and governance issues plaguing the Village. Without this consistent coverage over many months, it is doubtful that Village residents would have ever understood or fully appreciated the crisis on their doorstep. Village residents responded by electing three newcomers to the MVF Board and thus began the first steps to restoring the Village to financial health and managerial excellence with the hiring of a superbly qualified senior staff, Dave Humpton as Executive Vice President, and Bill Blum as Director of Finance and Administration.

Campaign 2008 - 5 Questions to Ask the Candidates!

Campaign 2008- 7 Unanswered Questions for the MVF Board Candidates

For two (2) hours on Wednesday evening, January 23, 2008, nine (9) of the eleven (11) announced candidates for the 3 open positions to the Montgomery Village Foundation Board of Directors made their statements of candidacy and answered questions from the 20 or so Village residents and homeowners who braved the cold weather to attend the Candidates’ Forum at the Whetstone Community Center.

The candidates’ written statements as published in the January 18, 2008 edition of The Village News and the responses given by those candidates in attendance at the Forum were extremely informative. However, up to this point there are still a number of core issues facing the Foundation Board that haven’t been adequately and completely addressed by each candidate.

The Observer invites each candidate to log onto http://www.s24c.com/mvo13.htm and give their answers to the following 7 unanswered questions.

1-Financial Reporting. The MVF monthly financial statements lack detail and only display total income and expenses. Missing are detailed comparative reports of expenses and income categories, individual line items or fund types.

There is no factual basis for the MVF narrative analysis and conclusions that are printed in The Village News and accompany the financial statements provided MVF board members in advance of monthly MVF board meetings.

This results in a distorted and misleading presentation of revenue, expenses, assets, liabilities and equity accounts.

Limited selected financial information is only communicated to create an illusion of favorable financial conditions and excellent staff performance as well as to justify past and current board decisions and actions

Question 1: Do you believe there is transparency in the MVF financial reporting? Do the monthly financial reports reflect the true financial condition of the Foundation? What is your assessment of the financial health of the Foundation? If you are elected to the Board, what would you change and what would you maintain about the Foundation’s finances and financial reporting?

2-The Audit. From 1999 to 2005, there were over 30 acts of theft and embezzlement of funds entrusted to the Foundation. There were nine (9) annual fiscal year audits (1999 to 2007) and several special examinations of the records incidental to the embezzlement conducted by the auditing firm of Regardie, Brooks & Lewis costing $385,000 including $65,300 paid in 2007. RB&L was only able to uncover one (1) of these acts.

The Village News has continually quoted the annual fiscal year audit report as evidence of the Foundation’s alleged favorable financial condition and as validation of its corrupted accounting and financial reporting practices.

Question 2: Do you believe the money paid RB&L was well spent? Are they best qualified firm to perform the 2007 fiscal year audit? If the MVF Board was to vote on a motion to hire a qualified auditing firm other than Regardie, Brooks and Lewis to conduct the 2007 fiscal year audit, would you support such a motion? If not, why not?

3-Lake Whetstone. For decades there has been general deterioration of the Village’s parks, streams, and lakes. Lake Whetstone Park and surrounding parkland, turf, ground cover, landscaping and shore line maintained by the Foundation has fallen into disrepair causing a migration of eroded materials into the lake and connected streams, lakes and ponds.

The duty to maintain and fund the lake and surrounding property elements including shore line maintenance and restoration is divided between the Foundation and Whetstone Homes Corporation. The maintenance of the lake (shoreline to shoreline) will be maintained and funded by the Montgomery County’s storm water management program.

According to published reports in The Gazette, “The Foundation received a $25,000 state grant to refurbish the boathouse and south dock at Lake Whetstone. They money was for early steps only and to study the scope of what is possible and how much it would cost”.

The Reserve Analysis report of July 7, 2007 by Advanced Reserve Solutions identified 4 critical Lake Whetstone capital items:

#	Description	Remaining Life	Current Cost
1	Check dams	0	$24,280
2	Dock Restoration	0	$268,050
3	Lake Dredging	3	$134,730
4	Lake Bank Stabilization	0	$29,000
Total			$457,010

Question 3: What is your assessment of the condition of the park, lake and stream property elements encompassed by Lake Whetstone? What remedies if any do you support? Do you support or oppose the restoration of the dock? Should the Foundation request an additional state grant to pay for the restoration? If not, should the $25,000 be returned to the state?

4-The 2008 Budget. North Village Homes Corporation stated in its North Village View column in the November 2, 2007 edition of The Village News. “The 2008 budget information provided was very limited, whereby no expenditures data was provided for fiscal years 2006 and 2007 in order to generate a more accurate comparison with the requested fiscal year 2008 budget increase. In addition, there was no breakdown of capital projects provided, including no strategic plan for future year guidance on capital projects. “

The lead front page story in the November 2, 2007 edition of The Village News headlined “Reps Vote on $3.14 Assessment Ceiling Increase to Cover 2008” announced “Newly appointed EVP Dave Humpton is pleased that the representatives voted to cover the 2008 budget with the assessment ceiling increase.

“He and the MVF Board will focus on the 2009 budget in December and January to map out the potential budget increases and define the assessment ceiling needs for the next 5 years. Then, from January to March, residents will receive more information about the need to raise the assessment ceiling further, with a vote on another increase tentatively scheduled for the end of March.

“The Foundation must have the ceiling increase decided before 2009 guidelines are set in May. Two information sessions will take place for residents before the next assessment ceiling vote.”

Question 4: Do you believe the 2008 budget was adequately and properly prepared or should it be re-examined and restructured to include a strategic plan for future guidance on capital projects? Or do you believe we should focus on the 2009 budget to map out the potential budget increases and define the assessment ceiling for the next 5 years?

5-Community Management Fund and Maintenance Activity Fund Deficits. Fixed Price Contract Income for both management and maintenance has been in decline for the last decade. The Foundation has not been able to compete on price and service which has created accumulated deficits in the Community Management and Maintenance Activity Funds.

There has been a history of losses and deficits over the years in the Community Management (CMF) and the Maintenance Activity (MAF) funds. These deficits were funded using money designated for capital reserves while neglecting maintenance and landscaping services to the public areas.

Question 5: What is your plan for ensuring the Community Management and Maintenance Activity funds do not generate deficits in 2008? What is your proposal to make up for the accumulated deficits in these funds? What fundamental changes should be made to the Community Management and Public Works and Landscaping departments so they can cost-effectively compete on price and service in the market place? Considering its high cost and the growing deficits in the Maintenance Activity fund, do you favor eliminating the landscaping and grounds service fixed price contracts as a service?

6-Capital Reserve Funding. The Foundation’s initial reserve funding policy mandates that the annual contribution to the reserve fund be from two sources: One, “Reserve Contributions from Assessments” (equal to the annual depreciation cost) and two, “Reserve Interest” (Interest on reserve investments) However, through a series of policy decisions and accounting - financial reporting practices, recommended by the Audit Committee, understood by members of the Board and validated by the auditors, only a small fraction of assessment and interest income budget for capital reserves has been credited as income to the Reserve Fund.

Assessments and interest income designated for capital reserve have funded deficits in other fund types.

Question 6: Do you approve of the present Foundation policies and accounting-bookkeeping –audit practices that divert assessment income designated for reserve funds to hidden Fixed Assets accounts? In your opinion what are the critical capital infrastructure needs of the Foundation and what would be your plan to address these needs?

7-The Village News. The Village News is not trusted by many as a source of accurate, fair, useful and critical information about the Village including the Foundation, the various community groups, Homes Corporations, Condominiums, rental and business communities.

There is a feeling that The Village News’s editorial, reporting and communication policies are geared to self promotion over effective communication. Its news and features, more than likely, attempt to create an illusion of favorable property conditions, superior service performance by the Foundation’s staff and contractors or to justify past and current board decisions and actions.

Standard features and summary information of Homes Corporations such as annual meeting and approved annual budgets only report on or include Homes Corporations which are managed by the Foundation.

Major Village-wide news events and happenings, especially bad news, are reported first and much more accurately by The Gazette.

The Village News’s advertising revenue is declining and does not cover printing, staff and overhead costs.

Question 7: What is your opinion of The Village News? What editorial, reporting and communication policies and practices, if any, would you change if you are elected to the Board? Would you be in favor of converting to an improved Village News version published monthly plus occasional special editions such as an election or summer activity edition?

The Observer invites each candidate to log onto http://www.s24c.com/mvo13.htm and give your answers to the following 7 unanswered questions.

The Hiring of a New EVP & DFS Good Job! We were lucky!

The hiring of Dave Humpton and Bill Blum Now the Story Can Be Told

Congratulations are in order!

The Montgomery Village community enters 2008 with a collective upbeat sense of relieve, hope and optimism with the experienced and capable leadership team of Dave Humpton and Bill Blum on board, in place and in charge as the Foundation’s Executive Vice President and Director of Finance and Administration. Congratulations and acknowledgments are in order.

Thanks!

To the ad hoc Personnel Selection Committee, for their time, effort and personal sacrifice that brought about such a successful outcome. The committee was able to perform despite distracting challenges to its legitimacy, make up and competency.

To Bob Hydorn in his second meeting as MVF board president calling for board approval of the appointment of the ad hoc Personnel Selection Committee after 288 days or 9 ½ of inaction after Zakian and Barber’s resignations. 9 ½ months is more than enough time to make a baby and fill a key position. But in both situations, someone has to start the process. Although it wasn’t pretty Bob Hydorn’s courageous leadership got the process started.

To Katherine Gray, Jim King and Scott Johnson elected to board in March of 2007 for delivering on their promise to “restoring confidence in Montgomery Village by hiring the best executives we can recruit to be the next MVF executive vice president and a new director of finance”. In their role as members of the board and the Personnel Search Committee they made the difference.

No Thanks!

To the hold over members of the Board of Directors of the Silliman-Wright-Zakian-Campbell era, who after the passage of the motion to establish and authorize the ad hoc search committee to move forward with the search, publicly criticized and questioned the judgment and legitimacy of the board’s actions. As in the past they have contributed little while taking credit for a lot.

And no thanks as well to those Homes Corporations’ tribal leaders whose childish attempt to bully their way to an undeserved seat of power at the search table.

How it happened - Now the Story Can Be Told.

While we celebrate the favorable results now, during its 6 months of intense deliberation, the committee experienced a continuing series of disappointments and set backs. The silent consensus among its members was that a favorable result was very much in doubt.

The Search Begins

At the initial organization meeting of the search committee Pat Huson provided the Executive Vice President’s position descriptions and a status update.

The recently elected members of the board and the home owner representatives on the search committee silently wondered why after almost 10 months there appeared to be little evidence of preliminary staff work, preparation, planning and off course progress made on these 2 important positions.

It was assumed the Foundation would have in place an automatic standard employment process for identifying, attracting, screening, qualifying and evaluating each job classification group when a vacancy occurred. This would be especially true for supervisory and management level staff openings.

Pat assured the committee that indeed was the case. There were already many experienced and qualified applicants for the Director of Administration and Finance position. Lois Campbell was keeping Treasurer Katherine Gray apprised. The Executive Vice President opening had for sometime been made know through trade and executive personnel placement contacts and sources.

Through the spring and summer the committee met frequently to review and discuss applicants and conduct group telephone interviews with candidates. In August the committee presented for board consideration 3 candidates.

Headlines in The Gazette’s September 19^th edition trumpeted the board’s responses “MVF lingers without leader – One board member’s refused to vote leaves hired in 4-4 tie”. The ensuring articles printed Pat Huson’s assessment of the situation “As far as I know they’re still deadlocked. I honestly do not see at this point how it will be resolved. But I’m sure that it will be”.

As the Village enjoyed the Labor Day holiday weekend there the silence on the Director of Finance and Administration opening signaled more disappointment.

What was going on?

As in so many events that don’t happen in the Village the Foundation had once again put into play its policy mandated practice of passive personnel, program and problem solving management style in filling these 2 key positions. That’s right nothing had been done or accomplished.

The application files for the DF&A position lay dormant in Lois Campbell‘s possession including Bill Blum’s impressive resume, his frequent follow up faxes and telephone inquiries.

Other than advertising the position in The Village News there was little evidence that either job was advertised and posted on line in any local, metropolitan, national, trade or employment newspapers or publications. Shortly after the ad hoc search committee membership was determined the EVP opening was posted on the Community Associations Institute “CAI Job Market” internet job bank. This produced the 15 applicants the committee considered and the 3 candidates submitted to the board consideration.

A carefully targeted and managed executive job search for comparable positions, utilizing advertising in the employment sections of metropolitan, national, business, HR and trade journal newspapers and publications and corresponding web postings would normally produce several hundred responses.

How did we avoid the train wreck?

We got lucky, 3 times. First, board member and Treasurer at the time, Katherine Grey had reviewed the initial DF&A applications and resumes received and was particular impressed with the Bill Blum’s experience, background and credentials. Not satisfied with the answers and delays to her frequent inquires and requests, Katherine contacted Bill directly, set up meetings and interviews that lead to his hiring.

The second lucky event was the board dead-locked vote. First it prevented the hiring of yet another MVF EVP selection mismatch. In all probability the rendition of the Village’s pathetic plight as described in The Gazette’s September 19^th edition must have inspired Dave Humpton to say “I think I can help these guys”.

The third component of the perfect storm of luck was Dave’s availability and interest at the Village’s most desperate hour of need.

Mr. Wright you're wrong again!

Mr. Wright is wrong again!

The Village News November 1^st “ Money Matters column by Interim Treasurer Richard Wright reported that “Through 9 months the (financial) performance is essentially on track…with income $301,000 better and expenses $264,000 worse than budget. However, the expenses profile…will wind up slightly negative”.

The remaining narrative was a series of un-intelligible explanations of the alleged income and expenses categories line item amounts and anticipated 2007 year end budget variances. While attributed to Wright, the report was written in the familiar unreliable financial “Lois speak” style prose of Lois Campbell.

The Observer has restated the MVF financial statements through September 30, 2007. While both versions used the exact same income-expense general ledger accounts and cumulative line item amounts, the Observer’s rendition leads to a much different conclusion about the state of MVF’s financial health. (See schedule p4)

Financial Reporting Goals

The effectiveness of the of the financial management budget reporting systems depends on the board’s confidence and willingness to take prompt corrective action and make good financial decisions on unfavorable variations from the budget as indicated by the monthly financial reporting system.

All that said it seem reasonable that the primary goal of the budget and financial reporting system is to produce an accurate, complete, timely, understandable income-expenses budget comparison and balance sheet statements each month.

Inherent in all successful business, non profit and community association organizations is an intuitive sense of urgency about financial reporting, that mandates complete accurate financial reporting communicated thought out the organization normally within days of the end of the reporting period.

MVF Financial Reporting Traditions

In addition to a well planned and deliberate misleading, confusing and convoluted reporting system, the Foundation has developed to a fine art of time stretching from the end of the reporting period to when the MV Village News Money Matters feature fictionalizes the MVF financial highlights.

Because the staff driven bureaucracy has no sense of urgency about completing and distributing MVF’s inaccurate, improperly prepared and misleading financial reports until a few days before the monthly board meeting, any meaningful communications is already 2 to 3 month old.

The Realities of the MVF Financial Report System

The MVF financial statements and reports prepared by staff, presented to members of the Board of Directors in advance of meetings, summarized and reported by the MVF Treasurer at the MVF monthly board meetings and reported in the MV News deliveries an empty message. This results in a distorted and misleading accounting presentation of revenue, expenses, assets, liabilities and equity accounts.

By all indications reporting accurate, complete, timely, financial information is not intended purpose or desire of the senior staff, the Board of Directors and the Audit Committee.

Limited selected financial information is only communicated to create an illusion of favorable financial condition and excellent staff performance as well as to justify past and current board decisions and actions.

Mr. Wright, Prove Me Wrong!

Dick, you may take exception and disagree. If so please set the record straight when you give the Treasurer’s Report Thursday at the December 6^th Board meeting.

Make sure when you report “It (year end budget to actual variance) is expected that the year will wind up slightly negative” discuss and refute The Observer’s projection of a deficit of ($1,002,479) in 2007. (See schedule p4)

When you explain that the Maintenance Activity Fund (MAF) only has a ($42,122) deficit for the first 10 months of the fiscal year please mention that MAF income includes contract income of $603,750 “Fixed Price & ala Carte for Administrative Facility” which isn’t really income but an internal bookkeeping entry . . (See schedule v)

When “Fixed Price & ala Carte for Administrative Facility” is excluded on the 2007 audit report the projected MAF deficit in 2007 will be $1,231,553. (See schedule c)

When you state “Expenses are worse than budget by ($171,016) explain the budgeted line item amounts for “Direct Expenses” accounts used in the budget to actual comparison report are not the amounts approved and published for the 2007 budget.

As you know $674,290 of the direct operating expenses for the first 10 month of the fiscal year was charged to “Fixed Price – Maintenance 5590” which off course is only another bookkeeping entry so no one is really sure if money was actually paid, services preformed or what direct expenses were actually charged. (See schedule i)

When you report that “Through October Reserve spending was $422,000 and Reserve contribution and reserve interest income totaled $276,000” it would be helpful mention the $422,000 “Reserve spending” was not really spent on capital improvement projects but transferred to “Fixed Assets” account under “Fund Balances” , (another bookkeeping transaction off course) .

Also remind everyone that $276,000 “Reserve contribution and interest” isn’t really contributed to the “Reserve Fund” because the Designated Reserves fund is no long is classified as a MVF fund type. Why don’t you, Lois, Keith or someone from the Audit Committee explain how the majority of funds budget for “Reserve Contribution”, “Reserve Interest” and “Reserve spending” (via the “Fixed Asset” account) is used to fund the on going annual deficits of the Community Management and Maintenance Activity Fund.

Dick, if you don't feel comfortable commenting in your Treasurer’s report at the meeting please feel free to post your comments on The Observers blog

The MVF Budget Crash of 2008!

The Foundation’s Goals and Community Standards

Budgets are the money expression of the goals and objectives of a Common Interest Realty Association (CIRA). The board of directors’ responsibility to approve the annual budget and establish assessment levels places special emphasis on the board’s stewardship duty to allocate control and wisely utilize community resources.

The budget’s effectiveness depends on the board’s willingness to take prompt corrective action on unfavorable variations from the budget as indicated by the monthly financial reporting system, the on going monitoring of property conditions and feed back from the community.

Roles and Duties in the Budget Process

Staff and Management

Based on based predetermine goals, standards and policy the staff and management must prepare, present, defend and be held accountable for the budget it prepares and presents for consideration and approval.

Every major category and classification of income and expenditures has a standard time tested proven method of measuring and determining budget line item amounts. As a minimum, backup budget preparation schedules should be used to calculate personnel, utility, contract, supply and capital reserve cost.

Presentations of the budget for board and community’s approval and consideration has to be professional prepared and include a comparative analysis of historical, current and future revenue and expenditures. The budget must include rational and reasonable explanations and justifications of program recommendations, income and expenses calculations and analysis of trends, variances and conditions affecting costs.

Board of Directors

The Board of Directors is responsible and accountable for the assets, operations and finances of the Village’s. The budget is the financial plan and the primary tool that allows the board to effectively meet these obligations.

Each board member should:

• Understand his or her financial duties and obligation; the requirements, standards and community goals address in the budget and how the budget is prepared.
• Be willing to challenge and questions all aspects of the budget.
• Hold the staff and management accountable for results and
• Openly, effectively and truthfully communicate and engage in a two way dialog and communication with the community on the merit of the budget.

The Membership

Only then can the property owner members in the Village have a level of confidence in the budget preparation and communication process to judge whether those with power, duty, obligation and influence are:

• Preserving, maintaining and enhancing its property and assets.
• Providing maximum value from the assessment dollars.
• Enhancing and contributing to the Village’s quality of life.
• Effectively delivering customer services to the members and
• Impacting positively on the equity value of common and individual property.

The Approval of the Empty MVF 2008 Budget Package

The MVF Board of Directors and staff should feel an under whelming sense of failure, shame and regret for preparing, presenting, communicating, adopting and approving the MVF 2008 budget and assessments at the October 25^th board meeting.

The only community goals and standards articulated were “no new initiatives” and to “raise the assessment ceiling”. The budget did not address plans to improve customer service delivery or a strategy to restore the function, structure and aesthetics to the Village’s neglected common facilities, landscaping, shore lines, paths and lighting to a community standard of maintenance, care and management.

Missing was a sense of urgency, commitment and capital plan that would restore life to the Village’s crumbling infra structure.

The MVF staff’s2008 budget preparation, presentation and performance lacked supporting schedules, understandable calculations, meaningful explanations, valid comparisons, intelligent analysis or valid rational.

The proposed budget was published without any apparent aspect being questioned or challenged internally by staff, the Audit Committee, or individual boar members.

For the last 6 months Interim Director of Finance and Administration and now “Consultant” Lois Campbell in her role as MVF’s chief financial spokesperson mobilized the public relations misinformation surge, not about the merits of the proposed budget, but to promote a campaign to “raise the assessment ceiling”.

Raising the assessment ceiling has always been the only mission of the MVF village leaders and foundation staff. Open, effective and truthful communication in which all parties engaged in a two way dialog with the community on the merit of the budget was never a consideration.

Lois, in her assumed capacity of MVF Communications Czar, authorized unlimited space the Village News’ September, October and November editions to promote a raise in the assessment ceiling to the over 10,000 Village households.

A willing force of contributors from The Village News editorial staff, former Interim EVP Pat Huson, as well as tenured board members Keith Silliman, Richard Wright and Gerald Donovan contributed articles skillful avoiding the details of the proposed budget.

Questions and concerns raised by those in attendance of the September 25^th budget information meeting and the October 18^th meeting of MVF representatives were dismissed as not germane to the vote to raise the assessment ceiling. The questions covered:

• A comprehensive examination of the budget by line item,
• A plan to contain cost,
• MVF existing budgeting and spending philosophy,
• Accounting and reporting credibility,
• Cost effectiveness of Village wide spending programs

“Letters to the Editor” of The Gazette from Jane Hatch, President of the Board of Northgate Homes Corporation, and The Village News from Eileen Fishman a resident of Northgate, Michael Sheib a resident of Normandie on the Lake II and Mark j. Firley, President of Board of South Village Homes Corporation cried out for :

• Greater accountability and efficiency from MVF operations
• Stopping the abuse to those who dare to question the accelerating demand for money by the Foundation and,
• The abusive comments to those who express a contrary opinion.
• A need for civility and a cease to neighbor to neighbor hostility.
• Current year actual to budget results and detailed line item budget justification before budget decision can be made.
• A reexamination of 2007 results and the 2008 budget assumptions early in 2008.
• Accountability and explanation to residents of condominium communities of the cost of Village wide spending programs.

All the letters were received with silent indifference except to Michael Shieb’s letter in which then Interim EVP Pat Huson’s responded “When people do not acknowledge and support the efforts of the Foundation, they not only do a disservice to MVF, but to themselves and the community as well.”

Mr. Shieb you must realize that there is a long standing MVF board approved policy that when any person publicly express a comment, opinion and/or concern or asked a question about MVF financial matters or services preformed they will be ignored, deionized, patronized, judged unworthy, treated rudely and declared a disloyal enemy of the Foundation.

Relying on the staff prepared and presented 2008 fiscal year budget with the endorsement of the Audit Committee, the board with only Katherine Gray and Scott Johnson voting against, approved a defective financial non plan destined to follow the rocky road to “The MVF Budget Crash of 2008”.

Financial transparency and public comment and approval had been successfully hi jacked and held hostage as ransom in return for a raise in the assessment ceiling.

Budget Crash 2008 The Observers’ Projections and Predictions

Despite the refreshing and open leadership of Bob Hydorn, the good intension and efforts of Hydorn and fellow board members Scott Johnson, Katherine Gray and Bob King to effect financial reform and the hiring an Executive Vice President and Director of Finance and Administration the approval of the 2008 fiscal year budget indicates little progress has been made.

The events over the past 90 days were a series of missed opportunities. The hold over board members from the Wright-Silliman-Zakian-Huson-Campbell regime are still in control promoting the corrupted MVF financial, operating and governing policies and practices of the past quarter of a century.

The most amazing revelation is that Lois Campbell, 3 months after William Blum became the Director of Finance and Administration and 2 months after Dave Humpton was hired as Executive Vice President, in her new capacity as “Consultant” is still in control of Foundation’s communications and financial operations and exercise unchallenged influence over board and committee deliberations. John Zakian, as much of a control freak as he was, exercised less power and control and in The Observer’s view, wasn’t not nearly as dangerous.

If the Foundation embraces the MVF 2008 fiscal budget and continues its past financial policies and practices The Observer predicts the following will happen:

1. There will be a shortfall in non-assessment income of $1,439,549. The assessments only account for 56% the $ 8,585,527 expenses and reserve contribution budget. The Foundation has a history of substantially under estimating non-assessment income and 2008 will be no different. (See schedule C)

2. The Foundation will end up the 2007 fiscal year with a financial deficit in excess of a million dollars, and if the Board of Directors does not take appropriate action the 2008 fiscal year deficit is project to be $ 1,532,636.(See schedule A)

3. The combined deficits from the Community Management and Maintenance Activity Funds will be $$1,415,594 in fiscal year 2007 and $1,533,636 in fiscal year 2008. (See schedule J)

4. These deficits will be funded, as in the past, from funds intended as contributions to the Reserve Fund and curtailing spending common property maintenance and capital expenditures.

5. At the urging of the Audit Committee and influential board members Lois Campbell will be continue to retained as a paid financial consultant to further educate Bill Blum, Dave Humpton and newly appoint Treasurer Darcy Bingham on MVF financial policies, traditions, accounting and reporting practices, produce the November and December 2007 financial reports and work with Regardie, Brooks & Lewis on another “Clean Audit” for the 2007 fiscal year.

Just say no to a raise in the assessment ceiling!

Just say no to a raise in the assessment ceiling!

It’s the budget first It is the board’s responsibility in approving the budget to exercise due diligence in such a way as to ensure it effectively allocates, controls and uses the community’s resources. Only when that is accomplished can or should the board establish assessments levels. However, a deliberate and careful budget process on the merits of budget has been ignored to engage in a public relations campaign to raise the assessment ceiling.

The proposed ceiling increase won’t work As has been the practice over the years the 2008 budget includes 2 income line items that are not recognized as revenue in the annual audits. “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” are accounts which are offsetting income and expenses transactions are not income. These are bookkeeping entries and not actual MVF revenue.

When these budget transactions are included as income in any budget draft or financial statements, the total income is inflated and misrepresented. When adjustment are made to the 2008 budget proposal eliminating these non revenue bookkeeping entries and not changing the expense budget a projected deficit of $1,363,419 is created. Consequently, to balance the 2008 budget $1,363,419 in reduced expenses must be identified.

The expense budget for 2008 of $8,585,527 is $1,753,265 greater than the 2006 audited expenses. The 2008 proposed budget assessments of $4,825,785 is only $750,030 over the 2007 $4,075,755 assessments. To be preoccupied with the assessment ceiling and not the merits of the proposed budget makes no sense. And off course, neither does the 2008 proposed budget. (See schedule C)

History of Over Estimate Expenses and Underestimating Income The Board of Directors of the Foundation has a history of approving annual budgets that substantially over estimates non assessment income and under estimate operating expenses creating a severe cumulative budget deficit condition. (See schedule N)

Unfortunately, the board and senior staff live in the state of permanent denial, stubbornly pursue inadequate and poorly administered remedies, have not been forthcoming with the financial and property condition realities and are unwillingness to take prompt corrective action on any of the adverse financial and facilities condition problems facing the Village.

History of Loss in CM and MA Funds There has been history of losses and deficits over the years in the Community Management (CMF) and the Maintenance Activity (MAF) funds. These deficits were funded using money designated for capital reserves while neglecting maintenance and landscaping services to the public areas. (See schedule Q)

Arguments for Raising the Assessment Ceiling

Quality services will not be provided – When has the Village ever had quality service? For decades there has been general deterioration of the Villages’ parks, streams, and lakes’ natural resources. Can “Those people who are close to the organization and who appreciate its value” see the crumbing walkways; dying, crippled and diseased tree life; eroding and inadequate turf coverage being conquered by invasive and wild plants? Have they not noticed eroding soil washing into the adjacent lake and streams? Have they been aware of the temporary and inadequate stop gap shore line repair measures Lake Whetstone has endured for years? Have the not observe the neglected physical structures, the absence of normal care and maintenance routines and the ever growing backlog of capital needs?

It’s not about the ability to continue providing quality services it is about why these conditions exists, what happened to the millions of dollars collected from past assessments to maintain and preserve Village assets and how to create awareness of these conditions on the part of the board and senior staff so we take corrective action and do a much better in the future.

Reserve funds will not be available for need capital “Reserve Contributions from Assessments” (The board of director’s approved policy mandates it be equal to the annual depreciation cost) and “Reserve Interest” (Interest on reserve investments) are required budget line items that equal the annual funding source for the Reserve Fund. A small fraction of assessment and interest income budget for capital reserves has been credited to the Reserve Fund.

In addition, other than capital expenditures on Landscaping and Public Works equipment, there is little evidence that capital expenditure from reserves were ever spent to improve common property assets. Assessments and interest income designated for capital reserve have funded deficits in other fund types.

The embezzled funds don’t count The June 6^th edition of The Gazette reported “There were 21 other fraudulent transactions from the summers of 2004 and 2005 ranging between $75 to $3,500 for 7 employees, for whom Buttry created false payroll accounts in years when those employees did not work and deposited the wages into her personal account. A former lifeguard who was being audited by the IRS for wages supposedly paid to her in 2005-a year she did not work put investigators on the path that led to the $86,000 theft-scheme charge”.

In managing and operating a multi pool facility department it is incredible that MVF has never had a workable and effective payroll administrative control system. The ease, consistency and skill which Laura Buttry could steal substantial funds from the payroll system and go undeterred for so long a period is just one example of MVF’s long standing and continuing out of control financial and personnel staffing operations.

If you don’t favor the increase; good governance, Village activities, effective management control systems and the appearance of the public areas are unimportant to you and Montgomery Village is not the place for you to live. So move!

No Lois, Pat, Gerald, Richard and Keith, it’s not those who oppose the raising of the assessment ceiling who should go. We need to stay to clean up the mess!

The truth about The August 3, 2007 MVF Financial Reports - It's not good news!

The Village News Has Arrived!

Lois Campbell in the Village News “Money Matters” feature (October 12^th edition) reports in her signature euphemistic “Lois speak” the latest MVF financial good news. Rivaling Alan Greenspan’s secret language of opaque and convoluted dialect Lois writes that “Through eight months, the performance is essentially on track; …Expenses are over budget by $247,000…however, the expenses profile for the remaining months of the year has some uncertainties”.

Follow is the Observer’s restatement of MVF financial statements through August 31, 2007. Although both reports used the exact same income-expense general ledger accounts and cumulative line item amounts, the Observer’s rendition leads to a much different conclusion about the state of MVF’s financial health.

The following are the differences in the 2 versions.

Overhead Expense Allocation The overhead expenses allocated the various accounting funds equals between 20 to 23 % of the total expenses. For this year the budgeted allocation cost is $1,508,605 and $1,804,561 proposed for 2008. These overhead costs are not allocated prior to the preparation of the monthly financial statements.

Consequently, the MVF financial statements do not include detailed comparative reports of expenses and income categories, individual line items or fund types. The Observer has made the cost allocation and has reported by operational groups within each fund type.

Unrecognized Income “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” are income accounts which are offsetting income and expenses transactions not recognized as revenue in the annual audits.

When these budget transactions are included as income in any budget draft or financial statements, the total income is inflated and misrepresented. The Observer has excluded “Assessment Collection Fees” and “Fixed Price & ala Carte for Administrative Facility” from its version explaining the $498,787 variation in income between the 2 versions.

Summary Reporting The “Income/Expense Summary” and “Balance Sheet as of August 31 2007” as reported on page 12 of the current Village News only displays total income ($5,345,936) and expenses ($5,300,098).

The Observer’s Income - Expenses comparison report presents a detailed comparative of expenses and income categories and fund types and comparison of the MVF balance sheet information with the December 31, 2006 audit balance sheet.

Financial Analysis Narrative There is no factual basis for the MVF narrative analysis and conclusions that are printed in the Village News and the financial statements provided MVF board members in advance of monthly MVF board meetings.

The “Money Matters” columns only publish a total summary “Income/ Expense” and “Balance Sheet” and does not include a detail of sub categories, fund types and income-expenses categories for the periods being compared and analyzed. However, the oral and published narrative and explanations refers to and compares unrevealed financial data.

Consequently, you either accept the staff’s analysis and conclusions on blind faith or assume what is being presented is fiction, fantasy or fraud.

Income and Expenses

Expenses exceed revenue by $495,271. The Community Management (CMF) ($74,117) and Maintenance Activity Fund (MAF) ($306,377) deficits account for 76.8% of the operating deficit through August 2007. The 2007 year end projections indicate a possible MVF 2007 fiscal year deficit of $1,224,637, CMF a $76,306 deficit and the MAF a $1, 3281,175 deficit.

Revenue

Projected income for 2007 fiscal year is $960,222 lower than the approved 2007 budget. “Assessment Collection Fees” ($132,000), “Disclosure Income” ($64,500), “Class and Courses” ($25,200) and “Fixed Maintenance MVF Maintenance Contract Income” ($724,500) account for this revenue variance.

Expenses

Projected expenses for 2007 fiscal year are $239,418 higher than the approved 2007 budget. Payroll expenses ($246,622), Utilities ($39,974), and “Audit” ($35,268) account for this expense variance.

There are many confusing aspects of the MVF financial budgeting, accounting and reporting system. The most confusing and difficult to explain or understand is the treatment of direct expenses incidental maintenance, landscaping and snow removal services on common property provided by the Maintenance Facility and Public Works department.

The individual line item direct expenses budget amounts for current, year to date and 2007 budget displayed for directed expenses are substantially different than the approved budget. Each month $50,572 is charged as a direct expense to account 5590 Fixed Price Maintenance. Under this different schedule of budget expenses the annual budgeted amount for account 5590 is $606,861. (See schedule I)

Consequently, when the current through August expenses are projected through the end of the year “Grounds, Landscaping, Lakes and Streams” is under budget by $427,755 while “Maintenance, Repairs and Supplies” will be over budget by $603,218.

Balance Sheet

The balance sheet does not show an amount in a number of account classifications. Balance sheet accounts such as “Accounts Receivable” and “Accounts Payable” are normally updated to the last day of the reporting period as part of a standard accounting “close out” preformed to the books and records prior to producing the financial reports. This raises questions to the accuracy of the published financial reports.

The balance sheet shows a reduction of “Cash & Equilvants” of $339,433, $471,717 in “Total Assets”, $501,913 in “Current Liabilities and $232,665 in “Reserve Funds from the 2006 Audit balance sheet reports as of December 31, 2006. (See schedule P)

Please stay posted to the Montgomery Village Observer’s Blog and website for more bad news about the MVF 2008 proposed budget and the awful truth about raising the assessment ceiling.

The MVF 2008 Budget Process - Let the Games Begin!

6/28/2007 Approval of the 2008 Budget Preparation Guidelines

At the June 28^th MVF board meeting the board officially kicked off of the MVF 2008 fiscal year budget countdown. As reported in the July 13^th Village News in its “In the News” column staff reporter Mike Conroy reported under Money Business “On the heels of the positive balance for the 2007 budget, Lois Campbell presented the Board with the 2008 Budget Guidelines, as the time to start the budgeting process is right around the corner.”

At the meeting the board acted on 3 staff recommendations necessary to move the budget process forward. First, the board approved the 2008 budget preparation guidelines after agreeing to fund the reserve contribution assessment to a 75 percent level (as recommended by the reserve study report) by a 4 to 2 vote, agreed to consider a raise in the assessment ceiling and third, it set the 2008 budget timeline as follows.

Thursday June 28^th - Set guidelines and authorize preparation for ceiling increase.

Thursday August 16^th - Joint Board and Audit Committee draft review meeting.

Thursday August 23^rd – Board of Directors meeting – Approve draft budget for publication.

Thursday August 31 - Publish draft budget the Village News.

September 1^st to 27^th – Public Commentary period.

Thursday September 27 - Board of Directors meeting – Approve assessment rate and adopt budget for 2008.

Using the 2007 budget as a starting base for calculating the 2008 budget, the guidelines methodology consisted of only 4 steps:

1. Add to “Wages and Benefits”, per the Personnel Committee’s recommendations, 3% for merit raises and $144,000 for new staff positions not included in the 2007 budget.

2. Increase non personnel related operating expenses 3.5% to compensate for inflation

3. Increase “Inter Company” expenses from $724,000 to $900,000

4. Budget $715,000 as “Contribution to Reserves” (Note: this is 75% funding of the amount recommended by Advance Reserve Solutions in its July 2007 reserve study report).

The guidelines present more questions than answers.

Budget to Actual Comparison Is it reasonable to use the 2007 approved MVF budget as the foundation for the 2008 budget? How is the 2007 budget matching up in the monthly financial statements when compared to the actual income and expenditures by fund type and ledger accounts against the budget? In her July 13^th 2007 “Money Matters” column :Preparing for budget season” Lois Campbell wrote “A well-developed budget enables management to measure performance during the year and to make adjustments as needed. The “traditional budget vs. actual” is the gold standard for management success or failure.”

Based on what has been communicated by senior foundation staff, reported in the Village News and shown in the monthly financial reports made available to the board members each month, the 2007 actual expenditures through July compare favorably to the approved budget.

At the June board meeting Lois Campbell was quoted “that the Foundation continued its (favorable) trend from April …the budget still looks to be on track to stay balanced.” After hearing the positive outlook, Board member Jerry Donegan was “encouraged by our bright future.”

However, when budget and actual expenses and income operating categories are organized and compared by fund type a somewhat different picture appears. Using the July 2007 monthly financial statement provided board, the differences emerge:

• Substantial over estimating of income and under estimating of expenses.
• Widespread line item variation between published 2007 budget amounts and what is shown as the annual budget in the monthly financial statements report to the board
• Inclusions of inter fund income fees that record no corresponding expense or negative income offsetting from other fund types. These types of transactions have not been recognized as revenue in the annual audits
• Inter-Company Expenses” equal to the total foundation maintenance and landscaping cost is included as income to the maintenance activity fund. Income from these type sources have not been recognized as revenue in the annual fiscal year audits.
• As has been the pattern for the past several years, there have been significant losses in the community management and maintenance activity funds.

In the opinion of the MV Observer, building next year’s budget solely on this year’s numbers as presented to the Board is burying MVF’s fiscal future on a foundation of quick sand.

Budget Preparation Policy Will the 2008 guidelines as presented supersede the existing established board policy that outline the methodology for preparation of the annual budget and establishing assessment levels?

In a series of articles on the budget process was published in the Village News in the spring and summer of 2006, John Zakian in one of his Executive Vice President’s Message column discussed at length the principles and concept of Zero Based Budgeting (ZBB) as the basis of MVF’s budget preparation policy.

In the June 16^th 2006 Montgomery Village News front page story headlined “Work to begin on Drafting 2007 budget” it was stated that “Zero-based budgeting principles will be in use for drafting the 2007 budget, which means that all programs, services, activities, and staffing levels will be reviewed top to bottom as to need, purpose, justification and appropriate level of financial support.” In Lois Campbell’s July 13^th “Money Matters” column referenced earlier she stated “In short a well-articulated (budget preparation )concept prepared with care results in the ability to exercise management controls over the corporation by measuring progress against financial bench marks and corporate goals”.

An effective resolution that establishes, defines and implements the community’s board approved policy should do the following:

• Set forth in a public statement the community’s commitment that becomes an integral part of the association’s governing documents
• Establish this commitment in a framework that will ensure compliance with the law, the association’s governing documents and the association’s unique and specific requirements and the board’s fiduciary duty
• Allow for consistency in purpose, procedures, best practices and principles
• Insulate and protects against short-term pressures, conditions and occurrences that should not affect future related decisions and attitudes.
• Protect the policy from erosion and poor practices over time as the board, management, vendors and staff membership and viewpoint change.
• Ensure continuing, effective, reasonable and professionally performed practices.

In our view, it was not wise for the board to agree to use the “2008 Budget Guidelines” as budget policy rather than one based on Zero Based Budgeting (ZBB) as John Zakian inferred was policy in 2006 and which Lois Campbell intimated in July of this year was to continue to be the 2008 policy.

8/10/2007 2008 MVF Draft Budget Delivered

Although the board members waited with great anticipation for the arrival of the staff proposed 2008 budget their attention during the interim 7 week period following the board’s approval of the 2008 budget guidelines the board was very much occupied with other matters.

There was a protest from the residents of the partitioned community of Picton directed towards the independent kingdom of EVHC “to tear down that wall”. In attendance at the July 28^th MVF board meeting were District 14 representatives of the Maryland General Assembly.

On July 30 a Dispute Resolution Hearing was held concerning the board’s actions in appointing a treasurer and the composition of the EVP Search Committee. After meeting for more than a dozen times the EVP Search Committee became deadlocked over a final selection.

On Friday August 10^th the MVF 2008 budget draft was delivered in a hand addressed plain brown envelope propped between the screen and front entrance doors of MVF board members. The envelope contained the proposed budget in a 3 ring binder together with an explanatory covering letter.

With only one week to study the document before the August 17^th joint meeting of the board and the audit committee time was essence. The budget was quite a homework assignment for even the most knowledgeable and experienced MVF budgeters.

The joint meeting of the board and the audit committee was held as scheduled with no changes recommended.

8/16/2007 Presentation of the MVF 2008 Fiscal Year Budget

The August 17^th edition of the Village News “Money Matters” feature by Lois Campbell contained an edited version of the summary cover letter of explanation to the 2008 Draft Budget delivered one week earlier to the board members. Following are the direct quotes from both sources.

Balancing the Budget

“This budget is balanced and includes assessment increases for both the MVF and a Designated User (DU) funds…every line item in every department has been examined for excess. No new initiatives have been added and no services have been cut. However the assessment ceiling must be raised in order to avoid a deficit budget. Community Management and Landscaping and Public Works are at breakeven in this budget. Income is estimated conservatively and expenses have been carefully examined.”

“The current year (2007) budget is a balanced budget after two years of deficit budgets. Years 2005 and 2006 were back to back deficit budget year that were made worse by poor accounting practices and inadequate financial oversight. Primarily, the cause was the reduction of assessments in 2005 followed by no increase in 2006. If the CPI and cost of living increase had been applied to the 2005 and 2006 budgets and the assessment ceiling had been raised, many of the current difficulties with budgeting would not exist today. It will take time and effort to recover financially from the mistakes of fiscal years 2005 and 2006.”

“This 2008 budget will either be a deficit budget once again, or the ceiling must be raised. Both the MVF and the DU rates must be increased.”

Mistakes of the Past

“In addition, commitments to services clients were added, often without a thorough understanding of the cost and without receiving sufficient income to cover the cost. Furthermore, there was little financial oversight until late in the year.”

Contribution to Reserves

“The 2007 budget was balanced by including a reduced contribution to reserves. In 2006 there was no contribution to reserves as there were no funds available to make that contribution. For 2007, a MVF assessment ceiling and a responsibility to MVF members and Designated Users rightfully limited corrective action. Thus, the 2007 budget was balanced by limiting the contribution to reserves to $118,000."

“The assessment ceiling cap on the MVF Fund was reached in the 2007 budget. This was not sufficient to cover the full contribution to reserves. Had the contribution to reserves not been reduced, it would have been a deficit budget for a third year.”

Longer Term Issues

“The future has its challenges; the assessment ceiling has been reached and specific plans for financial revitalization have not been drawn up. These challenges deserve some further discussion. Financial resurgence requires the Board to take action. This action not only includes raising the assessment ceiling, but restoring the operating fund balances to positive territory. Financial health will not occur without intervention. Efficiencies in management and services are being sought throughout the organization and can be foreseen in the future but not until existing structural problems that have been developed over the last three years are corrected”.

“A final word on financial health it take time to undo the mistakes of the past. While great strides have been made to restore the accounting system to an acceptable state, this is not sufficient. Sound financial management is required. It cannot be accomplished in just one year, but this draft budget is the first step in the right direction.”

In her Executive Vice President’s Message titled “Reflections on the year” Pat Huson wrote “During this past year a number of tasks involved restoration of former standards and policies, which were by-passed or changed to the detriment of the organization…In the area of finances, an intensive effort has been made over more than a year to bring the financial record keeping and reporting back to excellent condition. Internal controls have been evaluated and updated to an effective level. Several new staff members are in place and are doing an excellent job. Monthly reports are being produced, and a proposed budget for 2008 has been prepared for review by the Audit Committee and the Board of the Directors. An assessment ceiling will need to be raised to fund the budget.”

8/26/2007 Board Considers 2008 Budget

As reported in the Village News August 31 edition “Interim Director of Finance and Administration, Lois Campbell, presented the 2008 draft budget. Campbell noted that although there had been financial problems in the past MVF’s current situation is such that the accounting problems had been corrected by the end of 2006 and proper financial management had been in place since August of 2006 due to her own efforts and those of Pat Huson.”

What was not reported in this edition of the Village News or in the August 29^th edition of the Gaithersburg – Montgomery Village Gazette was that the Foundation Board failed to approve the 2008 Draft Budget by a 4 to 4 deadlock vote. The board did agree however to publish the 2008 draft budget and the remaining budget schedule dates and events.

8/31/2007 Campaign to Raise the Assessment Ceilings

The previously published 2008 timeline approved at the June 28^th board meeting showed September 1^st to 30^th as “Public Comment” period. Now as announced and prominently displayed in a bold border frame on page 5 of the August 31^st edition of the Village News, “Raising the assessment ceiling of is the one and only mission of the MVF village leaders and foundation staff.

Schedule for raising the assessment ceiling

Wednesday, September 5^th - Send notices and information to homes corporations, condominium and multi-family MVF representatives on meeting schedules to vote on the assessment ceiling increase.

September & early October - Board members promote ceiling increase with Homes Corporation and condominium presidents.

Tuesday, September 25^th - at North Creek Community Center (20125 Arrowhead Road) – Village wide meeting to educate MVF representatives and alternates.

Thursday September 27^th – MVF September board meeting.

Thursday October 18^th at Lake Marion Community Center (8821 East Village Avenue) Vote taken on increase in assessment ceiling.

Thursday, October 25^th or Thursday November 8^th at North Creek Board Room (20125 Arrowhead Road) – 2008 Budget approved and MVF and DU assessment set for 2008.

Friday November 2^nd or Friday November 16^th Assessment announcement in Village News and notices sent to owner prior to Saturday December 1^st.

The preparation of the 2008 Draft Budget by the staff is no longer a step in the overall process that allows board members with due diligence and forethought, to carefully craft a board budget for public release.

As Lois Campbell and Pat Huson confirmed in the September 14^th Village News financial transparency and public comment and approval have been hi jacked and are now being held hostage as ransom in return for a raise in the assessment ceiling. There is no indication from anyone on the Board to the contrary.

The question is do we allow the Foundation Board to raise the assessment ceiling or we raise the roof on the MVF financial house of cards?

Keep posted much more to come!

Act Two Déjà vu all over again -May to July 2007

Act Two Déjà vu all over again

Act Two Scene 1 Media News

The Initial MVF Response

On Friday May 25^th , before finalizing his May 30 edition story headlined “Embezzler faces new charges – Investigation uncover scheme in which an additional $86,000 was stolen from the foundation”. Sebastian Montes called MVF board president Robert Hydorn for his comments. The latest allegations were that over a period of time covering 6 fiscal year “clean” audits, Laura Buttry used her unchecked access to MVF bank accounts, payroll records, wire transfer codes and general ledger accounting system to at will reach into any foundation fund and/or cost center and steal cash.

Bob’s 15 months on the board have been quiet an education. For his first year he was many times a lone concerned voice of one questioning MVF’s failed financial, operational and personnel policies and practices. On his first day on the board, Hydorn was declared an “enemy of the foundation” and appropriately ignored over the last year and a quarter.

Hydorn was elected president, only 61 days prior, by a fragile 5-4 vote with support of the 3 newly elected reform candidates. The board’s voting majority had agreed to what it thought was an appropriate “Media News events plan” but in no way were they prepared for the scope, extend and seriousness of this new disclosure. Quickly recovering his composure Bob placed in motion the emergency plan by:

• Telling Monte he needed to check on the details before commenting.
• Discussing with MVF senior staff what they knew and when they knew it
• Notifying via e-mail all board members, Village volunteers elected and/or appointed positions of responsibility, duty and obligation including the presidents the village’s homes corporations, community associations and condominiums of an eminent “Media News” event.
• Engaging Fay Jacobs formerly MVF’s director of communications to prepare his statement to the press over the Memorial Day holiday week end.
• Releasing this carefully prepared and verified official MVF Board statement to the press and publish to the community in the June 1^st edition of the Village News.

It was a valiant effort and a proper way for the MVF board to:

• Speak with a united voice,
• Draft and issue an accurate statement,
• Show proper concern about the serious of the event and
• Promise complete and accurate updates when additional information becomes available.

What Hydorn failed to realize that the newly elected majority transparent, accurate one voice “Media News events plan” had in no way been accepted by the “minority” on the board, senior staff and the brotherhood of Montgomery Village spokespersons (BOMS). Bob was still an “enemy of the foundation” and in accordance with its “Code of Communications” must be treated as such. In all probability Sebastian had already reached senior BOMS Lois Campbell for comment before connecting with Hydorn. Lois was quoted in The Gazette’s May 30 edition “throughout the investigation foundation staff divulged details “strictly on a need-to-know-basis”. Unfortunately for the president of the board and other enemies of the foundation on the board there was a lot they “did-not-need-to-know”. Bob and his fellow voting majority board members still didn’t know what they didn’t know.

For those readers not totally familiar with the Village’s governing structure a brief explanation may be in order. There are 2 distinct dominant viewpoints among the various MV homeowners, stakeholder groups and organizations know as the “Reformits” and the “Traditionees”.

The Reformits feel there are serious built in deficiencies in delivery of basic services, personnel staffing and organization as well as maintenance of foundation’s facilities. The Reformits think past boards have failed to exercise adequate oversight and supervision over staff, contracts and the foundation’s finance and fiscal matters. The Reformits’ believe reform of the MVF’s governance and operation is needed now and that Traditionees are in denial and usually deploy and ineffective decision making management style.

Reformits believe the MVF board of directors is the duly authorized elected policy and decisions body. Based on its powers and duties as outlined in the governing documents the board establishes policy, committees’ advice the board on policy and management and staff implement policy.

The Traditionees content that over the years and currently, MVF is as a well run community with superior recreation facilities and a strong sense of community pride enhanced by numerous Foundation sponsored programs. The Foundation’s facilities are cost effectively maintained at acceptable community standards and that cost and fees have remained low without adversely affecting maintenance, operations or capital funding for future needs.

The Traditionees believe in a decentralized consensus form of governance and system of checks and balances. Under Traditionee’s rule certain committees can determine binding policy guidelines within its committee charter and a plurality of homes corporation representatives can exercise power to delay, alter and/or table indefinitely MVF board actions, goals or initiatives.

The March MVF board election the 3 Reformits candidates received 81% of the votes cast leading to its fragile voting majority.

However, as Nancy Pelosi and Harry Reed have learned a voting majority is not sufficient unless you can control the decision making, governing and communication processes; have the loyalty, support and compliance of the staffing organization and are synchronized and in concert with the committee organizations.

From the News Report

As reported in the May 30^th and June 6th editions of the Gazette and the original warrant of felony theft filed on there were 6 types of cash theft schemes encompassing individual and total employee 401 k retirement funds, payroll bank accounts, MVF operating fund bank accounts, fraudulent charges and credits entries postings to the general ledger accounts maintained by MVF financial services department, forgery and identity theft. As outlined in the Gazette reports:

Retirement funds “The earliest dates to March 28, 1999, when Buttry allegedly withdrew $15,000 from the 401k retirement of a long-time foundation employee who had already retired. Buttry made another multi-thousand dollar withdrawal from that account a year later”.

MVF fund accounts “and when the retiree tried to access her retirement funds in 2004, Buttry used other foundation funds to cover the missing money”

General ledger accounts “…and then created a fictitious entry in the foundation’s expense records for nearly $32,000”.

Forgery “…Buttry also allegedly altered two foundation checks totaling more than $29,000 in 2004 and made herself the payee according to the charging documents”.

Payroll and identity theft There were 21 other fraudulent transactions from the summers of 2004 and 2005 ranging between $75 to $3,500 for 7 employees, for whom Buttry created false payroll accounts in years when those employees did not work and deposited the wages into her personal account. A former lifeguard who was being audited by the IRS for wages supposedly paid to her in 2005-a year she did not work put investigators on the path that led to the $86,000 theft-scheme charge. The Gazette 6/7/07

“Police now say a former employee of the MVF embezzled nearly $100,000 from the nonprofit over five years …when a former life-guard for the foundation notified Village officials she was being audited by the IRS for income from 2005, a year she did not work for the group…Buttry recreated the 2004 payroll account for 2005 and deposited the fraudulent wages into her own bank accounts…investigators discovered 6 similar fraudulent payroll accounts.” The Gazette 5/30/07

Act Two - Scene 2 Setting the Record Straight

As bad as “The Groundhog Day” exposure of the first week of February, these latest allegations concerning the troubled state of MVF financial recordkeeping, reporting and communications are much more complicated and far reaching. On the surface it could be the end of the Traditionees’ rein of power and influence.

Not by a long shot. Although they were no longer a voting majority, the Traditionees was not going to loss face, have their honor disrespected and/or give up their rightful power and status.

The board’s voting majority were not the only ones with a “Media News events plan”, as the Traditionees were surprising well prepared. It involved a 4 pronged “surge” strategy:

Expanded beyond the print media message blitz by the Brotherhood of Montgomery Village Spokespersons (BOMS), including activating the BOMS reserve forces, and

From all areas and organizations in the Village recruit a Traditionees coalition of support

Attack and discredit (A&D) all initiatives and actions by the Reformits on the MVF board.

By any means maintain control of the Village finances, budget and audit processes and senior accounting staff.

Media message blitz The BOMS’ expanding from its “Campbell-Huson-Silliman” core to include Mike Conroy, acting director of communication, board member Dick Wright and by providing them with limited misinformation, board president Bob Hydorn and newly recruited spokesperson Jay Jacobs. Several members of the BOMS’ reserve forces recruited from the Traditionees’ Coalition contributed through the surge.

As was proven during first “Media News” event the first week of February, there was no reason to let “Public Concern” to gain momentum this time either. The “Setting the Record Straight” strategy of quickly, aggressively, continuously and religiously following the VVF financial “damage control plan” and the BOMS’ “Code” of communication the strategy worked very well last time. After 91 days of being on message the “Reasonable Answer” was accepted as fact. From all indications even Sebastian’s columns parroted the code’s scripted chant as the voices of the dissidents quieted as more and more regulars at the various board and committee meetings in the Village showed up with traces of purple lips from exposure to the Village News bi weekly printed cool aid.

The updated “Set the Record Straight” messages themes about the latest “Bump in the Road” included

“Forensic audits raised-awareness, educated staff and will help avoid future thefts”

“If stolen funds are accounted for – that’s a good thing”

“Reformed financial department, present loyal-hard-working management, staff and supervision is better than ever”

“The perpetrator will be punished”

“Internal controls and MVF’s finances and records have never been better and are too numerous to mention.”

“Auditor, hard-working-loyal staff, police prevented further losses”

“Avoid the details of the series of felony thefts, Legalities prevent us from informing you at this time”

Recruit coalition Traditionees reinforcements would be recruited from the entrenched committee power structure; close personal associates, friends and family of those opposed to change; MVF staff who fear accountability as well as reaching out to tribal leaders of the village provinces.

Attack and discredit (A&D) Inspired by Karl Rove political strategy, attack and discredit the opposition regardless of the merits, advisability or correctness of their position, the Reformits voting majority initiatives and/or public statements must be attacked and discredited.

Financial control Place and keep in placeTraditionees in all financial related positions of influence, obligation, responsibility and duty within the board, committee and staffing operational and governing structures.

The Surge

In record time Friday June 1^st The Village News “Set the Record Straight” timing was perfect following only by 2 days The Gazette’s May 30^th regular Wednesday publication date. The MVF media research department had determined most of the Gazette’s MVF stories were emerged in a sea of multiple advertising inserts and seldom seem, read, understood or noticed. In addition, the research confirmed that 73 % of Gazettes’ Wednesday 12,000 copies delivered in the Village was deposited directly to the Village’s Thursday recycling trash pick ups. In contrast the Village News Friday’s door to door delivery more than likely made it inside for bathroom reading for several days before ending up with the Gazette as part of the Wednesday evening “putting the trash out” ritual.

The June lst Village News included 5 articles addressing the latest good news about MVF finances.

During June and July, The Village News stories faithfully spun a favorable “Set the Record Straight” message. Lois Campbell, Pat Huson, Keith Silliman and Dick Wright were in attendance and presented the favorable financial condition news at the President’s Council meeting early in June and the June 21^st Audit Committee meeting. Mike Conroy, of course, was in attendance to cover everyone’s comments for subsequent Village News editions.

Despite the Reformits landside election victory and temporary board voting edge Traditionees sentiment remains strong among Village faith based institutions. A motivated and willing coalition was recruited from the membership and supporters of the powerful and controlling Audit Committee; Homes Corporation communities which have remained investors in the MVF’s failing and cash draining Community Management and Maintenance Services Funds; family and significant others of threatened senior MVF staff and the recently empowered insurgent President’s Council.

Coalition cell members quickly responded to A & D the board decisions made at its May meeting to appoint Katherine Gray Treasurer and establish a Reformits dominated EVP search committee. Letters to the editor, written by the BOMS reserve force quickly followed in the Village News’ May 18^th edition “A&Ding” the board members who voted affirmatively. Spokespersons for the President’s Council issued a subpoena to MVF President Bob Hydorn to appear at a meeting of the Council and justify and explain the Board’s decisions.

Financial control by theTraditionees seemed secure as Keith Silliman and Dick Wright were reappointed to Audit Committee, Katherine Grey announced her intention to step down as Treasurer and Lois Campbell approaching her first year anniversary as Interim Director of Finance and Administration. With the surge sufficiently distracting everyone, few noticed that Lois was firmly in charge of the search for a permanent DFA and posting the “Mission Accomplished” banner over the entrance to the MVF Financial Service Department.

As amazing as it might seem TheTraditionees’ 4 pronged “Set the Record Straight “surge” strategy has exceeded expectations.

Stay Posted for Act 2 Scene 3 The details of what really happened

Follow the Money Act One Scene Three - The Cover Up

Act One – Scene Three – The Cover Up

Probably the most egregious and damaging aspect the series of employee thefts embezzlement is the improper response and misinformation campaign by responsible parties during the 9 month 13 day gap between the discovery, in April of 2006 and the alleged recovery of the initial theft on March 14^th 2007. In the May-June 2007 edition of Common Ground Magazine in and article on board responsibility entitled “Eternal Truths” author Louis D’Angelo states that the “fundamental responsibility of the board of directors is to “Protect the assets of the Association. This requires the board to confront problems as early as possible and to take whatever actions are necessary to deal with them effectively, efficiently and economically for the assets of the Association must not be allowed to deteriorate.”

MVF leaders would have us believe that during this 346 day “discovery-recovery gap” the staff offices at 10120 Apple Ridge Road resembled the movie scene when Elliott Ness stood amidst a legion of accountants, FBI suits and police officials as they built an income tax evasion case against Al Capon. The image of members of the board of directors, and other MVF officials looking under desks, in file cabinets and poring over evidence in their “more-than-year-long-investigation as they quietly went about reconstructing what happened” is absurd.

As we have come to learn it is not crime but the cover up that destroys public trust. Please read the following and you judge for yourself what truth is and who has it right.

What Should Happen?

Before discussing what actually happened in the 346 days between “The Gap Between Discover & Recovery” it would be reasonable to know what should be done and how long each step should take. Otherwise we would not have a frame of reference to compare “what we know”, to “what we don’t know” and to “what we have been told”.

Being a victim of fraud is an embarrassment to any organization but a reality all organizations. Prudent business practice is to have in place a preplanned strategy of action if and when fraud occurs. From the book Policies and Procedures to Prevent Fraud and Embezzlement by Edward J. McMillan, CPA, CAE the following action plan for a large-scale community association was developed.

1. Do not accuse anyone of an impropriety – Get the facts. Be patient and thoroughly investigate the situation before any action is taken.
2. Contact an employment attorney – Obtain advice on how to proceed to avoid any associated legal issues concerning termination for fraud.
3. Take detailed copious notes – It may be years before going to trail. Anything can happen such as loss of memory and turnover of personnel.
4. Review important provision of the foundation’s Employment Dishonesty (Fidelity/Crime) insurance policy – Such provisions as police reporting requirements, time frame to file claims, who and what circumstances are employees covered and what are the deductibles. Following are typical crimes policy provisions for community associations excerpted from a Travelers Casualty and Surety Company of America policy.

• Provision on Duties in Event of Loss A. Notify us as soon as possible, B. Submit to examination under oath at our request a signed statement of the answers. C. Give us detailed sworn proof of lost within 120 days. D. Cooperate with us in the investigation of any claim.

• Discovery Period for Loss We will pay only for covered loss discovered no later than one year from the end of the policy period.

Bob Hydorn should by pass the source that assured him “that MVF is insured” for the latest discovered series of thefts and have a discussion with the MVF insurance agent and see for himself the exact “Discovery Period for Loss” provision in the current MVF Employee dishonesty insurance policy. While he is at it he should find out the details and outcome of the first discover theft. Was a claim ever filed? If not, why not? Considering it took 9 months and 13 days to recovery the money back wouldn’t make sense to have immediately filed an insurance claim to recover the funds. In addition to quicker recovery it would have saved a lot of bad press and loss of public trust.

5.Do not have discussions in the employee’s office, cubicle or other work areas The offender’s office almost always contains vital evidence related to the incident.

6. Has a witness – The termination discussion always should include a witness regardless of the nature of the situation. The witness should always to the same sex as the person being terminated. If possible the witness should be the CPA, attorney or other persons essential to the case.
7. Protect yourself and other employees – Violence in the workplace is common. If violence is a possibility contact the local police for advice and assistance.
8. Have the discussions during non business hours – This avoids an unnecessary office scene and embarrassment.
9. Ensure surrender or organization property – Have 2 employees go to the offender’s office to remove personal effects such as a purse, wallets and car keys. Non-essential personal property such as photos should be gathered by the 2 employees and couriered to the employee’s resident the following day. The employee should surrender organization property such as door keys/entry devises, credit cards, cell phones, lap top computers, cameras and work tools.
10. Escort offender from the office – The employee should not be allow to return to his or her office as it contains evidence important to the fraud investigation, forensic accounting information that could affect the case.
11. Make notes of any discussions - After any discussions with the employee the executive and witness should make notes on the date and time, names and contact information of the executive, witnesses, police officers, CPAs and attorneys present.
12. Get a police report – On advice of attorney obtain a police report of the incident, as this report is required as a condition of fidelity bond claims, forensic accounting data and litigation strategy.

Zakian filed a police report on July 11^th, 2006, day 460, 102 days after the “auditor’s notation”. If filing a police report was a prerequisite of filing an insurance claim when was the insurance claim filed?

13. Process fidelity bond and employee dishonesty insurance claims – Was the employee covered and did the claim cover the entire amount of the loss. Was the recovery from the employee or through an insurance claim?

14. Prosecute – The foundation and/or the insurance carrier if a claim is filed are duty bound to prosecute. Early prosecution is the best leverage to obtain recovery with minimum delay from the employee.
15. Decide how to relate the circumstances to others – Obtain advice from counsel on how to hand related circumstances of termination internally with staff, inquires from the public and in regard to reference inquires. When it is over – Reconstruct the details and change procedures to insure such an occurrence will not happen again.

In the event of embezzlement, the logistics of implementing a preplanned strategy of action in the event of embezzlement should not be difficult or take long, items 1 through 13 and 15 within 10 days, 14 and 16 not longer than 90 days.

“Who knew and when did they know it?” Senate Watergate Investigation Committee

April 1, 2006

It is a reasonable assumption, when RB&L finished the audit field work on the MVF 2005 financial books, records and statements in April 2006, day 365, the details of “who”, “how”, “how much” and “when” concerning the misdirected-embezzled-stolen- missing money was known documented and communicated to MVF authorized representatives.

At the time, the dominant and controlling force of John Zakian, Executive Vice President, was in charge, in control of the staff, the board and the flow of information about the audit in progress. He undoubtedly signed the auditors engagement letter and it’s a fair assumption that Regardie, Brooks & Lewis audit staff knew John was “the go to guy”. Geraldine Barber had been the Director of Finance and Administration for only a few months and Lois Campbell had just been appointed the treasurer.

From the MV Observer’s blog, Shan said, “As a former employee of the Foundation, I can assure you the Buttry situation was kept very quiet. I am guessing that only three MVF employees even knew about it once the auditors alerted them, and one, of course, was Zakian.”

Keith Silliman in the February 16, 2007, issue of the MV News “President’s Report” wrote in guarded and euphemistic language “In April 2005 a former employee misdirected approximately $14,000 of MVF funds for her own advantage...The discrepancy was noted approximately a year later during the 2005 audit. (April 2006) From Keith’s admission we can assume he was informed as president of the board of directors, a member of the executive committee and an elected board director he was fully informed by the auditors, Zakian or Lois Campbell.

Lois Campbell was appointed treasurer and a member of the executive committee in March of 2006 only a month or so before the discovery of the theft. It would be hard to imagine Lois not being on the “notify immediate in case of emergency list”.

John had been in tough situations before. His instinct is to take care of these kinds of public relations problems quietly and when the cure is in progress reveal to as many as possible how he discovered the condition and how his quick action saved the community from great lost and embarrassment. There was growing public concern over the handling of the foundation’s financial affairs, it was becoming difficult to spin a positive financial allusion narrative without revealing actual understandable, detailed and accurate balance sheets and operating reports.

Soon after he was informed of the incident Zakian defaulted into his best Dick Cheney damage control mode described “how he was taken care of the situation” version of events to John Silliman and Lois Campbell. Sometime later, the remaining members of the MVF executive committee, Toni Negro, VP and probably Richard Wright, recently replaced interim-treasurer were treated to a Zakianese style updated briefing of the “local-police-and-board-of-directors- working-together-to-make-everything-right-with-interest” rendition. In compliance with the MVF long standing closed and opaque communications policy this version was only to be revealed on a need to know basis or made public if “talk around the water cooler,” leaked a distorted account to “other published report” sources. The remaining board members were part of the “don’t ask, don’t tell” level of awareness group.

The news of an embezzlement by long time trusted employee sent shock waves in all directions. How can something like this happen and go undetected for so long? Even Zakian was having a hard time getting his mind wrapped around this one; only the offender herself could answer all the questions.

The department of finance and administration by any standards was stretch very thin, understaffed and leaderless. If there was at any time a system of internal controls it slowly eroded as valuable personnel left, remaining employee struggled to keep up and new and temporary employees became uncomfortable with the unproductive working environment.

Damage Control Meetings

There were in all probability a series of secret meetings of those with appropriate security clearance to work through the initial panic, denial and non-assumption of responsibility. Zakian was worried about the public relations aspect and how he could spin a happy face out of this one.

The Accused is confronted

After a period of indecision and delays of days and maybe even weeks a conference was held with the alleged offender. At a minimum Zakian, along with the RB & L audit team leader met with the Buttry. What wasn’t known with any degree of certainty was this one isolated event or part of much broader break down of MVF’s asset protection and security system? The odds heavily favor the later.

However, among those assembled in spring of 2006 it was in everyone best interest to believe otherwise. RB&L had been MVF auditing firm forever and have collected close to $175,000 in fees from the foundations from in the 2000 to 2006 fiscal years. It might be difficult to explain considered the firms supposedly familiarity with the account how any serious financial irregularities could or should go unnoticed.

The John and Keith had been the leadership tandem as MVF EVP and board president since John was appointed Executive Vice President in the spring of 2004.

nd off course Buttry must have been sitting at the meeting with mixed feeling or pride and pain. For at least seven (7) years expanding 6 audits she used her extensive access to MVF bank accounts, payroll records, wire transfer codes and general ledger accounting system to reach into every department’s cost center and steal cash at will. She must have known it would come to an end someday. She had to be thinking through her options. What if it’s true that “they” only have uncovered one lone check transfer equal to only a fraction of the total cash stolen? It didn’t take her long to figure out if she could convince her accusers it was just one desperate act and only one misdirected transfer, she might be able negotiate a resignation for a promise to repay the amount, with interest off course, in a reasonable sort time period and forgo filing criminal charges. She could quietly leave MVF after her “retirement party” and find another job in an accounting department of a large-scale community association. Even if criminal charges where filed and the “one desperate act” defense holds up she would probably on receive some minimal additional finds and a suspended jail sentence. But if the truth about the whole scheme becomes public she would be facing some real extended jail time. She had to sense that her accusers were in “damage control” mode and were as desperate as she was to keep this under wraps and make it go away.

From subsequent public statements and the 108 day delay in the filling of criminal chargers, it appeared Buttry was able to easily convince those present her sin was only “one desperate act” and the whole incident could escape public notice. One possibility was an arrangement was agreed upon for her to make restitution by selling or refinancing her home. The real estate values in the Village had increased substantially in recent years reaching its peak early in 2006.

The pre planned embezzlement action plan wasn’t necessary. It is doubtful that at this early stage an employment attorney had been properly consulted, Zakian was always quick to assure the board that attorneys were not necessary when the “A” word came up.

It is doubtful that many of the other 15 steps on McMillan’s “fraud action plan and strategy” were considered or preformed. This had to be kept quiet. Prosecution was too public. John placed his “I’ve take care of the situation” plan in motion with the complicity from MVF leaders’ and compliance out of fear from senior staff.

May 19^th 2006

In The Village News” “In the New” column Lois Campbell was quoted as saying “we are more vigilant than ever to anticipate unforeseen events so that this year’s performance will meet or improve on budget.’” It was still early.

The summer of Discontent

June 14, 2006

The Village News reported, “Over 100 residents attended a community forum and a lively dialog involving the future of Lake Whetstone, the boat house and the dock”.

There were closer to 120 residents present and although lively there was no dialog. As the MVF board, senior staff and members of the Parks and Recreation committee sat mute MVF board member Eric Smith, the forum facilitator and enforcer presided over a question and non answer session as one anguished, angry and annoyed speaker after speaker commented and questioned the board on:

Why this Zakian inspired initiate to spending $500,000 on a modernized heated boathouse palace and safe haven for Montgomery County children at risk was in the best interest of the Village residents?

After decades of general deterioration of Lake Whetstone’s park and lake’s natural resources with its crumbing walkways, dying, crippled and diseased tree life, the turf conquest by invasive and wild plants, eroding and inadequate turf coverage and neglected physical structures; with a long standing absence of normal care and maintenance routines, punctuated by eroding soil washing into the adjacent lake and streams, temporary and inadequate stop gap shore line repair measures; with its substantial backlog of capital needs why would the board bless this ill advised boathouse erection?

Was this boathouse initiative the lake and parks’ component of the secret comprehensive funding and capital and improvement plan? If so make it public.

Why wasn’t the decision to seek a state grant to restore the boathouse structure at a cost of a half a million dollars not part of a general public discussion? And why didn’t this decision proposed, discussed and voted on by the board of directors in an open board meeting as called for in MVF’s governing document and county and state law?

The July 5^th, 2006

As reported in July 5^th and 19^th editions of The Gazette The Friends of Whetstone Lake (FOWL) filed a request for a hearing with the with the MVF’s Executive Committee and subsequently six Village residents file a complaint with the county’s Commission on Common Ownership Communities (CCOC) alleging MVF did not approve the grant request and project in open meeting, approved the project at a closed meeting of the board and failed to provide meetings of closed meetings as required by the MVF by-laws and in violation of the Maryland Homeowners Association Act,

Not something John couldn’t handle. He felt a new sense of confidence and arrogance after the backing and support the board showed him at the lake meeting. The board message was clear – “stay the course”. Didn’t he take the heat for the board that night? John was truly a “war time” EVP.

As spring turned to summer the plan was falling apart. Village real estate values were in decline. For some reason Buttry couldn’t come up with the money. (Wonder what she did with all that money?) Good chance an insurance claim had to be filed within 120 days and only after a police report had been filed. The leverage MVF had with quick and early prosecution had been lost. Ninety-six (96) days after the “discovery”, as the Village enjoyed the Independence Day fire works, a different type fire works were in the offering in the Village during the next year.

The Missing Money Watch

July 11, 2006

The February 7^th 2007 edition of The Gazette reported that on this day “John R. Zakian the foundation’s executive vice president, alerted police to the suspicious transfer, according to police reports”. The foundation routinely files claims in the District Court for liens on assessment collections. It is not something anyone other than the affected homeowner would necessarily notice. The insurance company and local police quietly were added to the team.

The Gazette obtained a copy of the police report at this time, but did not make mention or reference it until almost 7-month later on February 7^th, 2007 edition. Sebastian took every opportunity in questioning MVF leaders about such subjects as the budget process, the annual audit and/or the financial reporting system to make inquires about the possibility of “missing money”.

Beginning with its August 2^nd 2006 edition, shortly after Zakian “alerted the police”, The Gazette began running denials on a regular basis by MVF leaders, especially from Lois Campbell, the MVF media attack dog, that any fraud or embezzlement had taken place.

July 14, 2006

Three days after Zakian “altered the police” his EVP Message in the July 14^th edition of The Village News titled “Preparing 2007 budget is a delicate balancing act”. John failed to mention the budget was not his only balancing act that was occupying him at the time. He had a lot on his mind and he could be forgiven he did not handling the misdirected funds issue immediately.

Trouble at the Top - Zakian “Resigns”

July 27^th, 2006

In a closed session of the MVF board of directors John Zakian’s resignation was accepted in a unanimous vote of the board. The Gazette in its August 2^nd edition quoted Toni Negro; board vice president, “neither the deficit nor the lake dispute played a role in Zakian’s departure.”

Were the “missing money” and the general state of the financial affairs, factors in his leaving? Was it even discussed? Why since his departure has there been no admission, acknowledgement or apology for his serious negative impact on the Village? Or was he just following orders? It is possible that the board was still not fully informed? Did his resignation include a negotiated settlement of silence?

August 2, 2006

The Gazette reported, “John R. Zakian, the embattled executive vice president of the Montgomery Village Foundation, resigned last week. His departure after two-and-a-half years on the job comes amid mounting concerns over the tracking and reporting of the finances and plans to improve Lake Whetstone. This year’s audit of the foundation’s $6 million-plus budget showed a $475,000 of that gap was anticipated, the shortfall has alarmed residents who are demanding reforms.

September 6, 2006

The Gazette reported that “Montgomery Village Foundation leaders have not found any money missing in their review of community finances, but they may have to look at assessment increases or cuts in services to make up for a budget deficit. The foundation is undertaking the review of its finances following last’s month’s resignation of its top executive, John R. Zakian. Lois Campbell confirmed that… ‘All foundation money has been accounted for…inconsistent bookkeeping and the misdirection of funds resulted in the inflated numbers.’ The discovery of poor record keeping, coupled with lagging financial reports and the resignation of Zakian and the Director Finances Geraldine Barber has the foundation working to regain its financial footing...Campbell-in her mid-year report promises that the foundation will be more forthright about finances. ‘But among the things the foundation won’t do, is...a new audit.’ The residents said they were asking for the audit largely due to concerns of malfeasance or fraud.”

As a senior member of the MVF Brotherhood of Spokesperson (BOMS), Lois, following the “Damage Control Emergency Plan” was setting the record straight. In her interview with Sebastian’s she made several thought provoking points:

1. All foundation money hd been accounted for. It was not clear where she mean the $13,684 “suspicious transfer” that she evidently knew about for 150 day is “accounted for” in a accounting and bookkeeping sense and is posted on the book and records as an “accounts receivable from prior employees”.
2. The inconsistent and poor bookkeeping, lagging financial reports and “misdirection of funds” were Zakian and Barber’s fault. Blaming others is in keeping with the BOMS code but Lois didn’t sufficient minimize and marginalize her admission that these conditions predated her tenure played into the hands of the “enemies of the foundation” who would use her comments as sympatric a chronic broken financial reporting system.
3. BOMS’ did not use the phrase “misdirection of funds” to describe the theft until February 2007 when the embezzlement became public. Was this a “Zakian slip” of the tongue?
4. In the “mid year review” in her best oxymoronic style she promised the foundation will be more forthright about finances “but the foundation won’t get a new audit”. Being more forthright abut finances at that point in time wouldn’t take much effort, but making a “Sherman statement” about an independent review of MVF financial and fiscal operations seems more a devious than a forthright act. What is puzzling is that despite such pre embezzlement revelation anti audit rhetoric we discover some unknown authority approved an undesignated number of “forensic audits” uncover and explain MVF fiscal crime wave that didn’t produce any benefit. This year MVF has paid $61,621 already through May in Auditing/Consulting fees. How much of that amount were paid for “new audits” Lois vowed would never take place?

The Gazette article also stated “Pat Huson, a former foundation official who agreed to step in as executive vice president after Zakian’s resignation…has never seen the foundation is such a financial morass. …Still, Huson …doesn’t think ‘these are problems that can’t be fixed, I’m very optimistic about that.’ But the situation has created concern among residents: several at (the board) meeting called it a crisis of confidence.’ In all fairness to Pat she had been away for a few years and been updated on the “damage control plan” and the “code” during the Zakian era.

September 15, 2006

In The Village News “Money Matters” column staff writer Jude Gustafson writes, “It is important for residents to know and understand decision on Foundation finances; however, it is sometime difficult to know where to find reliable facts. In that in mind, in response to the article “Village moves toward raising assessments” written by reporter Sebastian Montes and published in the September 6 issue of The Gazette, Lois Campbell has provided feedback and corrections that yield a fact-based picture of that report…. Forgiving Montes’ terminology glitch in his statement, “Foundation leaders pored over the Village’s finances…” …As with all media information, audiences must reflect on the motivations of those holding the pen…The Foundation is working hard to keep everyone informed and put an end to inaccuracy in report that would divide our community.” Like any good BOMS Jude knew how to treat the “enemies of the foundation”.

January 30, 2007

In the February 7, 2007 issue of The Gazette it was reported that Lois Campbell, interim treasurer, reported the prior week that all accounts in arrears have been wrapped up and that through the November 2006 report”.

Does “arrears accounts are wrapped up” mean the account totals are:

1. Properly posted on the accounting and bookkeeping books and records at the end of each monthly reporting period? If so was the embezzled amount, plus accrued interest, posted on the book and records under “accounts receivable from prior employees”?
2. That as part of the monthly closing of the MVF’s books and records all receivable and payables accounts are accurately identified and properly posted thorough the last day of the month included amounts “Due to and from” each operating and reserve fund?
3. Or that the presentation of the receivable and payable arrears account totals and analysis are opaquely wrapped as to completely misrepresent the monthly operating reports, budget comparison, fund balances and balance sheet totals?

Ground Hog Day 2007

February 7, 2007

• One year, 9 months and 24 days after $13,683 of MVF funds were stolen by a MVF payroll clerk,

• 10 months 6 days after MVF responsible officials were officially informed of its details of the theft by the MVF auditors who uncovered the condition during its field investigation procedures for the 2005 annual fiscal year audit and
• 7 months after MVF filed a claim in the Montgomery County District Court against the employee

The Gazette February 7^th edition reported that on Ground Hog Day February 2, 2007 “a warrant application that seeking the arrest of Laura Buttry on charges of felony theft” had been made.

The Gazette‘s “Media News” had just launched another Montgomery Village “Ground Hog Day tragedy. Members of the Montgomery Village Brotherhood of Spokespersons (BOMS) knew they could not wait for “Public Concern” momentum to mount. After 7 months of “Code” driven denial statements that there was no thefts from the foundation and homes corporation’s cash, investment and benefit funds the BOMS’ had to dig down deep to make the Code’s driving principle work. That being “There is a public relations explanation that will suffice for all perceived or alleged adverse conditions.

Setting the Record Straight

February 16, 2007

The Village News “Set the Record Straight” edition featured senior BOMS Lois Campbell writing in the “Money Matters” column skillfully and seamlessly presented Keith Silliman’s “Reasonable Answer – One lone desperate act” explanation, “the audit will validate our financial position” and the “audit policies save the day” fiction. Pat Huson in her in her “Executive Vice President’s Message” article proudly explained Zakian’s back up “local police-board of directors-hard working and dedicated staff-audits-insurance agents working together to make everything right” rendition of events.

Keith Silliman in his “President’s Message” proudly announced, “Arrangements have been made to recover all of the funds, plus interest.”

In her letters to editor Marilyn Cadoff of The Points and a CPA wrote, “It was very distressing …to read of the embezzlement that occurred with MVF funds…I felt …there were still many questions that had not been answered. Specifically, what was the nature of the theft and what weakness (es) existed in the internal controls that allowed the theft to happen? Who discovered the theft and what led them to believe that it had happened? What internal control(s) are being put into place by the Foundation to prevent this from happening again?”

Pat Huson’s responding in behalf of the foundation from the “MVF damage control manual” state that “Internal controls are strengthened by an excellent staff, now in place, which follows advice from our auditors on such matters, Detail of the loss will not be given since the case in not yet entirely closed. Anyone with a background of financial management such as a CPA is welcome to submit for membership of the MVF Audit Committee to review the handling of MVF finances”.

May 1, 2007

Sebastian Monte, staff reporter for The Gazette reported in its March 14^th edition Judge Gary G. Everngham in his sentencing statement. “The only reason you did it is knew you would get away with it.” Prosecutor Tracy Bortnick stated an investigation is continuing into “other deposits” Buttry made.

Pat Huson, interim EVP was quoted as stating “We’re happy to receive the money…all transactions have since been checked and monies accounted for.” News of the theft came as the foundation was working to shore up its bookkeeping. Huson told Monte “With the financial records now straight with a raised level of awareness, the foundation is in a good position to avoid such thefts in the future. I don’t know that anybody can ever guarantee it 100 percent…but I think overall management and supervision is much better than it was.”

The Brotherhood of Montgomery Village Spokespersons (BOMS) must have been proud of Pat after reading Monte’s report on Judge Everngham sentencing hearing. She had come a long way since her return almost 10 month prior as she flawlessly following the principles of their “Damage control emergency plan” and “Code of communications” in defending the indefensible and denying the obvious. They should enjoy it while they can because in Montgomery Village, when it comes to financial matters, everyday is Ground Hog Day.

Follow the Money - March 28,1999 to July 4, 2007

Follow the Money

March 28, 1999 – July 4, 2007

Déjà vu all over again

May 2007 was supposed to be a good month for the Montgomery Village community. Spring was finally here and the village’s 40,000 residents were looking forward to the Memorial Day weekend traditional opening of the Village’s pools, summer recreation facilities and activities. As we read the May 2^nd edition of The Gazette we were overcome with a sense of closure and justice as staff writer Sebastian Montes reported that 761 days after it occurred Judge Gary G. Everngham sentenced Laura Buttry to 2 years probation, 100 hours of community service and a 2 years suspended prison and a 5,000 fine ($4000 suspended) for embezzling nearly $14,000 from the Montgomery Village Foundation.

Unfortunately, Sebastian put an abrupt end to the community’s May euphoria as the headline in his May 30^th article screamed “Embezzler faces new charges-Investigation uncovers scheme in which an additional $86,000 was stolen from the foundation”. Buttry had been had been routinely making cash withdrawal from MVF’s cash, investment and benefits accounts going back 2,286 days to March 28, 1999. If this additional embezzled amount is not returned, with interest off course, by September 19^th, 2008 MVF will exceed Cal Ripken’s streak of 2,632.

The financial adventures of MVF closely resemble the 1993 comedy movie Groundhog Day. The movie takes place in Punxsutawney, Pennsylvania on this day the main character (played by Bill Murray) is forced to relive the day over and over again until he can learn to give up his selfishness and become a better person. However, the MVF version of Groundhog Day is an going tradegy based on what we know now began on March 28, 1999 in Montgomery Village, Maryland, Zip Code 20886, and entitled “Follow the Money”.

“ Follow the Money’s”’ recurring plot line plays out like this:

1. Media News - The Gaithersburg-Montgomery Village edition of The Gazette reports on a condition or event that appears to adversely affect the financial condition or health of the foundation.

2. Public Concern - Questions and concerns are raised and explanations sought by the community from those of power, responsibility and duty at the various public forums and board meetings of the foundation and the various homes corporations, condominiums and community associations in the Village. Digital and regular mail and letters to the editor of The Village News and The Gazette, are directed to the foundation staff, board of directors and community at large.

3. Setting the Record Straight - The major portion of the next regularly schedule MVF board of directors’ meeting and next edition of The Village News are almost exclusively devoted setting the record straight and explaining how the event or condition never took place; was in effect a positive event with the financial health of the foundation, organization effectiveness; staff performance, moral and loyalty at an all time high despite or because of the event.

4. Damage Control - The MVF financial damage control emergency plan for such events includes requirements that any questions, comments and/or perceived criticisms by individuals, organizations and media components will be minimized, marginalized and/or ignored. The persons expressing a comment, opinion and/or concern will be demonized, patronized, judged unworthy, treated rudely and declared a disloyal enemy of the foundation.

5. The Code of Communications - Deeply embedded among the Brotherhood of MVF Spokes Persons (BOMS) is a secret code of opaque communications that mandates never acknowledge or accept the existence of an adverse condition, never apologize, be held accountable or offer substantiation for claims; after the fact swear the alleged fact or condition, with no supporting substantiation, has already been routinely remedied and will never happen again; only accept responsibility for all actual and fictitious positive events or conditions; always blame others and finally there is a public relations explanation that will suffice for all perceived or alleged adverse conditions.

The cast of characters for this 2 Act Play in alphabetical order they are:

• Lois Campbell* - Interim Director of Finance and Administration
• Mike Conroy* – Acting Director of Communications
• Pat Huson* - Interim Executive Vice President
• Sebastian Monte – Gazette staff writer
• Keith Silliman* – MVF Board Member and Immediate Past President
• Dick Wright* – MVF Board Member

* Member of the MVF Brotherhood of Spokespersons (BOMS)

Act One - The Discovery

The April 2005 “suspicious transfer” in April 2005 of $13,684 was discovered and communicated to appropriate MVF officials when uncovered as a result of the MVF 2006 annual audit.

The news of an embezzlement by long time trusted employee sent shock waves in all directions. How can something like this happen and go undetected for so long? Even Zakian was having a hard time getting his mind wrapped around this one, only the offender herself could answer all the questions.

To better understanding about how embezzlements are discover from the book Polices & Procedures to Prevent Fraud and Embezzlement – Guidance, Internal Controls, and Investigation published by John Wiley & Sons, Inc. in 2006 and written by Edward J. McMillan, CPA, CAE we learn that despite belief to the contrary, most fraud is discovered by accident and due to unanticipated work interruptions. McMillan point out internal thefts are discovered by:

• CPAs financial audit 2% - The embezzler knows the auditors routines and what its supervisors look for and do not look for. The auditor engagement is to render an opinion on fairness and accuracy of the financial statements and not to uncover fraud.

• Results of internal audit 18% - A good internal audit program is very effective if effective established procedures and internal controls are followed between annual audits.

• Whistle blowing 30%

• Luck or by accident 50% - Stumbling into something or the thief’s careless accounts.

As District Court Judge Everngam said to Laura Buttry at her sentencing hearing “The only reason you did it is you knew you would get away with it”. The judge recognized MVF is a fertile territory for embezzlers and the lack of effective and enforced internal controls allowed the embezzlement and to go undetected for so long.

Act One – Scene One “A Reasonable Answer”

Where we dealing with one transfer from a desperate employee who was about to loose her home to foreclosure and “was driven to saver her family” as Justin Buttry made in an emotional appeal for his wife at her sentencing hearing on April 27^th? Was this an isolated incident that can happen in any organization no matter how well developed the internal accounting and cash controls, competency of the staff, management and oversight structure in place? Is it not reasonable to assume that if:

• Only one act of theft was discovered
• The theft were covered by insurance
• The funds were returned with interest
• Verbal assurances was that appropriate procedural adjustments to prevent employee theft in the future,

then we can assume this is an isolated occurrence and we should move on?

This is position taken by Lois Campbell, Interim Director of Finance and Administration, Pat Huson, Interim Executive President and Keith Silliman, Board Member and Immediate Past President and best summed up by Silliman as quoted in the February 2^nd edition of The Gazette “I think under the circumstances, this is as reasonable an answer as we can expect” Here is what each had to say on the subject.

Lois Campbell

“All foundation money has been accounted for…If there’s $37.21 missing, I wouldn’t know it, but hundreds of thousand of dollars missing, which is kind of the implication, absolutely not.” The Gazette 8/1/06

“All foundation money has been accounted for…inconsistent bookkeeping and the misdirection of funds resulted in the inflated numbers… But among the things the foundation won’t do, is get a new audit.” The Gazette 9/6/06

“Arrangements have been made to recover all of the funds, plus interest. Since the audit, and subsequent resignation of the employee, details of the transactions were investigated and thoroughly documented. Furthermore, other suspicious activity was determined to have occurred, and all other related audit results found the financials clean. Contrary to other published reports, the MVF Retirement Fund was not affected in any way by the incident. ..MVF audit policies prevented this theft from going unnoticed. No funds will be lost and MVF retirement accounts and all other foundation accounts are in order”. February 16, 2007 The Village News 2/16/07

Pat Huson

“I wanted to be sure everyone knew how the auditors and staff tracked down the misdirected money and that step that were taken to recover absolutely all the funds. ...We are committed to letting all of you know that the money you have paid to the Foundation for services is secure…The MVF retirement accounts have not been affected, and a subsequent audit showed that the Foundation's books and accounts are in excellent shape. One of the reasons I have stepped in the EVP's job is that I love this community and want to do everything I can to make sure it is managed and operated to your benefit. I am proud of the way our staff auditors, local police and Board of Directors have worked together to make everything right.” “Internal controls are strengthened by an excellent staff, now in place, who follow advice from our auditors on such matters, Detail of the loss will not be given since the case in not yet entirely closed. Anyone with a background of financial management such as a CPA is welcome to submit for membership of the MVF Audit Committee to review the handling of MVF finances.” The Village News 2/16/07

“ We are pleased that they money was returned with interest…This has not been the easiest term, attempting to bring things back in order after a period of discontent and questionable top-level management. Worries about financial conditions have been heard, but a look at the audit report for 2006 will assure owners that the Foundation remains in excellent financial condition. Even the missing money, misdirected by a former employee, has been returned with interest.” The Village News 3/16/07

“We’re happy to receive the money…all transactions have since been checked and monies accounted for. News of the theft came as the foundation was working to shore up its bookkeeping. Within financial records now straight – and a raised level of awareness – Huson said the foundation is in a good position to avoid such thefts in the future. I don’t know that anybody can ever guarantee it 100 percent…but I think overall management and supervision is much better than it was.” The Gazette 5/30/07

Keith Silliman

"I think it's been methodically pursued and based on what I'm seeking, it will be resolved and there will be no loss to the foundation, I think under the circumstances, this is as reasonable an answer as we can expect." The Gazette 2/7/07

“In April 2005 a former employee working in the finance area diverted MVF funds t a personal account. The discrepancy was noted approximately a year later during the 2005 audit. The auditors verified that this was the only fraudulent transaction carried out by this employee. Arrangements have been made to recover all of the funds, plus interest.” The Village News 2/16/07

Act One – Scene Two - Failure to Protect MVF’s Assets and Resources

Or was this single act of embezzlement only symptomatic of long standing epidemic of fiscal and financial mismanagement and incompetence that has failed to protect, preserve, enhance and maintain the foundation’s assets, resources and public trust? This is appears to be the position of James Deye of Whetstone, Robert Hess of Maryland Place, Marilyn Cadoff of The Points, and the late Barry Locke who have written letters to the editor, attended and spoken at MVF public board, committee and special meetings about the troubled state of the foundation’s financial recordkeeping, reporting and communications. And it is surely the opinion of “Shan”, “Sane Again” and “Waiting to See” who have posted comments to the MV Observer’s blog.

This view is best summed up by Robert J. Hess in his pre MVF election letter to the editor of The Gazette “The recent revelation about embezzlement of MVF funds by a former staff member goes to the heart of the debate about electing new candidates to the board of directors… Perhaps this problem would have occurred anyway, but we will never know, because the people elected to protect Montgomery Village did not focus on one of their important duties.”

This group has somewhat the same feeling that Senator Howard Baker (R-Tenn.), the vice chairman of the Senator Watergate committee describes the role of the CIA in the sandal. It was like “animals crashing around in the forest – you can hear them but you can’t see them”. Almost any evening, in the wooded area surrounding the Apple Ridge heavily secured foundation headquarters, you can still hear the “enablers” crashing around. Here is what this group had to say.

Robert J. Hess

“The recent revelation about embezzlement of MVF funds by a former staff member goes to the heart of the debate about electing new candidates to the board of directors. I am appalled that any sitting board member would continuously accept verbal financial reports, “summaries”, or anything other than a complete and comprehensive financial statement each month. Would any of us accept a verbal report concerning our checking or brokerage accounts? Perhaps this problem would have occurred anyway, but we will never know, because the people elected to protect Montgomery Village did not focus on one of their important duties. Please pull out those pink ballots and vote for Katherine Gray, Scott Johnson and Jim King. We need people who understand the bottom line. The Village News Letter to the Editor 3/07

Stop whitewashing truth over embezzlement-Let me get this straight: The Montgomery Village Foundation was alerted to an initial embezzlement that was only brought to public attention because of The Gazette. The former MVF board of directors had cut a deal with the person responsible without investigating if more was missing. Now, according to police, at least $100,000 in embezzlement has been discovered only because a former lifeguard tipped the MVF. Otherwise, the MVF board and staff was telling us all that everything was fine. Now, now a very small group of disgruntled residents wants to reinstall a certain individual as MVF interim treasurer who was the interim treasurer when much of the embezzlement occurred. There is something very wrong with this picture. We do need anyone as MVF treasurer who is in anyway associated with the large MVF deficits or the current effort to tell resident all is well. Let’s get a financial competent who will not whitewash the truth or favor deficits. This is our money The Gazette 6/20/07

http://themontgomeryvillageobserver.blogspot.com

Waiting to See With the elections over, I’ll take a wait and see approach for a little while. Hopefully the 3 new board members recently elected to the board can start the process of cleaning up. My biggest concern isn’t the small amount of money pilfered from the retirement funds, it’s the lack of direction the previous board had in creating a balanced budget that wouldn’t eat into the reserves that we have built up. Loosing 100’s of thousands of dollars a year, what can we say but WOW. 3/16/2007

Shan As a former employee of the Foundation, I can assure you the Buttry situation was kept very quiet. I am guessing that only three MVF employees even knew about it once the auditors alerted them, and one, of course, was Zakian.” March 10, 2007

Sane Again I am a former MVF employee. Zakian was a monster. That does not excuse the MVF board for letting him happen along with the money mess. He was thrown out of every job he had. Lon Haman, Keith Silliman, Dick Wright and the rest of that board are responsible for everything bad that has happened in Montgomery Village. 3/07

I am a former MVF employee who has posted to this site in the past. For the record, I left of my own accord because I could not stand the place anymore. The MVF staff and older board members will attempt to vilify anyone who opposes their restricted viewpoints. They readily ridicule residents and board members behind their backs. No criticism is acceptable to them. From talking with current staff, the MVF is dysfunctional and morale is at an all time low. Pat Huson is providing no leadership and Lois Campbell is running the place. Several staff people are going to quit. Staff is looking to the new board to be their salvation from Lois Campbell. Everyone detests her. She meddles in every department and does no work. There are a few good people left at the MVF. I hope the new board will do something quickly to salvage the mess. 6/20/07

Pissed Off Resident The MVF officers and all staff you have to do with the money should resign. How much have you lost for us so far 5,6,7,8 or more hundreds of thousands of dollars? Just move on and try loosing your own money for a change not mine. 3/15/07

Anonymous This is but the tip of the iceberg. It gets worse way worse, Keep digging. 3/15/07

Coming Soon:

• Act Two – It got worse, way worse!

• The dirty truth about the clean audit

• Budget Bombs - Its getting worse, way worse!
  

MVF board breaks with past - at last!

In the New! Decisions on search committee, treasurer draw concern

In its front page head line in its May 9th edition of The Gazette broadcasted “New board and president make first move in Village – Decisions on search committee, treasurer draw concern”. Staff writer Sebastian Montes wrote “The MVF new leadership is beginning to make its mark after appointing a search committee for a new EVP and naming a permanent treasurer. In creating the search committee, President Robert Hydorn discarded an 8 member lineup previously recommended and a 5 member search committee including the 3 recently elected board members. Hydorn added the selection of a treasurer to the agenda at the meeting and in an unusual closed session the board voted recently elected board member Katherine Gray, treasurer. According to The Gazette’s account Hydorn drew criticism for;
1. Adding the selection of a treasure to the agenda “at the last moment”,
2. Calling a closed session of the board during meeting to discuss the search committee make up and treasurer appointment.
3. Appointing a board member as treasurer as opposed to a non board member
4. Rejecting a previously recommended 8 member search committee structure and is proposed member composition

In discussing the search committee decision, Board President Robert Hydorn stated the newly elected board members who now control the voting majority are “looking at the new direction” mandated by the election results. In appointing Katherine Gray as treasurer the board purposely selected a person with extensive professional and educational background in business and finance.

Gazette staff reporter Sebastian Montes wrote, several HOA presidents in the Village disagree, and are alarmed by the board’s actions. Patton Ridge Homes Corporation president Ed Brandt sees Hydorn and the new board members as having aligned into a “cabal” that is now making the kind of “surreptitious” moves that Hydorn, King, Johnson and Gray roundly criticized the previous foundation leadership for. The way this was done was by subterfuge and by ignoring protocol, ignoring 40-year history of the Village; this certainly is not the open administration they said it was going to be.” Board member John Silliman said he was disappointed in the way the search committee was changed at the last minute and without public discussion, and objected to the decision to appoint a board member as treasurer. He cannot remember at any point in his time on the board in which the treasurer was someone who had no ties to the board. That independence is healthy”.

The Observer’s View

Aside disregarding tradition, protocol and history the actions current voting majority should come as no surprise. The decision of the board’s voting majority was driven by lack of positive board action on filling key positions 288 days after Zakian and Barber’s resignations. Remember the election mandate validated King, Johnson and Grey’s call for financial reform and to place in motion an effective action plan to staff senior staff vacancies with competent, qualified professionals.

Hiring for senior staff vacancies

The 2007 MVF Budget allocated $4,720,000 for staffing and personnel or 65% of the entire $7,360,000 operating budget. The ability of the foundation to cost effectively manage its operations; delivery recreation and resident services; maintain and preserve facilities, lakes, streams and other assets as well as effectively govern depends on the existence of a stable, trained, experienced, dedicated and effective workforce.

The MVF board of directors has the duty, responsibility and obligation to hire, fire and supervise the staff. However, the MVF has a history and tradition of failure to attract, hire and retain qualified, experienced professionals to fill certain senior staff vacancies. The foundation is slowly gearing up to conduct its fourth job search since 1991 when Pat Huson first retired and Peter Kristen was promoted to the position of Executive Vice President. During this period twice, Pat Husen returned to the staff as the Interim EVP of 10 month term each time. As the tenure declined with each succeeding hired EVPs (96, 42 and 30 months) so too did their perceived performances. As painful as it may be to think about, if we as a community are to learn and improve the foundations’ past hiring practices we should acknowledge that the hiring of John Zakian was a disaster of epic proportions.

In 2004 when Diane Vogel left as Director of Administration and Finance, Glenda Hoagland, the Financial Affairs Supervisor, served as interim director until Geraldine Barber was hired in December 2004. Ms. Barber resigned in August 2006 and the position has been filled by Lois Campbell, a former board member and treasurer for the past 10 months. A disquieting thought at best.

As reported in the May 2005 edition of The Gazette, a Director of Community Management position was filled by Jose Ponton Jr. after the foundation’s first choice initially accepted the position, then accepted a different job offer”. Debbie Cipriano, the deputy director of the department was appointed interim and is now the permanent Director of Community Management.

The MVF annual report list Mike Conroy as Acting Director of Communications. Prior to the 2006 annual report Sharon Goldberg was list as the Director of Communications for the better part of a decade. During the last year Rob Meier was hired in the newly created position of Director of Landscaping and Public Works.

Before the May MVF board meeting other than reports in The Gazette and The MV News Pat Huson. Interim EVP, was looking forward to working with the “search committee”, there was no board actions, reports to the board, proposal before the board, and/or in the official communications in The MV News that there was:

¶ A board agreed, approved or draft statement of qualifications, position description and/or the board short term and long term goals/ expectations of a selected qualified candidate.
¶ A job search plan for board approval that outlines how, when and who will seek, advertise, screen, evaluate, compare, investigate prior history and background of applicants and candidates and make reports and recommendations to the board.
¶ A draft recommended or proposed ad hoc search committee charter and terms of reference for board approval.

The May 2005 MVF board meeting was over 9 and half months since the EVP and DAF positions have been open, which is more than enough time to make a baby and fill a key position. But in both situations, however, you have to start the process.

Appointment of Katherine Gray as Treasurer

The Community Associations Institute (CAI) publication “The Role of The Association Treasurer” by Howard Goldkang, CPA, and MBA states “There is nothing of greater importance to the association than its financial health. The treasurer is the board member charged with that responsibility. The treasurer must be proactive in pushing the community toward the sound financial objective discussed in the following pages of this report.”

The treasurer is an officer of the board of directors. In most governing documents the officers are the president, vice president, secretary and treasurer. Many documents allow the board to appoint a non board member as the treasurer or secretary. The officers of the board are in no way independent of the board, its duties, obligation and powers and to suggest a treasurer as an entity independent of the board as a goal, policy, tradition or concept is absurd.

Goldkang outlines the following “Guide Posts” of duties and responsibilities of the treasurer:
¶ The treasurer is the financial voice of the board of directors and the community.
¶ The treasurer should be aware of all of the critical areas of financial responsibilities and coordinate those financial activities between the board of directors, the community and the management agency.
¶ The treasurer should be the board’s liaison to the association’s auditor and monitor the progress of the annual audit. The treasurer should also make sure that all appropriate tax returns are filed timely.
¶ The treasurer should implement a replacement reserve program based on an engineering study and see that there is appropriate and adequate funding.
¶ The treasurer should make sure that there are safeguards in place to protect the association’s assets.

The current proactive MVF board voting majority should be applauded for breaking with the past with its non traditional decisions. It was the first step to change the history and tradition of board non action and move forward with the mandate of the election to “put our financial house in order” and “hire the very best director of finance and executive vice president we can find”.

Follow the Money - What is the truth?

Follow the Money – The Gap Between Discover & Recovery

Who knew what and when did they know about it? What actually happened during the 310 days between discovery, day 365 and the alleged recovery, day 675? When did each board member know and how did they perform their respective responsibilities, duties and obligations to quickly remedy the situation, examine the conditions that allow the embezzlement to take place and to take appropriate action to avoid future acts of fraud?

At the time, the dominant and controlling force of John Zakian, Executive Vice President, was in charge, in control of the staff, the board and the flow of information about the audit in progress. He undoubtedly signed the auditors engagement letter and it’s a fair assumption that Regardie, Brooks & Lewis audit staff knew John was “the go to guy”. Geraldine Barber had been the Director of Finance and Administration for only a few months and Lois Campbell in April 2006 was a board member and the treasurer.

From the MV Observer’s blog:

Shan said…”As a former employee of the Foundation, I can assure you the Buttry situation was kept very quiet. I am guessing that only three MVF employees even knew about it once the auditors alerted them, and one, of course, was Zakian.” Sane again reported…I am a former MVF employee. Zakian was a monster. That does not excuse the MVF board for letting him happen along with the money mess. He was thrown out of every job he had. Lon Haman, Keith Silliman, Dick Wright and the rest of that board are responsible for everything bad that has happened in Montgomery Village.

On day 675 Keith Silliman in the February 16, 2007, issue of the MV News “President’s Report” wrote in guarded and euphemistic language “In April 2005 a former employee misdirected approximately $14,000 of MVF funds for her own advantage...The discrepancy was noted approximately a year later during the 2005 audit. (April 2006) Arrangements have been made to recover all of the funds, plus interest”. From Keith’s admission we can assume he was informed as president of the board of directors, a member of the executive committee and an elected board director of the “misdirection” at the time of the auditor’s “notation”.

Lois Campbell is quit another story. On the board of directors she was appointed treasurer and a member of the executive committee in March of 2006 only a month or so before the auditor’s “notation”. From the May 19th 2007 issue of the MV News “MV News In the News” column “In her no-nonsense, confident manner, Campbell says, ‘I would characterize our financial health as excellent…We’ve just begun to analyze the numbers for 2006, and although from an early perspective it looks good, we are more vigilant than ever to anticipate unforeseen events so that this year’s performance will meet or improve on budget.’”. May 19th was 36 days after the auditor’s “notation”.

On August2nd, 2006, 124 days after the auditor’s “notation” and 22 days after Zakian “altered police", Montes writes “MVF leaders have not found any money missing in their review of community finances…Lois Campbell…confirmed…A (operating) shortfall…would be $475,000, raising concerns of potential missing money.”

In the September 6th 2006 issue of The Gazette 159 days after the auditor’s “notation” and 55 days after Zakian’s “alert”, “star” reporter Sebastian Montes reports, “MVF leaders have not found any money missing in their review of community finances…Lois Campbell-(now) the interim director of finance and administration… stated “All foundation money has been accounted for…inconsistent bookkeeping and the misdirection of funds resulted in the inflated numbers.” …Campbell-in her mid-year report promises that the foundation will be more forthright about finances. “But among the things the foundation won’t do, is get a new audit.”

Understand John Yakian

To understand the unseen events it important to understand the nature and character of John Yakian. John had history of being selected for positions of public trust by spinning allusions of improving service delivery, exceeding community and industry standards of facility maintenance; lowering operating costs, taxes and assessments levels while balancing the budget with bountiful new funding from private foundations and local, state and federal government grants and appropriations. There are 4 common denominators of Zakian’s known employment record:

1. A controversy surrounding financial reporting and mismanagement and mishandling of funds.
2. A gap between initial promise and performance with a surreal ability to avoid accountability, determined his own performance measurement standards and not take responsibility for any adverse condition.
3. Shortly after John’s arrival a growing distrust in the public press and the general public.
4. Undeserved and continuous support from his immediate supervisors and elected officials who hired him.

John had been in tough situations before. His instinct is to take care of these kinds of public relations problems quietly and when the cure is in progress reveal to as many as possible how he discovered the condition and how his quick action saved the community from great lost and embarrassment. However, the first day of summer 2006, day 446, wasn’t a good time for this personnel matter to happen.

There was growing public concern over the handling of the foundation’s financial affairs, it was becoming difficult to spin a positive financial allusion narrative without revealing actual understandable, detailed and accurate balance sheets and operating reports.

The MV News reported on June 14th, 2006, "over 100 residents attended a community forum and a lively dialog involving the future of Lake Whetstone, the boat house and the dock”. The July 5th, 2006 edition of The Gazette reported the Friends of Whetstone Lake (FOWL) filed a dispute resolution with the foundation. Not something John couldn’t handle. He felt a new sense of confidence and arrogance after the backing and support the board showed him at the lake meeting. The board message was clear – “stay the course”. Didn’t he take the heat for the board that night? John was truly a “war time” EVP. Three days after Zakian “altered the police” his EVP Message in the July 14th edition of The MVNews was titled “Preparing 2007 budget is a delicate balancing act”. John, had a lot on his mind and he could be forgiven he did not handling the misdirected funds issue immediately.

When fraud occurs, what should happen? What did happen?

Being a victim of fraud is an embarrassment to any organization but a reality all organizations. Prudent business practice is to have a preplanned strategy of action if and when fraud occurs. In the event of embezzlement, the logistics of implementing a preplanned strategy of action in the event of embezzlement should not be difficult or take long, The important and urgent within 10 days, the remainder not less than 90 days.

It is a reasonable assumption, when RB&L finished the audit field work on the MVF 2005 financial books, records and statements in April 2006, day 365, the details of “who”, “how”, “how much” and “when” concerning the misdirected-embezzled-stolen- missing money was known documented and communicated to MVF authorized representatives. MVF leaders would have us believe that during this “discovery-recovery gap” the staff offices at 10120 Apple Ridge Road resembled the movie scene when Elliott Ness stood amidst a legion of accountants, FBI suits and police officials as they built an income tax evasion case against Al Capon. The image of members of the board of directors, and other MVF officials looking under desks, in file cabinets and poring over evidence in their “more-than-year-long-investigation as they quietly went about reconstructing what happened” sounds like an adult version of “the dog ate my homework” explanation.

There were no reasons for the fraud and white collar crime department of the Montgomery County Police to investigate what happened or to sign an engagement letter with Regardie, Brooks & Lewis to perform any Forensic Accounting or Fraud Prevention and Detection services.

What happen between discovery & recovery?

Defaulting into his best Dick Cheney damage control mode Zakian revealed the “I’ve taken care of the situation” version of events to John Silliman and Lois Campbell. Sometime later, the remaining members of the MVF executive committee, Toni Negro, VP and Richard Wright, interim-treasurer after a Zakianese style briefing opted for the “local-police-and-board-of-directors- working-together-to-make-everything-right-with-interest” rendition. In compliance with the MVF long standing closed and opaque communications policy this version was only to be revealed on a need to know basis or made public if “talk around the water cooler” leaked a distorted account to “other published report” sources. The remaining board members were part of the “don’t ask, don’t tell” level of awareness group.

The news of an embezzlement by a long time trusted employee sent shock waves in all directions. How can something like this happen and go undetected for so long? Even Zakian was having a hard time getting his mind wrapped around this one, only the offender herself could answer all the questions.

The department of finance and administration by any standards was stretch very thin, understaffed and leaderless. If there was at any time a system of internal controls it slowly eroded as valuable personnel left, remaining employee struggled to keep up and new and temporary employees became uncomfortable with the unproductive working environment.

There were in all probability secret meetings of those with appropriate security clearance to work through the initial panic, denial and non assumption of responsibility. Zakian was worried about the public relations aspect and how he could spin a happy face out of this one.

Best guess at this point Zakian, along with the RB & L audit team leader met with the offender who told her story. She had to know it was only a matter of time. In all probability an arrangement was agreed upon for her to make restitution by selling or refinancing her home. The real estate values in the Village had increased substantially in recent years reaching its peak early in 2006. The pre planned embezzlement action plan wasn’t necessary. This had to be kept quiet. Prosecution was too public. John had his “I’ve take care of the situation” plan in motion with the complicity from MVF leaders and compliance out of fear from senior staff.

As spring turned to summer the plan was falling apart. Village real estate values were in decline. An insurance claim had to be filed but only after a police report was filed. The leverage MVF had with quick and early prosecution had been lost. In the February 7, 2007 issue of The Gazette it was reported on “July 11, 2006, John R. Zakian the foundation’s executive vice president, alerted police to the suspicious transfer, according to police reports.”

The Montgomery Village News vs. The Gazette

Concerns about the MVF financial and fiscal practices, reporting and communications have been ever present and growing. Those who have questioned, requested specific information, challenged financial practices, the accuracy and veracity of the fiscal reporting or the slightest mention of the board and senior staff’s performance of duty were demonized, patronized, minimized, marginalized and treated as the enemy of the foundation. The responses to questions by the MVF board members and staff spokespersons acted out standards scripts that deny problems and defend the honor, dedication and commitment of generations of current and past volunteers and employees.

James Deye of Whetstone, Robert Hess of Maryland Place, Marilyn Cadoff of The Points, and the late Barry Locke are a few who had written letters to the editor, attended and spoken at MVF public board, committee and special meetings about the troubled state of the foundation’s financial recordkeeping, reporting and communications. Because of lack of faith in reliability of the financial information and absence of trust of those in power and control, there was on on-going request for outside professionals to conduct a study, audit, examination and/or assessment of the finances. There was little public questioning about “missing money”.

However, beginning with its August 2nd 2006 edition, shortly after Zakian “alerted the police”, The Gazette began running denials on a regular basis by MVF leaders, especially from Lois Campbell, the MVF media attack dog, that any fraud or embezzlement had taken place.

The Gazette obtained a copy of the police report at the time, day 460, but did not make mention or reference it until its February 7th, 2007 edition, day 666. Evidently Sebastian took every opportunity in questioning MVF leaders about such subjects as the budget process, the annual audit and/or the financial reporting system to make inquires about the possibility of “missing money”. Here is a sampling of the litany of responses:

8/2/2006
Gazette
MVF leaders have not found any money missing in their revenue of the community finances.

8/2/2006
Lois Campbell
“All foundation money has been accounted for…inconsistent bookkeeping and misdirection of funds resulted in the inflated (deficit) number.”

8/2/2006
Lois Campbell
In her report she laid out the foundation’s plan… promising that the foundation will be more forthright about finances. “But among the things the foundation won’t do, is get a new audit.” The residents said they were asking for the audit largely due to concerns of malfeasance or fraud. But with bank records still showing that the foundation holds $8 million in assets Campbell dismisses those claims.

9/6/2006
Gazette
MVF leaders have not found any money missing in their review of community finances.

9/6/2006
Lois Campbell
Campbell said that all foundation money has been accounted for…inconsistent bookkeeping and the misdirection of funds resulted in inflated (deficit) numbers. In her mid-year report promised that the foundation will be more forthright about finances. But the foundation won’t get a new audit.” The residents were asking for the audit largely due to concerns of malfeasance or fraud. Campbell dismisses those claims. “If there’s $37.21 missing, I wouldn’t know it, but hundreds of thousand of dollars missing, which is kind of the implication, absolutely not”.

1/30/2006
Gazette
Confirmation of missing money comes after months of financial cleanup and account reconciliation… . Campbell reported last week that all foundations accounts in arrears have been wrapped up through the November 2006 report.

As of February 7th, 2006 spin plan B, the “local-police-and-board-of-directors- working-together-to-make-everything-right-with-interest” rendition, was in effect.

On Thursday July 27th, 2006 in a closed session of the MVF board of directors John Zakian’s resignation was accepted in a unanimous vote of the board. Toni Negro, board vice president, was quoted by the Gazette in its August 2nd edition that “neither the deficit nor the lake dispute played a role in Zakian’s departure.” Were the “missing money” and the general state of the financial affairs, factors in his leaving? Was it even discussed? Why since his departure has there been no admission, acknowledgement or apology for his serious negative impact on the Village? Or was he just following orders? It is possible that the board was still not fully informed? Did his resignation include a negotiated settlement of silence?

Why did it happen and how could it have been avoided?

Marilyn A. Cadoff, a CPA and a resident of The Point gave us the answer when she asked in her letter to the editor of The MV News “…What was the nature of the theft and what weakness (es) existed in the internal controls that allowed the theft to happen?...What internal control(s) are being put into place by the Foundation to prevent this from happening again?”

Internal accounting controls are the administrative procedures, routines, repetitive actions performed in creating and accounting for the financial and accounting books, records, reports, schedules, logs, files and supporting documentation. Standard business practices is to document internal accounting controls in an “Accounting and Financial Policies and Procedures Manual” to ensure compliance with generally accepted accounting practices (GAAP), tax laws, board approved financial administrative and policy resolutions, the governing documents of the association, local, state and federal laws, ordnances, codes, restrictions and regulations governing Common Interest Realty Associations (CIRA) such as the Montgomery Village Foundation.

From “Tips for Protecting Your Association Finances”, published by the Community Associations Institute (CAI). One of the important business functions of the board is to oversee the association’s financial well-being. Here are 15 tips to help protect association finances.

15. Establish good financial procedures – The board must ensure the safety of its financial systems by implementing effective internal control. Here are examples of good checks and balances.
¶ Use multiple parties to handle cash, whether assessments or from vending machines, guest fees etc.
¶ Require 2 signatures on all checks over a certain amount and on all reserve or investment transactions.
¶ Do not allow the person who approves invoices to write checks.
¶ Do not allow the person recording receipts to make deposits.
¶ Minimize cash transactions.
¶ Write all checks to the payee – not to “cash.”
¶ Pay all employees and vendors with a check.
¶ Insist that all payments to the association are made out in the name of the association-not the manager, managing agent, or board members.
¶ Deposit checks directly to the association’s account on a daily basis or store overnight in a fireproof safe. Reconcile bank statements monthly.
¶ Arrange for an annual audit including a management letter from the accountant.
¶ Obtain an engagement letter from the association’s accountant that defines the work and fees.

From Community Association Finances a collection of articles from Common Ground Magazine published by the Community Associations Institute, (CAI) – Simple Steps to Avoid Embezzlement” by Alan Crandall.

Divide the labor – Begin by reviewing your internal controls procedures. The more people involved in the process, the more likely wrong doing will be identified. Separate responsibility for issuing check from that of balancing and reconciling statements. Reconcile bank statements promptly within 2 to 3 days of receipt. Ensure authorized signers are not the same person who reconciles the account. Ensure there is adequate supervision. Lack of supervision allows unauthorized access to records and account information or to receive, place and or interrupt calls from the bank.

It was reasonable to assume that the offender in this case did just about everything when it came to the retirement program. She was the resident expert on all matters and things. In all probability there was little division of labor.

The fraud could have been avoided if MVF separated from the offender’s duties:
1. Receiving of the benefit reports and statements from the benefit manager and
2. Comparing the monthly retirement and saving benefits transfer payments from the MVF payroll transfer accounts to total and individual enrollees balances with the benefit transfers received with reports and statements from the benefit manager.
3. Preforming summary monthly general ledger posting of payroll and retirement fund activities.
4. Bank account access, signature and/or transfer authority.

Following are MVF comments about internal accounting controls:
3/2/2007
Pat Huson
Internal controls are strengthened by an excellent staff, now in place, who follow advice from our auditors on such matters
6/3/2005
Geraldine Barber
...It's a system of checks and balances...

The last word goes to Keith Silliman, MVF president at the time, quoted in the 2/7/2007 edition of The Gazette "I think it's been methodically pursued and based on what I'm seeking, it will be resolved and there will be no loss to the foundation, I think under the circumstances, this is as reasonable an answer as we can expect."

Following the Money - Part II

What might have happened?

What you always wanted know about fraud and embezzlement but were afraid to ask
Following are excerpts from Polices & Procedures to Prevent Fraud and Embezzlement – Guidance, Internal Controls, and Investigation, a book published by John Wiley & Sons, Inc. in 2006 written by Edward J. McMillan, CPA, CAE

1. Who Embezzlers rarely fit a stereotypical image and almost always someone above suspicion.
2. Why Despite the appearance of honesty in their personal life they are desperate people capable of taking desperate action and have a gambling issue, alcoholic and/or substance abuse problem or are experiencing financial difficulties.
3. The Fraud Triangle From the “Statement of Auditing Standards Number 99” of the American Institute of Certified Public Accountants, for fraud to occur the Fraud Triangle of incentive, opportunity and rationalization is present. Incentive (See why above with an employee experiencing financial difficulties), Opportunity (To much trust, poor internal controls, lack of supervision by supervisors, no financial audit by independent CPAs). The basis purpose of effective controls is to remove the opportunity for fraud. Rationalization (Over time the embezzlers are convinced they are not stealing, but rather self-correcting a perceived wrong such as a pay discrepancy or the like.
4. How They Get Caught Despite belief to the contrary, most fraud is discovered by accident and due to unanticipated work interruptions. CPAs financial audit 2% - The embezzler knows the auditors routines and what its supervisors look for and do not look for. The auditor engagement is to render an opinion on fairness and accuracy of the financial statements and not to uncover fraud.
Results of internal audit 18% - A good internal audit program is very effective if effective established procedures and internal controls are followed between annual audits.
Whistle blowing 30%
Luck of by accident 50% - Stumbling into something or the thief’s careless accounts.
5. The Financial Services and Accounting Department Most internal embezzlement schemes and other financial related difficulties involve someone assigned to an accounting function such as handling checks, cash, deposits, bank statements and reconciliation, payroll preparation, payroll tax deposits and employees with sole custodian of accounting records. Also the incidents of accounting irregularities are greatly increased if the person assigned to these function is not an accounting specialist by training, education and certification.
6. When Most embezzlements take place during the “window of opportunity” that is open between the time the CPA has concluded the audit field work for one year and the time the auditor starts the subsequent annual audit.

In the case of the MVF “misdirected- suspicious transfer” All 6 conditions excerpted from Mr. Mc Millan’s book were present creating a perfect storm for financial disaster, a trusted long term accounting department employee, with financial problems, apparently solely responsible for “managing its benefits program” embezzling funds after the audit field work for 2004 was completed.

What we know about the MVF employee retirement and saving plan
Note 8 B (Employee benefit plans – Retirement and Savings Plan) to the “Notes to Financial Statement of the audit of the financial statement of Montgomery Village Foundation, Inc. for the year ending December 31, 2001 states “ The foundation makes a fixed contribution fo 2% of salaries and wages to the retirement savings plan. In addition, if the employee elects to defer a percentage of their pay the Foundation will make matching contributions as follows:
Employee Elective Deferral 2%, 3%, 4%
Employer Matching Contribution 3%, 4%,5%

The maximum employer match is 5%. Employer contributions to the plan were $94,537 in 2001.”

How do these plans work?
The administration of “retirement and saving plans” is normally a function of the payroll accounting and record keeping department of a large scale community association such as MVF using a payroll service company and/or the payroll module of its in-house accounting program. The benefit program, the savings funds and individual retirement and saving accounts are normally maintained and managed under contract by a benefit or investment management firm as the fund manager.

It is common practice to establish a payroll transfer bank account as the depository of the gross payroll including the employer’s cost of payroll taxes and fixed and matching employer contributions to the retirement and saving funds are deposited each payroll period. Logging on to a web based computer program of the fund manager the total of the current employee withholding retirement fund contribution and the employer’s fixed and matching contributions are posted to each individual employee’s account balance and simultaneously wire transferred to the fund manager. For larger employers federal and state income fax employee withholding and employer social security contributions are paid as a function of the withholding tax reporting system by electronic transfer knows as “impoundment”. Any payroll or tax and benefit expenses not paid at the end of the monthly accounting period is usually recorded on the books and records as a current liability.

So what do you think happened?
The 2007 payroll budget for salary and wages is $3,011,092. If the assumption that the total of the payment to benefit and saving fund is 6% of salaries and wages, the annual contribution would be approximately $180,000 or $15,000 a month. Remember the employer pays a 2 % fixed contribution for eligible employees. Each employee can elect a deferral amount from 2 to 4% and MVF contribution a matching contribution from 3 to 5%. In 2001 MVF contributed $94,537 so it would be reasonable to assume that the total employer-employee contributions to for 2001 would be $150,000 to $160,000. If we assume MVF electronically transmitted the contributions monthly to the benefit and retirement fund, it is a good possibility that the “fraudulently transfer of $13,684 from the MVF retirement fund” was the March 2005 “retirement and saving” transfer normally electronically transferred to the benefit manager.

Such a misdirected transfer could go unnoticed even if others employees were responsible for balancing the bank statements, producing the financial reports and performing other balancing and internal control procedures. All bank, payroll and general ledger accounts would appear in order until the 2005 audit is conducted in the spring of 2006.

On page 15 of the 2004 MVF Annual Report in the section on Finance and Administration it is written “The department underwent several changes during 2004. The financial affairs supervisor served as interim director until the new director (Geraldine Barber) was hired in December 2004. During the transition, staff readily assumed additional responsibilities to keep the department running. Fixed asset, payroll and COBRA software was upgraded.” There were plenty of changes, distractions and stress on the remaining and new staff to assume the “unauthorized transfer” would probably go undetected for at least a year.

Normally the benefit manager provides a variety of paper and on-line monthly, quarter and annual reports to its clients and employee enrollees to the benefit and savings plan. During the annual audit payroll transactions and balances from the fund including individual employee transacts and balances would be examined to ensure all payments from MVF accounts were received and properly transmitted and posted.

If the audit uncovered the "unauthorized transfer" why wasn't it disclosed?

If the “suspicious and unauthorized transfer” was discovered during the course of the 2005 audit, should this have been reported and prominently noted as part of or during the audit process? Should it have been included as an employee receivable; as part of the “Notices to Financial Statement” Note 8 B, Employee benefit plans – Retirement and Savings Plan”; Note 10 “Concentrations of credit risk”? Should it have been a reported condition in the Management Letter as a concern or weakness of the internal controls when the draft audit was first presented to the board of directors?

It's your turn to post your questions and comments and E-mail this blog post to your Montgomery Village e-mail list

MVF The Financial Report - Follow the Money!

What do you think really happened?

According to written reports it took 460 days to discover that MVF cash funds under the care, control and custody of MVF staff were missing, misdirected, stolen and or embezzled. The event was first publicly reported by the embattled staff writer of The Gazette Sebastian Montes in its February 7, 2007 edition that a police warrant of a former MVF employee accused of fraudulently authorizing transfer of $13,684 from MVF retirement fund. Seven (7) months latter in the February 16, 2007 issue of the Village News , The Official Newsletter of Montgomery Village Foundation, Inc., reported that the “Employee theft was shocking, but audit and internal investigations averted financial loss, …the financials are clean and No funds will be lost and MVF retirement accounts and all other foundation accounts are in order” (Lois Campbell, Interim Treasurer); “Arrangements have been made to recover all of the funds, plus interest.(Keith Silliman, Interim MVF President) and “…the auditors, local police and Board of Director have worked together to make everything right”. (Pat Huson, Interim EVP). Everyone has questions but as Pat Huson, Interim EVP stated in response to Marilyn A. Cadoff, a CPA and a resident of The Points in her questions on the embezzlement “The staff is excellent, details of the loss will not be given since the case is not yet entirely closed and Ms. Cadoff can go apply for membership on the MVF Audit Committee.” Let’s list the questions and speculate about the answer.

How and who discovered this unauthorized transfer? Why did it take so long to discover that MVF funds were fraudulently transferred and take action after the discovery?
What and who knew and when did they know it?
What can we say about MVF’s financial management systems and practices?
What can we say about MVF’s Board of Directors oversight and communications of financial matters?

The “gap” between discovery and resolution

On July 11, 2006 (Day 460) the Gazette reported John R. Zakian alerted police to “the suspicious transfer, according to police reports”. How long before Zakian was aware of the situation? Heaven knows, John was a promoter and public relations type and didn’t have the skills or desire to supervise a petty cash account let along be in charge and take responsibility for a community with $ 9 million in assets and a $6 million budget. As Sebastian Montes, the “annoying” staff writer for the Gazette, wrote on August 2, 2006 Day 481, that soon after Zakian left his job as executive director of the Yonkers (N.Y.) Industrial Development Agency/Job Development Corporation (1984 to 1993) his secretary at Yonkers was accused of embezzling $350,000 and pleaded guilty to a lesser charges. Zakian told the Gazette he was the one who realized his secretary had written checks to herself and said he was unfairly blamed for failing to discover the embezzlement, which should have been uncovered in an audit. We could give John credit for “Embezzlement Reduction”, as embezzlements under his watch declined from $350,000 to $13,000 but I don’t think he uncovered the theft, he only provided the environment that encouraged such things to happen.

Not withstanding Pat’s Huson’s comments above about “details about the loss will not be given”, as reported in the Village News President’s Message column “The discrepancy was noted approximately a year later during the 2005 Audit” in April of 2006. That would mean a “gap” of at least 81 days between the “notation” of the discovery by the auditors and when Zakian “alerted police to the suspicious transfer”.

This only increases the quantity of unanswered questions about handling and condition of the financial and fiscal affairs of the Foundation as well as the creditability of those with power, duty and obligation in such matters.