Money - 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.