Money - 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!