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.

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!
  

Board - 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”.

Money - 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."