DRAFT

Lake Anne of Reston

Condominium Association
Presentation on procedures, findings and
recommendations
May 29, 2020
Our Engagement Process
Background and Goals

• On January 23, 2020, EY Forensic and Integrity Services practice was engaged by Lake Anne Reston
Condominium Association (“LARCA”) to perform an engagement to provide findings and recommendations
on a forensic analysis of expenditures and activities of the LARCA Board, focusing on the previous 3 fiscal
years (December close). Between 2017 and 2019, LARCA received $ 1.79 million in income in 2017, $1.84
million in 2018, and $1.68 million in 2019 through November. The total income between 2017 and
November 2019 was approximately $5.3 million.

EY engaged to do the following:

1. Perform interviews and document analysis to build a foundation around the Board’s activities;
2. Understand payment and procurements for certain types of payments;
3. Conduct business intelligence reviews;
4. Identify the applicable supporting documentation that is available for the contracts and payments relevant to
the project;
5. Select a sample of relevant payments and assess the supporting documentation for the payments; and
6. Provide findings and recommendations on LARCA’s compliance with their current policies and provide
observations with respect to indicators of potential fraud risks.

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Limitations of this Report

• This report is confidential, intended solely for the information and use of LARCA and is
neither intended to be, nor should be used by other parties. Distribution of this document
and any related work plans and reports is limited to LARCA except to the extent permitted by
our engagement letter.

• This report does not provide any form of assurance (positive or negative) on the subject
matter.

• Due to the scope and cost limitations on this engagement, not all relevant parties could be
interviewed, including board members, property and business owners and other parties
involved with activities taking place on the Plaza.

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Why It Matters

We consider four core elements of the Integrity Agenda in performing our work and identifying the potential for any
financial anomalies, fraud, waste, and/or abuse.

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Procedures Performed

EY performed the following procedures to form our observations and findings:

• Obtained information through interviews of a LARCA board member, two LARCA business owner and/or resident,
two LARCA employees and one Friends of Lake Anne (FOLA) representative.

• Read auditor’s letters for 2016, 2017, and 2018

• Obtained the LARCA G/L and analyzed various payments

• Assessed some of the vendor’s expenses, contracts and purchasing processes, including procurement

• Read the by-laws and governing documentation related to LARCA

• Read and evaluated the Virginia law related to 501(c)(3), LLC and not-for-profits
• Assessed compliance with these policies, requirements and laws

• Performed an integrity due diligence report

• Performed research and analyzed supporting documents related to organizations related to LARCA, including
FOLA, The Reston Market and the CORE Foundation

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5 Risk Areas Assessed

High Dollar Gardner

Payments to
Vendors in the Engineering
Residents
GL Contract

Use of the
Property
LARCA Plaza
Improvements
by entities

**Additional items of interest that EY did not assess in detail are discussed in detail in the conclusion of the presentation.

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LARCA - DRAFT
TOP ACCOUNTS
PAYABLE
IN THE GENERAL LEDGER
High Dollar Vendors in the GL

Top 10 Accounts Payable Vendors between Why This Matters

January 2017 and November 2019
• There were limited written policies and procedures at
Vendor Name Total amount LARCA
Shenandoah Valley Plumbing $1,161,693 • There were no written bidding, contracting or
payment requirements, which inhibits oversight of
Community Management Corp. 435,421 contracts
Dominion Energy 266,905 • Vendors may not offer the best price or quality, or
Titan Restoration Company 251,653 vendors may not follow contract requirements
• Recommend LARCA examine current contracts to
Reston Relac LLC 242,726 attest that contracts were followed and assess quality
Fairfax Water 162,997 of product provided.
Comcast 137,299 • Additionally, LARCA may consider a rebid for large
vendors to obtain most favorable market-competitive
Langley Remodeling 124,050 rates
Gardner Engineering, Inc. 113,414 • Recommend that LARCA obtain at least 3 bids for projects
of a set value or higher to obtain market-competitive
Direct Energy Business 110,222 pricing and maintain records of the bids

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 Gardner
Engineering:
Insights from reading
the contract, past and
proposed projects
Gardner Engineering Inc. Contract

Gardner Engineering Inc. was one of the top ten highest paid vendors with a long relationship with LARCA. EY evaluated some
payments to Gardner. Below are details noted on two payments which make up 51% of total amount spent with Gardner between
2017 and 2019. If the 5 year plan detailed below was executed, the total payments to Gardner is estimated to cost between
$1.8 -$2.2 M, (at least 15 times the amount Gardner was paid during 2017-2019).

Asphalt Pavement Remediation 5 Year Plan Project

► In the 2019 proposal, Gardner proposed a five phase
project totaling almost $10,000, but by the end of
2019 the invoices coded to this project exceeded
$20,000.
► Mileage was billed at $0.65 per mile, but the IRS
mileage rate is $0.58, a mark up of 12%
► Travel expenses were invoiced at the direct cost
plus an additional 20% (incentivizes more
expensive travel)
► All materials and subcontracts were invoiced at
direct cost plus an additional 20%. Anecdotally,
an EY survey of construction and building clients
found the average to range between 5-10%
► Invoices contained limited detail on work performed or
expenses incurred which made it difficult to assess
performance/ compliance with contract and
completion.
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► In 2017, a report was published for leak test in a Heron
House Unit. The report detailed observations found and
discussed the proposed work.
► The report specifically stated: “We do not currently
have an opinion of cost for the above noted repairs”
► In 2018, the project appeared to become part of the 5
year plan project.
► In the memo, Gardner estimated high and low costs
between $1.8 - $2.2 million
► No indication of a competitive bid to assess market
competitive rates for this project
► Invoices contained limited detail on work performed or
expenses incurred which made it difficult to assess
performance/ contract compliance/ completion.
 Refund to Resident

The better the question. The better the answer.

The better the world works.
Payments to Residents

The GL indicated that a payment of $25,877.48 was made to a resident in May 2019 due to a reimbursement for an
over payment. EY performed an analysis to determine if in fact there was evidence of an overpayment

► The explanation provided to EY indicates that

the resident over paid their monthly
assessment between September 2017 to April
2019, but there was no explanation on the
reason that the overpayments occurred for so
long without being addressed. ► EY was informed the control deficiency is now
rectified with CMC to prevent a payment to a
► EY read and assessed the available resident in cases other than refunds for
documentation which outlined how the issue overpayments. However, these controls were not
evolved, how the payments were “auto independently verified by EY.
debited” from the owner’s bank account and
showed the overpayment growth exceeding
$25,000
► This transaction should not affect the ability
to reconcile the books and records, as the
reimbursement would directly offset the over
payment
Due to resident confidentiality, EY did not
► We recommend that LARCA exercises more independently tie the resident’s monthly assessment
governance over their administrative amount to the bank statements to verify the amount
organizations and confirm that the internal overpaid matches the refund amount. We did trace
controls are effective. the amounts to the G/L.

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 USE OF THE LAKE ANNE PLAZA

The better the question. The better the answer.

The better the world works.
Organization of Entities’ use of the Plaza

• Our research on programs that were hosted at the Plaza and associated with LARCA involved
primarily the following organizations:
• Friends of Lake Anne
• Friends of Lake Anne II (FOLA II) LLC
• The Reston Market (Craft Market)
• Lake Anne Merchants Professionals Committee (LAMPC) (a committee of LARCA)
• The CORE Foundation

• According to records received, these organizations have all been involved in special events
that took place at Lake Anne Plaza, such as the weekly markets and other activities. Eve or
Rick Thompson were involved with or hired each of these organizations. However, based on
the documentation we received, it is confusing to determine the roles, responsibilities and
accountability of each entity related to the events.

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Friends of Lake Anne

Friends of Lake Anne (FOLA) Friends of Lake Anne II, LLC

• Nonstock organization registered in Virginia • Limited liability company registered in

in August 2008, but has been inactive since
December 2012 due to non-filing of annual
reports or payment of annual fees
• Eve Thompson is the listed President and
Director and Richard Thompson is the
Director and Organizer of FOLA
Virginia in 2018, but has been inactive
since April 2019 due to non-payment of the
registration fee
• The organizer of the entity is Richard
Thompson

Neither FOLA nor FOLA II could currently be independently found in IRS records nor in the
Neither FOLA nor FOLA II are not currently independently found in IRS records or in the
Virginia Department of Agriculture and Consumer Services – Office of Charitable and
Virginia Department of Agriculture and Consumer Services – Office of Charitable and
Regulatory Programs.
Regulatory Programs.

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Organizations Related to Friends of Lake Anne
The Reston Market, LLC
• Limited liability company registered in
Virginia in January 2018, but has been
inactive since April 2019
• It was registered by Edward Culbertson,
and organized by Richard Thompson
• According to The Reston Market’s
homepage, a craft market has been
taking place on the Plaza since 1971
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The CORE Foundation
• Registered 501(c)3 organization
according to the IRS filing that represents
multiple Reston area organizations and
became involved with FOLA in December
2018
• According to the CORE Foundation’s
website, they assist support
organizations with “back-office support”
to “small organizations and social
entrepreneurs.”
• CORE Foundation is based out of Reston
• In exchange for their services, CORE
received a percentage of FOLA’s funds
Special Event Usage on the Plaza

LAMPC Lake Anne Special Events Application

• The Merchants Committee (now known as • The Lake Anne Special Events Application had to
LAMPC) have a long series of projects that were be completed in order to host an event on the
to improve the Plaza.1 Plaza
• We did not find a charter or clear delineation of • Both the LARCA board and LAMPC were
duties documented for LAMPC. involved in the application process.
• The LARCA committee organized to represent the
merchants of Lake Anne but no minutes or charter • The application requires proof of required
was provided to EY to support its establishment. permits and agreement to pay the listed rental
• As a committee of LARCA and not a separate rate for the use of the Plaza
legal entity, LAMPC could not have sales or • FOLA and the Reston Market (entities
sponsorships in their own name. Sponsorships affiliated with former LARCA president Rick
would have to be made through LARCA. EY was Thompson) had the payment of LARCA
not provided with any documentation of minutes rental fees waived.
showing board approval of sponsorships

1 Analysis of the LAMPC fee dispute were outside the scope of EY’s services.

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Lack of Clarity on Organizations Using the Plaza
• FOLA was formed as an LLC in 2008 according to
State of VA records and became defunct in 2012.
Eve Thompson has communicated that FOLA was
an organization she and Rick formed in 2001.
• According to Eve Thompson, The Reston Market
and FOLA each had their own EIN.
• FOLA’s website has been taken down since this
engagement commenced
• FOLA’s website was set to expire in July 2022,
according to domain registration records
• According to Thompson, there was a glitch by
the website host
• Reston Market and/or FOLA comingled sponsorship •
funds by having the sponsorship money deposited
in LARCA’s accounts and then directing vendor
payments made from the LARCA account.
• Sponsorship money from RCC went through LARCA to
pay for vendors supporting FOLA events
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• FOLA has not maintained financial integrity by
causing sponsorships to be comingled with the
LARCA accounts in at least one instance.
• This activity undermined the credibility of the
transactions and entities among certain stakeholders.
• Based on the analysis of the GL for our scope period, EY
could not identify any funds were paid to benefit LARCA
from FOLA
• FOLA and The Reston Market produced financial
statements. We saw two of these statements for
2019. We could not independently verify any
information in the financials and we placed no
reliance on their content.
Based on email documentation, FOLA financials were
not made available to the LARCA in a timely manner
Lack of Clarity on Organizations Using the Plaza
• According to the former FOLA website, FOLA is a
“501(3)c [sic] organization through a fiscal
sponsorship” with CORE (that information was
subsequently removed)
• However, EY could not independently verify that
FOLA is a not for profit organization
• The CORE Foundation website has a button allowing
donations to be made to FOLA, despite FOLA not
being a legal entity based on State of Virginia filings •
as of February 12, 2020
• As the fiscal sponsor, CORE maintains ultimate
control over the funds and administrative
functions
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• EY’s request of and reading of board minutes
showed a lack of contemporaneous financial
reporting on the events held in the LARCA Plaza
• Based on documentation provided, events were
often held under different event sponsors (FOLA,
Reston Market, LAMPC, etc.). This appeared
confusing and there was not a clear delineation of
the responsible entity for each event.
Liquor licenses were obtained through groups that
we could not independently distinguish the
connection to FOLA, such as Reston Historic Trust
• According to the State of Virginia, to obtain a
one day ABC permit, the organization must be a
501(c)(3). This was the reason FOLA needed
other organizations.
Potential Lost Fees

• The documents requesting “free” use of the

Plaza (in 2019) indicated no LARCA labor would
be used for set up and take down.
• A LARCA employee indicated that a team of 3
Plaza Rental Fees per day $3,000 typically spends about 2-3 hours per week
Markets per year (May – October) 27 cleaning up
• Eve Thompson indicated that LARCA staff was
Lost fees/year $81,000 used during off hours only and was paid cash on
the day of the event. However, at least one LARCA
employee indicated that he was paid by LARCA,
not by Thompson, for this work.
Potential loss (3 years): $243,000 • LARCA should consider reimbursement at
reasonable rates for LARCA employee labor if they
were engaged by FOLA or related entities in
contradiction to the agreement.
• FOLA application for 2018 (January-December)
was found to be presented and approved after
the fact in November 2018

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FOLA: Background Information DRAFT

Eve Thompson was interviewed and provided the following information. We did not confirm the statements
with primary sourced documentation because the scope of our statement of work with LARCA did not
cover probative tests of outside entities and receipt of this documentation would not have changed our
findings and recommendations. As such, we present these for balance and fairness for the reader but we
provide no reliance on, nor validate their verity.

• Reston Market was conceived to be an IRS 501(c)(3) corporation but that never materialized
• The Reston Market ceased conducting business. All activities previously performed through the
Reston Market are now performed through FOLA
• Thompson advised she believed FOLA was funded through market proceeds and sponsorships, which in
turn, funded events held on the Plaza
• As of 2019, the main sponsor of events, RCC, paid LARCA directly to sponsor the events and
LARCA directly paid for some of the vendors on behalf of FOLA with the sponsorship money
• The financial statements for FOLA are currently approved by CORE’s staff
• Eve produced financial statements using information found in FOLA’s checking account and from
the Square app
• Thompson believes CORE Foundation provides oversight, structure and transparency

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Risks with FOLA/Reston Market/LAMPC
Findings
• There were numerous organizations involved in
the use of the Plaza at no cost. These
organizations were all controlled by Eve or Rick
Thompson.
• The LARCA board minutes approving
Plaza activities were either non existent or
unclear.
• Contemporaneous reports were not
provided to the LARCA Board.
• LARCA may be forgoing revenue by providing
the Plaza for free to these organizations and
may have assumed added liability pending an
evaluation of the insurance coverage
• There was an appearance of self dealing, as the
previous LARCA President, Rick Thompson and
his wife Eve Thompson, held positions in these
entities which may have created the appearance
of their financially benefiting from the events
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Recommendations
• Recommend providing more oversight and
demand more control and governance over
groups using their assets, such as the Plaza and
LARCA employees
• Recommend the LARCA Board promulgate policy
regarding their relationship with groups, set
timely reporting requirements, and define a clear
role for and accountability of LAMPC
• Recommend LARCA promulgate policy requiring
disclosures of potential and real conflicts of
interest and address voting by board members
who are parties to the conflicted relationship with
LARCA
• Recommend LARCA assess the risk associated
with use of the Plaza without additional insurance
• Recommend creating a policy relating to what
event vendors and craft market vendors can sell,
specifically as it relates to products of a similar
nature sold by Lake Anne merchants
Property Improvement

Results of assessment of a plaza

improvement
Property Improvements

An analytical assessment of the GL indicates that a significant portion of the budget was spent on
renovations. Therefore, EY examined an identified property improvement in detail.

• In March 2017, the LARCA Board unanimously approved a proposal from SR&R Structural
for a $30,810 for additions to the plaza that would create “a more cohesive welcoming
plaza experience.”

• Upon analysis, 3 key risk areas were identified:

1. Potential for self dealing

2. Lack of proper bidding process
3. Lack of vote by residents

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Property Improvements

Appearance of “Insider” Dealing

► The addition was proposed by Melissa Romano, who
owns Lake Anne Brew House with her husband and
board member Jason Romano.
► The project was proposed to the board on Brew House
letterhead.
► Board meeting noted that Jason Romano voted in favor
of the improvement
► By laws require owners vote when improvements
exceed $25,000* and this was completed on a
board vote.
► There was no requirement for a conflict of
interest to be disclosed nor for board members to
abstain.
► The project appeared to have been sole-sourced
(no evidence of bids)
► The vote included funding the project through the
reserves account.
► Recommend LARCA promulgate rules on board
member conflict of interests and voting.
* We were informed this amount may have had an inflation
increase but we were not provided with substantive proof to
verify that statement.

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Property Improvements

► Insufficient Bidding process

► The letter to the LARCA Board of Directors from Melissa Romano stated that she met with a designer and engineer to
provide the proposal, which was attached with the letter.
► There was no mention of requesting multiple bids nor was any other supporting documentation provided
► A LARCA employee stated that he thought three bids may have been gathered, but no documentation to support that was
found. We recommend obtaining at least three bids and retain the documentation.

► Lack of Vote by Residents

LARCA By-Laws indicated:

“whenever in the judgment of the Board of Directors of the Common Elements shall require additions, alterations or
improvements costing in aggregate in excess of Twenty-five Thousand Dollars ($25,000) during any period of twelve (12)
consecutive months, and the making of such additions, alterations or improvements shall have been approved by sixty-six and
two-thirds percent (66-2/3%) of the Unit Owners benefited, the Board of Directors shall proceed with such additions, alterations
or improvements…”
• As this improvement alone was in excess of $25,000, all residents should have had a vote to approve the project. We
received information there may be an inflation rider increasing this amount but we found no proof in the records we read
• The requirement for a vote for a large improvement or addition to the property would prevent the appearance of self-
dealing as dues paying members would have to approve the project by more than a majority
• The recommendation to promulgate policy on conflicts of interest and board votes would diminish the perception of insider
dealing.
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 Areas for LARCA’s to follow up

Suggested areas for follow up by LARCA

The better the question. The better the answer.

The better the world works.
Additional Items to consider for further assessment

► Conduct an open forum to discuss with residents, current and former board members, LARCA employees and
other related stakeholders to better understand the concerns of the community
► Interview Rick Thompson on his roles in The Reston Market, FOLA, FOLA II and his voting to allow the use
of the Plaza for related entities.
► Assess documentation related to events held at the Plaza regarding obtaining liquor licenses and permits
► Interview former LARCA employee, Susan Cassell, regarding LARCA, use of the Plaza, vendor insights, etc.
► Interview additional LARCA employees to ascertain their use (how they were paid) for setup and tear down for
Plaza events and assess any payment documentation including timesheets
► Assess the allegation of the use of “free” storage by FOLA. Board should address the benefit of the storage, its
nature and purpose and assess if its continuation is in the interest of LARCA.
► Perform an audit on FOLA and related organizations’ financials (to the extent that information is provided)
► Assess if there was a reduction of assessment charged to the Thompson’s coffee & wine shop for the contiguous
property or “common area.”
► Reconstruct expected Plaza revenue and expenses and evaluate if it earns money or costs residents.

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Additional Items to consider for further assessment

► LAMPC Committee
► Understand establishment, authority, reporting structure and necessity
► Research funds/ budgets;
► Assess role and accountability to LARCA Board
► Discuss with plaza business owners: (realizing businesses are separate from LARCA but integral to the
community)
► Use of plaza (for conflicts and community engagement)
► Benefits of weekly and other events
► Do they feel Plaza events compete with or complement their business
► Evaluate the fairness and equity issues (e.g. use of plaza every weekend; sale of alcohol)
► Assessments of high value contracts and their invoices
► Shenandoah Plumbing – contract assessment; analysis of invoices and work completed. Conduct a deeper
assessment of the transactions to understand value
► Gardner Engineering – assess value of contract for travel expenses, travel time and markup on
subcontracts (in addition to billable time)
► Evaluate proposed Five Year Plan

Page 30 29 May 2020 Crater Regional Workforce Development Board - DRAFT

Additional Items to consider for further assessment

► Payments to CMC – appear to exceed contracted amount recommend evaluating payments

► Payments to construction companies (Titan, Reston, Langley) for compliance with bylaws and reasonableness.
► Analyze the unreconcilable difference noted in the financial statements
► Assess / address internal control issue cited in past three financial statements
► Audit books and records to determine if the refunds were made properly to businesses from LAMPC
► Audit Bad Debt write offs and their propriety (how did the entries get into receivables)
► Perform additional review on payments to residents, including reviewing/ tracing amounts to the bank
statements
► Obtain a better understanding of CMC’s processes and internal controls
► Receive a better understanding of FOLA finances (or any entity using the Plaza) for use of the Plaza

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 Recommendations

Based on our findings, we recommend…

The better the question. The better the answer.

The better the world works.
RECOMENDATIONS DRAFT

1. Promulgate Policy (Where it does not exist)

• Create policies around bidding and contract requirements
2. Strengthen Policy where it is weak and nebulous
• Assess and update the by-laws to provide effective controls
3. Comply with Policy (Where it does exist)
• Recommend that board members and agents of LARCA comply with current
policies (by-laws and any newly developed policies)
4. Exercise oversight
• Verify that vendors are performing the work as agreed to in the contract
• Board of Directors should exercise oversight and accountability of vendors and
agents
5. Address additional listed items to consider to satisfaction of LARCA BOD

Page 33 29 May 2020 LARCA - DRAFT

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