Statement of Terry Maynard for Reston 20/20 at Special RA Board meeting on Tetra review, March 20, 2017

Statement of Terry Maynard, Co-Chair

Reston 20/20 Committee re

The StoneTurn Group Tetra Report and Follow-up

March 20, 2017

Good evening.  I am Terry Maynard, 2217 Wakerobin Lane, and I am speaking on behalf of the Reston 20/20 Committee.

First, I would like to thank StoneTurn Group and its investigative team for its excellent report prepared in far too brief a time.  It does exactly what you, Deidre, promised it would do:  It lays out a clear forensic description of what happened during the unfolding Tetra debacle.   Regrettably, from our perspective, it does not lay out specifically the who, why, and how of the many events it identifies. 

The members of Reston Association deserve to know all the details in this shameful episode, including those reported by StoneTurn Group and others that are not covered in this report.  We need to know, first, because somewhere between our Board and RA staff and its contractors, including counsel, RA spent $2.65 million of our money on a property worth less than half that in 2015.  Moreover, in 2016, RA spent nearly one million dollars repairing and renovating the property without any budget or identifiable Board approval until some $600,000 had been spent.  The total spending was nearly quadruple the quarter-million dollar forecast estimate in referendum documents. 

 
These are colossal errors.  We must know in depth how and why they occurred and who caused them to occur.  Then we must take steps to prevent these blunders from being repeated, and to discourage anyone from ever making them in the future. 

Our preliminary report, which used the StoneTurn results extensively, highlights several major areas of mishandling of Tetra’s purchase and repair.  As the many questions it raises suggest, it is meant to stimulate further investigation. 

In contrast to numerous mistakes StoneTurn Group documents, neither StoneTurn Group nor we have been able to identify a single attempt by RA or the Board actually to lay out a price offer, formal or informal, to Tetra’s owner for less than his asking price of $2.7 million.  To the contrary, we have an e-mail from the RA land use attorney’s office to the CEO attempting to justify the seller’s $2.7 million price.  Maybe such an offer document exists, but it hasn’t surfaced yet.  If it doesn’t, that’s a monumental failure of RA Board, staff, and counsel fiduciary responsibility. 

Similar unexplained and highly questionable events occurred throughout last year’s period of renovation, but I think we have made the point:  There is much more to know and do before closing this ugly chapter in Reston’s history.

What all this points to is the need for a follow-up investigation to understand fully all that occurred and to make appropriate corrective recommendations.  The core purposes of that investigation would be to identify specifically what mistakes, accidental or malicious, were made, identify who was culpable for those mistakes, and recommend to the Board appropriate corrective policy, process, and personnel actions.

We propose that the next RA Board of Directors appoint a special committee of RA residents with an extensive period to work and extensive authority to access RA documents and personnel to pursue this investigation.  Heaven knows, this community has the expertise to conduct such an effort.  In the end, the community is the aggrieved party in this fiasco, stuck with a white elephant, millions in debt for decades, and the near certainty that facility revenues will never cover costs.  Moreover, by using community resources, we have the opportunity to avoid yet another major expense related to this shameful episode. 

That said, we appreciate that this Board, the majority of which served throughout the purchase and renovation of Tetra, is not planning to take action on StoneTurn Group’s recommendations.  Moreover, as the CEO rightly pointed out in last week’s Board Governance Committee meeting, RA’s specific ideas on how to address process and procedural matters need to be refined.  We think that a further indepth investigation will help shape those ideas much more effectively and accomplish much more for the betterment of Reston.

A Preliminary Report on Key Issues in RA's Mishandling of the Purchase and Renovation of the Tetra Property, Reston 20/20 Committee, March 13, 2017

E-mail transmitting report to RA Board of Directors and others: 

Terry Maynard

Today at 10:01 AM

To

• RA Board of Directors
• Deirdre Flaherty, StoneTurn Group
• Eric Carr, Chairman, Tetra Review Committee

Message body

Dear Ladies & Gentlemen,

Attached for your consideration is a brief preliminary report on RA's mishandling of Tetra based on the work of StoneTurn Group in laying out the relevant events and the excellent work of a small group of Reston 20/20 researchers who ferreted out additional information and tied it all together.  Our goal in this report was to pinpoint areas for follow-up so we, as a community, can understand who was behind what happened and why those events occurred.  It is meant to stimulate discussion and a much deeper follow-up initiative to get to the bottom of all the mistakes that occurred and hold accountable those who made them.  In the end, if we do not hold accountable those who horribly mishandled the Tetra purchase and renovation, we can almost certainly expect a similar debacle to occur in the future.

In light of the fact that the current Board majority was immersed in all the events described here and in StoneTurn's report, it has no credibility in conducting any further actions on Tetra.  The new RA Board, installed next month with a majority not involved in Tetra, should tackle the issues we raise here and any others it finds in a deep dive effort by a committee of Restonians.

In the meantime, we look forward to discussing StoneTurn Group's report as well as our own at tomorrow's special Board meeting, assuming the forecast blizzard doesn't prevent the meeting from occurring. 

Sincerely,

Terry Maynard, Co-Chair

Reston 20/20 Committee

   A Preliminary Report on RA's Mishandling of the Purchase and Renovation of the Tetra Property by TerryMaynard on Scribd

Review of the Tetra/Lake House Project, StoneTurn Group, February 28, 2017

   Reston Association:  Review of the Tetra/Lake House Project, StoneTurn Group, February 28, 2017 by TerryMaynard on Scribd

Analysis and Comparison of 2010 and 2015 Appraisals of Tetra Property by Members of Mediaworld Team

   Installment II - Summary of Lake House Appraisals, 2010 vs. 2015 by TerryMaynard on Scribd

   Installment II Summary of Lake House Appraisals Comparison Chart by TerryMaynard on Scribd

Summary and Questions from Mediaworld Team Members about the RA Board Meeting at which the Board Decided to Buy Tetra, January 22, 2015

   Installment I -Jan 22 2015 RA Board Meeting by TerryMaynard on Scribd

   Installment I -Questions Re Jan 22 2015 Bd Meeting by TerryMaynard on Scribd

Reston Recall files Official Conflict of Interest Complaint against RA Board's Eve Thompson

As shown in the document below, Ed Abbott, Reston Recall, has filed an official conflict of interest complaint against Eve Thompson for failing to fully disclose her personal interests in businesses in and around Lake Anne Village Center.  The complaint notes the specific failures and her continued participation in matters pertaining to LAVC, including the undisclosed relationship between herself and her husband who presented a request for RA financing of dock improvements at Lake Anne.  If the RA Board does not address Reston Recall's request in a satisfactory matter, Reston Recall has the right to appeal to the Virginia HOA ombudsman. 

   Conflict of Interest Complaint Against Eve Thompson, RA Board of Directors by TerryMaynard on Scribd

After no response, Mediaworld terminates Tetra audit contract discussions with RA.

The following is the text of an e-mail Sridhar Ganesan, President, Mediaworld Ventures LLC, sent to the RA Board of Directors and others today.  The letter he references is available here.  
 

From: Sridhar Ganesan <sridhar@mediaworldventures.com>

Subject: Re: Emailing - Mediaworld Letter to RA Boad, Dec 22, 2016.pdf

Date: January 2, 2017 at 10:04:35 AM EST

To: BoardOfDirectors <boardofdirectors@reston.org>, "Kenneth E. Chadwick" <kechadwick@chadwickwashington.com>, Tetra Review Committee <TetraReviewCommittee@Reston.org>

Good Morning.  It has been about 10 days since we sent the last letter to you and have had no response.  Please consider this email as termination of our contract discussions.  Wish you all a Happy New Year.

Sridhar Ganesan
+1-202-409-2722
sridhar@mediaworldventures.com
Skype ID:  sridharganesan

Mediaworld Ventures, LLC
PO Box. 2061, Reston, VA 20195
USA

Another RA Tetra fail: Mediaworld informs the RA Board it can not come to terms with RA on the independent Tetra review.

As the letter from Mediaworld President Sridhar Ganesan below indicates, Mediaworld has not been able to negotiate a reasonable $1 contract with RA to review the Tetra acquisition as approved by the Board months ago.  The letter highlights Mediaworld's continuing willingness to carry out the work under less restrictive and risky terms as discussed in the last Board meeting, but so far RA has been unable to present such a contract.

   Mediaworld Letter to RA Board, Dec 22, 2016 by TerryMaynard on Scribd

RA overshoots May Tetra budget for 2016 by $29,000.

After finally admitting that renovations for Tetra were over budget by $430,000 in May, RA put in place a new budget--new revenue stream, new cost estimates, top to bottom, and six months later RA expects to be another $29,000 over its new Tetra budget--an additional seven percent in seven months, including nearly $6,000 over its renovation budget.

In the end, Tetra's $902,000 net cash flow loss cost each RA member household about $41 this year alone.  

At its December 19th meeting earlier this week, the Fiscal Committee received its November financial report on Tetra (see p. 11) mandated by the RA Board.  What it shows when you cut through all the details is that RA will spend more than $29,000 over the 2016 budget it set for itself just seven months ago.  Here's a spreadsheet that summarizes that report:

Several observations are possible by looking at this table:

• RA was absolutely horrible at budgeting program revenues for Tetra with revenues coming in at less than half the $175,000 budgeted.  This was clearly not a serious effort at budgeting, merely an exercise at calculating revenue potential assuming virtually every open minute of every day was scheduled with some revenue generating activity.
• Tetra's net operating loss was more than five times greater than had been budgeted in large part because of the horrible revenue forecast.  The cost underruns are roughly proportional to the revenue underruns.
• RA clearly had a contract with the general contractor for interior work because there is no variance in cost over the year.  Given that the first expenditures under this contract were made in February 2016 and completed by July, RA knew that this $504,000 contract was more than double the $250,000 forecast in RA's voting guide a year earlier.  Still, it chose not to disclose this huge cost overrun until after the 2016 RA Board elections in March--a huge assist to incumbents running for re-election (Eve Thompson and Dannielle LaRosa)--as we suggested in our proposed independent audit agenda.
• All told, RA spent nearly one million dollars on Tetra this year ($984,929) which was actually under budget, but only because the lack of program revenues meant a lack of program costs.  This is hardly anything RA should be proud of.  

Aside from the horrible mishandling of the Tetra purchase and renovation, this cash flow analysis suggests that RA can not put together a reasonable budget for a new activity over even a short period of time.  Clearly, more work is in order to straighten out RA's house--as well as Tetra.  

The Peanut Gallery Perspective: A Summary and Comment on the RA Board Meeting to Discuss Continuing Difficulties in Signing a Tetra Review Contract

On Wednesday, December 7, 2016, the 75^th anniversary of the surprise Japanese attack on Pearl Harbor, the RA Board of Directors held a special meeting to, as the agenda stated, conduct an “Executive Session to Discuss Contract issues with MediaWorld, the Tetra/Lake House Review Designee.”  During the course of that meeting, Board member Eve Thompson referred to the five community members there as the “peanut gallery.”  She was quickly rebuked by Board member Sherri Hebert, who noted they were RA members whom the Board represented.  Nonetheless, in the absence of streaming or videotaping of the meeting and knowing full well that the minutes will not reflect the full substance of the meeting, we thought it would be useful to present a detailed summary and occasional commentary from the peanut gallery’s perspective.

Those in attendance included five RA community members, the five members of the Mediaworld team selected to carry out the Tetra review, Eric Carr who headed the Board-appointed Tetra Review Committee contractor selection team and committee member Janine Greenwood, all the members of the Board of Directors, and RA attorney Ken Chadwick.  Not present was CEO Cate Fulkerson. 

Maybe most importantly, after the pro forma call to order, opening remarks, and adoption of the agenda, the five community members there all commented on the agenda.  Specifically, they all condemned the proposed use of an executive session (where there would be no community witnesses) to discuss the Tetra review contract issues.  Attached are the comments of Irwin Flashman and Reston 20/20’s statement is posted on this blog.  James Dean focused the need for an open discussion to preserve the credibility of the contracting effort, Ambassador Dennis Hays highlighted the ebbing and flowing of the Board’s seeming willingness—currently ebbing--to conduct a thorough, credible review of the missteps in the Tetra acquisition and renovation process, and Alison Kamat worried that the prolonged contracting process would continue into next year’s RA Board elections unless the contract issues were quickly resolved.  All of them advocated unequivocally for an open meeting that evening to discuss the issues that were preventing the signing of a $1 contract with Mediaworld to carry out the work.

Thereafter, Vice President Mike Sanio moved that the Board move into executive session to discuss the contract issues with Mediaworld.  The motion was seconded by Eve Thompson.  In the ensuing discussion of the motion, only Board member Eve Thompson—looking at Chadwick—said she thought there would be some benefit from an executive session.  Neither President Ellen Graves nor Mike Sanio said anything substantive regarding the merits of the motion.  All the other members of the Board, with varying degrees of enthusiasm, saw little merit in an executive session and much credibility added to the initiative by an open discussion of the contract issues.   The motion to move to executive session was defeated by a near unanimous vote with only Graves abstaining.

Mediaworld and retired World Bank economist Dick Stillson led off the discussion of the issues by highlighting the need for the contractor’s independence to assure the credibility of the product they created.  He highlighted three specific terms in the 17-page contract that undercut this independence: 

1. Mediaworld's notes and internal communications were to be considered RA's property
2. RA could decide who could and could not be on the team.
3. RA had the authority to modify the report the team submitted and publish it.

Thompson responded that the Tetra review product needed to be credible and, therefore, Mediaworld should not be allowed to change its contract team.  Team member John Higgins, 18-year Treasurer for RA and a former Board member, responded that Mediaworld had no intention of changing the team membership although they may need to bring in someone for specialized expertise.  Mediaworld CEO Sridhar Ganesan objected that contract language allowed RA to remove a team member; that should be Mediaworld’s decision.  Stillson highlighted that, if an employee misbehaved, RA could bring it to Mediaworld's attention and they could dismiss the team member--or RA could cancel the contract. But RA can't pick and choose Mediaworld’s team members and still characterize the effort as independent.

Greenwood raised some extreme hypothetical examples of potential misbehavior by a team member (e.g.—misogynistic comments to RA staff) and suggested RA should be able to terminate their involvement in such cases.  Mediaworld team member Jill Gallagher, a consultant with years of experience managing contracts with non-profits both as contractor and client, added that there were no scenarios in the contract, just the demand for blanket authority to dismiss team members.  She added that, in her experience, the draft contract was not a statement of trust in Mediaworld.  

In an interlude, Chadwick noted that there had been ample time to work out the issues on the contract, and that he had offered several times to meet with Ganesan.  He had never said there was a line in the sand.  Ganesan responded that a memo Chadwick sent was the “red line.”  Chadwick added that he was here to facilitate the contract, which is why they were having the Board meeting.  Danielle LaRosa, Board Treasurer, added her concern about the time it was taking in a comment to Ganesan.  Thompson later added that RA members are sensitive about the delays in the contract, seeing it as Board-driven, but it is really two-sided.  (Note:  Actually, the delays have been driven by RA’s highly restrictive 17-page draft contract and unwillingness to discuss, much less negotiate, its terms at least until this meeting.)

Ganesan noted that he has a number of other ongoing contracts, largely out of the country, and he is not waiting by the phone for a call to set up a meeting.  He added that he would be glad to share phone and email logs to show Mediaworld hadn’t be dragging its feet. He suggested Chadwick have more flexibility in suggesting meeting times.  He added that he wanted to move forward and, that once signed, the team would have a schedule that it would meet for delivery of the review. 

Hebert, waving a signed RA contract with Quantum Governance (QG) (who conducted a study for RA on ethics), noted that QG contract served the same kind of purpose as the one being negotiated with Mediaworld—and it was only four pages long.  Moreover, all the issues that were being raised in this meeting had been covered in just one paragraph in the QG contract.  In both cases, RA was looking for process improvement, so why shouldn’t the QG contract serve as model for the one with Mediaworld.  She added, the more the Board controls this, the worse the optics.   Her question and comments were excellent, undermining just about every argument for a 17-page contract with myriad restrictions, caveats, and penalties.

Board member Ray Wedell picked up on Hebert’s comment, noting that Mediaworld had been picked after a rigorous review among several qualified competitors, so RA needs to get the contract sign and leave them alone.  Trust them to do their job and deal with any issues as they come up.

Board member Julie Bitzer wondered about the issue of Mediaworld indemnifying RA.  Ganesan responded that MW should be indemnified by RA.  Hebert noted that the QG contract had one sentence on the matter indemnifying QG except in cases of gross negligence and willful misconduct. 

Following up on a question from Graves, “What do you mean by internal communications?,” the discussion then turned to whether the Mediaworld team’s internal notes and communications were their property or needed to be turned over to RA.  Stillson noted this meant communications within the team.  LaRosa turned to team member Higgins and asked, “Are auditor’s notes and communications their property?”  Higgins responded that the notes were the auditor’s.  Hebert asked the same about legal notes to Chadwick, who responded they were the attorney’s.   In fact, no one in the room could identify a contract in which a contractor’s internal notes and communications were the property of the client. 

Gallagher then took up the issue of confidentiality.  She noted that the contract needed to note (a) that the team was working with confidential documents and (b) that those should not be shared.  But this contract called for individual members of the team to be personally libel for any mishandling of RA’s documents, an unprecedented demand.   Ganesan followed up by noting that the team members are quite willing to sign a confidentiality agreement.

Gallagher added that she has never before received a 17-page contract in her extensive contracting experience.  She said it felt as long as an inter-agency agreement established for with four US departments.  It took her two days to read the document thoroughly and redline the areas needing changes.  Moira Callaghan, another Mediaworld team member, asked rhetorically whether RA’s “standard” contract was 17 pages long. 

Thompson responded that “we were clear that the team needed to have credibility.”  She expressed specific concern about former RA Treasurer John Higgins’ role on the team.  “What I’m hearing is that you are not going to be like a contractor we hire.”  She added, “My concern is we need a real deal report at the end of this.”  Her remarks followed a statement she made early in the discussion that Mediaworld must meet all the requirements of a “standard” RA contract—“the same contract used by RA on every occasion”—triggering Callaghan’s query above--and, yet, it also must meet special requirements to be credible because the team is comprised of RA members.  We find the two comments remarkably inconsistent. 

In response, Hebert noted that the members don’t care about the contract.  Thompson responded that Mediaworld shouldn’t get special treatment.  (Yet that is exactly what the draft contract does by imposing numerous unique restrictive clauses.)  Ganesan asked that RA just give Mediaworld a standard contract.  Moreover, Stillson responded, if Thompson had any doubts about their professionalism, she should look at the time they took to review and comment on the draft contract.   He had noted earlier that, while RA owned their product, the team members’ names and reputations would be on it.

In wrapping up the discussion, Sanio expressed concerned about the failure to meet the deadline, the need to provide a credible product, and he thanked the Mediaworld team for stepping up.  He then moved for the Board to go into executive session.  Board member Lucinda Shannon questioned whether they could give guidance to counsel in open session.  Graves said no.  Bitzer said the executive session should be to give RA attorney Chadwick guidance so RA could move forward, a comment seconded by Hebert who added that it shouldn’t Chadwick’s opportunity to give the Board guidance.  The motion to move to executive session was approved with three “nay” votes and the public session ended.

   Statement Before RA on Issue of MediaWorld Contract and Board Open Discussion of Same--Irwin Flashman by TerryMaynard on Scribd

Op-Ed: RA’s Lake House Financial Fiasco, Terry Maynard, RestonNow, May 25, 2016

The following is a re-post of the Mr. Maynard's op-ed in yesterday's RestonNow.  

This is a commentary from Reston resident Terry Maynard. It does not represent the opinion of Reston Now.
 
As RestonNow readers know by now, RA has at least a $451,000 budget shortfall in its operating income and capital investment for renovations of the Tetra property to bring it up to County code and other standards that make it usable for its intended purposes.

If I am reading the Board of Directors and Fiscal Committee agenda packages for this week correctly, the so-called Lake House Working Group is asking for an additional $428,000 for renovation of the property in addition to the $259,000 —  increasing the projected renovation costs by 165 percent — apparently budgeted for Tetra property renovations this year although it is unclear that the previous sum was ever approved by the Board of Directors. (See the “Lake House” presentation to be given to the Board in the agenda packet, p. 11.)

That’s a total of $687,000 in renovations to be put into a building that, at a $2.65 million purchase price, was already a $1.5 million above fair market value. So if the supplementary capital budget is approved, through this year RA will have spent $3.35 million for a building worth about one-third of that. And that will probably not be the end of what of the investment needed to make the Tetra property usable.


At the risk of overusing a catchphrase, this is Tetragate with all that suffix implies. Everything about the Tetra purchase effort is wrong — and some of it possibly illegal — from the initial RA proposal to purchase the Tetra property through this week’s request for nearly another half-million dollars just to fix what’s wrong at Tetra.

The Tetra Referendum Information Guide (the voter’s guide) forecast that total “capital improvements” needed for the property would be the $259,000 to be spent this year. According to the guide, RA based that forecast cost figure simple-mindedly on an $80 per square foot cost (3,125 SF) plus $9,000 for work on the grounds. It is left unsaid why RA thought $80/SF would be enough to fix the Tetra fiasco.

No doubt one of the reasons RA thought the forecast that $80/SF would be sufficient is that RA implicitly assumed it would receive the building in good condition, yet in a RestonNow op-ed at the time of the referendum, I noted the poor condition of the building. In fact, RA told the appraisers to assume “deferred maintenance has been corrected.” By whom, the tooth fairy? This is the fantasy world RA and the Board of Directors was selling Restonians a year ago.

Instead, now the residents of Reston find themselves likely tagged with up to a $700,000 bill to bring the building up to standards and re-design its interior for RA needs. That’s a cost of more than $220 per square foot — a nearly three-fold increase in the now-estimated cost of renovating this growing money pit. It is also a cost of more than $30 per RA household this year.

How is RA going to hide that renovation cost and say the Tetra project did not affect RA assessment fees next year? What programs, staff, etc., will have to be cut to pay the Tetra bill? Already RestonNow reports early season swimming pool hours are being reduced. What’s next?

RA, specifically CEO Cate Fulkerson in her interview with RestonNow, attributed the huge capital renovation shortfall to unexpected operating revenue losses caused by the Tetra Group’s early departure.

Aside from the fact that the $428,000 request for added funds is for the capital fund for Tetra renovations, not the operating fund where Tetra’s revenues would have been recorded, RA’s mismanagement of the lease arrangement with Tetra was absolutely spectacular on so many levels.

Moreover, even if Tetra had remained another full year, the funding deficit now would still be some $300,000–more than double the total forecast (and possibly budgeted) costs of all required Tetra renovations.

Moreover, Fulkerson tries to save the Tetra effort and herself by saying “she scaled them (the renovation costs) down in an effort to save money,” according to the RestonNow article. Wow, she scaled them down from $1  million dollars to a mere $687,000 when RA and the Board told the community that the total cost would be $259,000.

Instead of a four-fold budget overrun, we are now looking at less than a three-fold overrun. That’s chutzpah; it is not responsible budget management. I doubt her household runs the same way, but now she, RA, and the Board are spending other people’s money — so who cares?

And the Tetra operating budget/outlook for 2016 is all over the place. Here is what I can find on operating revenues and expenses leading to net operating income/loss for the Tetra property in 2016:

• The voter’s guide above anticipated $100,096 in facility revenues (net of program costs and including the rent back fiasco with Tetra) and expenses of $45,011 for a net operating income of $55,085 in 2016.
• The so-called “Board Approved” budget for 2016 created on November 20, 2015, shows operating revenues of $105,110 and operating expenses ballooning to, get this, $203,364 for 2016. That’s a reported net operating loss of $98,254 in 2016 to be offset by a drawdown of Comstock’s $650,000 donation. What this document is saying is that (a) RA and the Board did not know of Tetra’s planned departure six weeks later or hid that fact in its budget approval process and (b) somehow found an additional $158,353 in operating expenses for 2016 which, because they are operating expenses, one would presume would carry on through 2017 and beyond. The only potentially legitimate explanation for the huge expense increase is including mortgage payments ($183,000 per year) as an operating expense, but neither the principal nor interest portion of the mortgage payment should be part of operating income. The alternative is that RA and the Board are really trying to hide one-time capital costs of Tetra’s renovation as operational expenses.
• Then, in February 2016 (and other early 2016 meetings), the Lake House Working group reviewed a “DRAFT 2016 Lake House Budget.” (Wait, I thought the budget was “Board Approved” in November per above. Oh, never mind.) Anyway, that “DRAFT” budget anticipates $174,262 in operating revenues (and that is without Tetra lease income!) less a little over $7,139 in programming expenses for net facility revenues of $167,123. Other operating expenses total $71,465 leading to a “planned” net operating income of $95,658.
• The latest incarnation of the operating budget in this week’s Board agenda package (p. 7) shows the “2016 Plan” (not the budget? a plan we’ve never seen?) calls for operating revenues of $58,000 and expenses of $62,000 for a net operating loss of $4,000. It also refers to a “Referendum” operating budget that foresaw a $20,000 net operating profit this year.   As detailed above, the only “referendum” pro forma we saw called for a $55,085 operating profit this year.

So how much does RA really expect the Tetra property to generate in operating income in 2016 now that we are more than one-third of the way through the year–+$55,000, -$98,000, +$95,000, -$4,000, or +$20,000???

From all indications, RA and the Board of Directors are playing a three-card monte con game with Restonians assessment fees, shifting revenues and costs to whatever category best fits their argument at the moment. In fact, I challenge RA to explain fully all the above budget/plan operating income inconsistencies in a manner reasonably consistent with generally accepted accounting practices (and there are others but this op-ed is already too long).

The entire Tetra project smacks of misfeasance if not malfeasance and, in my opinion, those responsible should be held accountable and measures taken to prevent further financial abuses. But none of that can occur unless and until the RA Board of Directors takes the time to examine thoroughly what has happened and, in particular, does not sweep the matter under the rug again by rushing immediately to approve the $428,000 budget supplemental that is being put before it for the first time this Thursday.

In this regard, I strongly support the recommendations laid out in a Reston 20/20 blog post published on Monday. To summarize, it states:

• The RA Board of Directors should not approve the $430,000 budget addition request by the Tetra Working Group until a full independent investigation of the causes of the massive cost overruns has been completed by a panel of Restonians. No RA staff members, Fiscal Committee members, or members of the RA Board who served on the Board last year should be on the panel. It should have full access to RA financial records and communications about them.
• Those senior RA staff members who played a significant role in the development of the referendum pro forma statements should not receive a performance award for 2016–nor should they have for 2015. At the minimum, this includes the CEO, CFO, and C/PRC plus other senior RA staff at the Board of Directors discretion.
• Going beyond Tetragate to the broader picture, the RA Board of Directors must make public immediately the RA Annual Financial Report for 2015 and the auditor’s statement on that report. If they can not be produced immediately, RA needs to issue a full public statement on the causes of the delay and the adjustments that are required. These reports are now two months overdue and, according to recent information, may not be available to the Board (much less Restonians) before the June Board meeting.

Corporations worth hundreds of billions of dollars with billions in assets all over the world and hundreds of thousands of employees can produce an annual financial report in less than three months, not the six months RA is taking for what should be a routine annual task. The greater the delay, the greater the belief that something is seriously wrong with RA’s financial policies and practices.

As this op-ed highlights, nothing happening now in Tetragate ameliorates those concerns about the way RA and the Board are handling our money.

Tetra renovation nearly half a million dollars over budget this year alone.

UPDATE, Noon, May 23:  RA financial data through April 2016 just now available to us from RA's Fiscal Committee showindicates s that NO capital budget has been approved by the Board for the Tetra fiasco this year.  We are concerned that the Tetra expenditures so far have not been authorized by the Board of Directors.

In addition, the report shows an operating income loss of $35,987 already this year (four months).  The 2016 budget for this period shows an expectation of $31,008 in net losses through four months, so current losses exceed budget projections by almost $5,000.  As reported below,  the now year-old Voter's Guide projected a $55,000 net income this year while the latest budget proposal projects a $4,000 operating loss.

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A presentation to be made to the RA Board of Directors this Thursday, May 25, 2016, shows that efforts to rehabilitate the Tetra "lake house" Restonians agreed to buy in a referendum last year are over budget by $451,000--approaching a half-million single-year deficit.  (The presentation comprises pp. 67-86 of this week's Board Meeting Agenda Packet.) 

• $24,000 of that overrun is in operating income and expenses, which includes an unlikely high estimate for income this years (more than $100,000), so that number is likely to increase before the end of the year--even if the Board increases income by adding an after-school program (a $4,000 income "potential").  In short, RA foresees a $59,000 shift in net income from positive to negative during 2016.

• The vast majority of the overage is, however, in the capital budget where the latest estimate skyrockets capital costs this year from $259,000 to $687,000, an increase of $428,000 or 165%!  

The net additional cost to Restonians this year will be $451,000 over this year’s earlier draft budgets for the Tetra fiasco.  The overage represents a 125% increase from the 2016 referendum proforma budget.  

But, in fact, the cash flow deficit is $486,269 based on the “final” RA pro forma statement in its Voters’ Guide sales pitch for approval of the referendum last spring, the difference coming from the $59,000 forecast cut in revenues.  Here is how the costs of the Tetra fiasco have escalated:

 

The most important numbers reported above are the added impact on cost per household:  RA voters foresaw an additional likely assessment fee cost of about $18 for this year alone, but not that additional costs per household for 2016 appears to be about $40.  The RA Board will have a hard time living up to its commitment during the referendum to not increase RA assessment fees in 2016 and 2017 due to Tetra costs without jeopardizing other activities or needed reserves.

Nonetheless, that hasn’t stopped the RA Tetra Working Group (aka “Lake House Working Group”) from calling upon the RA Board to add $430,000 to its 2016 budget from RA's Operating Fund this year to make of for the shortfall according to the RA Board materials.  No explanation is remotely offered for why an added capital cost should be taken from the RA operating budget.  In fact, that is absurd and dangerous:  There are good reasons why the two funds are kept separate in any business organization.

More importantly, if funding to cover the massive spending deficit is approved, the Tetra fiasco would add about $22 more per RA member household than was estimated just a year ago—before we voted. 

Watch for the substantial increase in your assessment fee next year!  And given the pathetic misinformation offered in the original referendum, we anticipate continuing large deficits in the Tetra fiasco project budget for several years—neither revenues nor operating and capital costs will come close to meeting their targets we believe, meaning Restonians can expect continuing large increases in their annual assessment fee to bail out the Tetra fiasco.

In a broader context, the obviously dubious referendum proforma financials make us wonder about RA’s overall financial condition. Some points to ponder:

•  Where is RA’s 2015 Annual Financial Report?  This report is normally released to the public by May the following year.  The end of May is approaching and the report is not even on the RA Board’s agenda.  What is wrong with the report to cause the delay? 

• Similarly, where is the auditor’s report on the 2014-2015 RA Annual Financial Report?  This annual report is usually completed in late March or April and presented in early May with the annual financial report.  Yet it is not available even at the late May date of theRA Board meeting.  What do the auditors have to say about RA’s accounting and its financial condition?

• Why does the RA Board approved budget for 2016-2017 show that funds from the Comstock contribution in RA’s capital account will be used to offset expected losses of $98,254 in Tetra’s operating account in 2016?  Why is such a loss anticipated (this in November 2015) when the April 2015 Board-endorsed voter’s guide anticipates a 2016 net operating income of $55,085? Even the most recent iteration forecasts only a $4,000 shortfall in operating income for 2016.  How are such conflicting values possible?  What is the real state of operations at Tetra?

• How can the December 2015 Fiscal Committee report show that Tetra’s 2015 budget and expenditures for the year were exactly equal—to the dollar?  Note 3 on the table below says the expenditures include “Loan Interest of $37,512 and property Taxes of $7,754.”  These are the only recorded expenditures.  Were there no other expenditures on the Tetra project?  Why does the report not include nearly $50,000 in costs the Fiscal Committee attributed to Corporate and Board expenses (see p. 1) that mostly relates to the Tetra Referendum expenses not budgeted for of $39,467 and Community Projects of $10,300 (sic)?” What was the real budget for Tetra in 2015—or were its costs simply a bucket to be filled?  If the Fiscal Committee is using Comstock’s capital contribution against operating costs, why are the capital costs of repairs and improvements on the Tetra property through December not included in this calculation? 

 

• And the questions go on….

At this juncture, virtually every financial figure that RA has presented to the community concerning the forecasting and actual costs of remediating and programming the Tetra property for useful RA functions appear to be questionable.  Indeed, we do not know even the exact sums RA spent in 2015 on Tetra and where those funds came from (as well as the actual revenues) to make the Tetra property suitable for RA use.  Given the poor state of RA’s financial reporting on this project (and who knows what other financial discrepancies may exist), we recommend the following:

• Those senior RA staff members who played a significant role in the development of the referendum proforma statements should not receive a performance award for 2016.  In fact, if the performance awards for 2015 have not yet been awarded, they should be rescinded.  This is called accountability for misleading, whether by ignorance, incompetence, or intent, Restonians on the costs of the Tetra property.  At the minimum, the CEO, CFO, and C/PRC should not receive bonuses.  We defer to the Board on what other staff members should not receive bonuses.  The scope of future additional reductions in staff bonuses should be tied to the accuracy of RA forecasts and completeness of public reporting on the costs of the Tetra project henceforth.

• The RA Board of Directors should not approve the $430,000 budget addition request by the Tetra Working Group until a full independent investigation of the causes of the massive cost overruns has been completed.  Besides examining the failures in recent budget forecasting, this panel should re-calculate anticipated costs and revenues, operating and capital, through at least 2020.  No RA staff members, Fiscal Committee members, or members of the RA Board who served on the Board last year should be on the panel.  The panel should comprise Restonians with a reasonable degree of financial understanding.  They should have access to all RA financial transactions and other records pertaining to the Tetra project through the CFO.  

• The RA Board of Directors must make public as soon as possible the RA Annual Financial Report for 2015 and the auditor’s statement on that report and explain the delay in their publication.  It is unconscionable that these reports have not already been made public and leave all Restonians to doubt the ability of RA to properly handle the management of their assessments fees. 

Not until the RA Board of Directors clarifies to the community the state of RA’s finances, especially the funding and costs of the Tetra project, does the Reston community have any reason to believe that RA’s financial reporting is accurate.  More seriously, the longer the delay in understanding these multiple unanswered questions, the greater the suspicion will be that RA records are being manipulated in an unprofessional manner.