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$21 million missing and the government is to blame

I recently came across an article about a small town in Virginia, who allegedly had $21 million missing all due to the top tier of the County Government individuals. Front Royal, Virginia is in Warren County and had big plans for the growth of buildings, jobs, and other developments within the town.

These big new plans all started and ended with a local broker, Jennifer McDonald, and a Washington-area developer, Truc Tran, who together pledged to finance the development of a great new data center project and a police training academy. It was later learned that the public funds were used to buy personal properties, pay bills and gambling debts, and enrich relatives and friends.

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The article shows how with weak oversight in economic development agencies, these kinds of situations are of big risk, as there is a need for better financial accountability. It was announced that 14 current and former local officials were charged with misdemeanors “based on the individuals’ knowledge of and inaction [regarding] the EDA’s mismanagement of funds.” There were some warning signs that locals noticed, such as Jennifer McDonald, the Broker, sporting new, expensive outfits, and claiming she made a big winning with slot machines in a nearby town, but locals went along with it and didn’t question her.

It started as McDonald had presented to the board for approval of a $10 million, 90-day loan to Tran, who promise funding from foreign investors enrolled in a federal “EB-5 visa” program. The program offered great benefits to applicants and seemed to be a win-win for everyone involved. The board gladly approved the loan in hopes to help these families and in turn ensure to develop the town in many positive ways.

It was not long before residents began to look up Tran’s company, and realized that his company had not been approved to solicit the foreign program as an investment and that the town had been making millions of dollars of loans to this company, who they will find to have no investors to pay back the loans. It was also found that there were payments from McDonald to Tran for construction costs that were not approved by the board. She also convinced the town to buy land for her own family for a “workforce housing project” and overbilled by $130,000 which went right to her personal funds among millions of dollars from other town funds.

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McDonald eventually got caught falsifying invoices, which prompted the state police to become involved, and an independent review of the town’s books that unraveled numerous criminal and civil findings of false and fraudulent invoices, projects, transfers, and land deals.

Had the board or residents done more research on the investment projects sooner, the scams may not have gotten as far as they did for so long. She had contractors and other government officials who helped the scam look less suspicious, but overall there should have been much more authority doing research before approving transactions, and after receiving invoices to be paid.

McDonald and all involved with the embezzlement will be disciplined, but the town has been seriously damaged financially, and it will be long before they fully recover from these incidents. The bottom line is that one person having too much power can way too easily manipulate the system. There needs to be proper approvals and thresholds for transactions, meaning research must be done before approving loans, expenditures etc. and residents and community members should speak up if they notice unusual activity of higher authorities, such as a sudden increase in wealth out of the blue.

For more information on fraud, check out this article about what is necessary for someone to commit fraud and how to better prevent fraud.

Do you still have any questions? Feel free to contact a Henry+Horne professional to help assist you.

Sarah Melone