By Josh Davis, Associate Editor
(April 12, 2018) The Ocean Pines Association Board last Thursday voted 6-0 to hire Baltimore firm Gross, Mendelsohn & Associates to conduct a forensic audit. Director Colette Horn was absent from the meeting.
Association President Doug Parks said the firm was notified of its selection last Friday.
“We had five proposals that made it to the last round and we all did independent analysis,” Parks said. “Interestingly enough, all six directors picked this one firm as their top pick. It was very interesting that we all looked at it from different perspectives, but all came to the same conclusion.”
Parks said General Manager John Bailey and Finance Director Steve Phillips also favored Gross, Mendelsohn & Associates.
“I found that very interesting,” Parks said. “It’s not that this one was so much better than everyone else and the other ones were poor, it was that this one really met the overall approach. It wasn’t just looking at food and beverage operations – it’s looking across the entire organization.”
He said the firm stood out, in part, because the staff included both certified public accountants and certified fraud examiners.
“They also did a very good job in framing exactly how they would approach it, and they also started under the premise that they would look at the entire environment – not just food and beverage,” he said. “They’re saying, ‘you guys don’t know what you don’t know. We’ve done this before. You don’t just pick a particular department – you pick the entire environment.’ They have a more broad-brush approach.”
On the advice of Ocean Pines attorneys, Parks added, the association will not direct the firm to look in any specific area.
“They’ll coordinate through the general manager and counsel,” Parks said. “It’s just the right thing to do. Think about optics – if we’re telling the forensic audit folks [what to do] that’s senseless … [the board] is not directly involved and that’s a good thing.”
The board of directors in February voted 6-1 to release a request for proposals for a forensic audit. At the time, it was stated the audit would begin on April 16 and its first stage would focus on food and beverage operations.
Director Tom Herrick, who voted against that motion, agreed an audit needed to be done, but said it should not be limited to just food and beverage.
To pay for the audit, the directors unanimously agreed to suspend a budgeted charge to fund road depreciation of $26.50 per homeowner and instead use the $225,000 it would generate for the audit.
Director Pat Supik, in February, cautioned that an audit would not reveal millions in fraud or cover estimated losses for the current fiscal year.
“I’ve seen numbers flying around in the papers or other areas, that I think people have the impression the $1.8 million lost this year somehow could be associated with fraud. I do not want the community to think we’re going to find $1 million in fraud,” she said, adding the extreme losses this year were because of “money going out the door legitimately.
“If we do this, we may find $50,000 in fraud and may spend … a couple hundred thousand dollars on a significant forensic audit,” Supik added. “I do think we need to do it for the community. [I’m] totally supportive of the motion – whatever we have to do to get it moving forward.”
Parks, on Friday, said the next step would be an entrance interview with Bailey. He said an exact cost was not given.
“It depends on what they find,” he said. “We have hourly rates … [the firm] was probably in the middle of the pack with regard to the different folks at the different hourly rates. None of them were fixed-price contracts, either. It’s billed hourly based on duration and contract.
“We’re very excited to move forward,” Parks continued. “It’s another one of the things we, collectively, as a board wanted to accomplish. We’re delivering on things and that’s the kind of thing I want people to understand. We heard, we looked into it and we’re making it happen. At the end of the day if it yields something we’ll use it, and if it doesn’t yield something, we have peace of mind that we at least validated there are no issues there.”
According to an association press release on Friday, “Gross, Mendelsohn & Associates offers complete financial needs of both for-profit and nonprofit organizations in Maryland, Virginia and the surrounding area. The firm has offices in Baltimore and Fairfax, Virginia.
“Led by 18 partners, the firm includes approximately 125 total professional and administrative personnel, including experienced CPAs and certified fraud examiners. In addition, the firm is licensed as independent certified public accountants, in good standing, in Maryland.”