By Bill Turque
Washington Post Staff Writer
Wednesday, March 21, 2007
At least $800,000 from homeowner associations in Northern Virginia may be missing and was probably embezzled by an employee of the Fairfax company hired to manage the money, state officials charge in court documents.
Koger Management Group Inc., which handles funds for more than 300 homeowner groups with approximately 70,000 members, was placed under a court-ordered monitor Feb. 26 while a forensic accountant appointed by the Virginia Real Estate Board investigates the disappearance of the money.
State officials said yesterday that a criminal investigation, led by Fairfax City police, is also underway. No charges have been filed, police said.
Homeowner and condominium associations play an integral role in suburban life, sometimes serving as surrogate local governments that assess millions of dollars in fees to provide services such as trash pickup, snow removal, street lighting and recreational facilities. An estimated 54.6 million Americans live in communities governed by some form of association, according to the Community Associations Institute in Alexandria. Many of the associations employ management companies such as Koger to collect assessments and pay contractors who provide the services.
The court documents specifically mention only a few homeowner groups that have lost money. They include the Pinewood Meadows Condominiums in Chantilly, which is missing an estimated $100,000, and the Ashburn Farm Association in Loudoun County, whose auditors reported more than $60,000 in accounting discrepancies. An Ashburn representative said yesterday, however, that the money had been recovered.
A Feb. 9 bill of complaint filed by the Real Estate Board and the Virginia Department of Professional and Occupational Regulation names Jeff Koger, listed in public records as Koger Management's chief financial officer, as "the likely primary culprit responsible for embezzling funds." The document says that Fairfax City police detective Edward C. Vaughan told state officials that the thefts probably were made by electronic bank transfers.
Robert A. Koger, the company's president and Jeff Koger's father, did not return two phone calls yesterday seeking comment. A receptionist who answered the phone said that Jeff Koger was no longer employed by the company. His home phone number is unlisted.
The accusations against Koger Management were first reported by the Connection newspapers.
According to court documents, Koger Management has acknowledged that at least $800,000 "and likely more, will probably be shown to have been misallocated." State officials said in the court filings that the company's explanations for the irregularities "have been consistently vague and evasive."
Koger Management's Web site says that the firm has served Washington area homeowner associations for 30 years. "KMG's reputation is based on timely reports, timely payments, effective collections and easy communication," according to the company site.
State officials said they first became aware of problems at Koger Management on Jan. 3, when Karen O'Neal, deputy director for licensing and regulation for the Department of Professional and Occupational Regulation, received a call from two attorneys representing several condominium and property owner associations. They told investigators that independent audits commissioned by their clients showed large amounts of cash missing. According to court filings, auditors complained that Koger Management was being uncooperative in requests for records.
The same day that state officials were alerted, Robert A. Koger contacted Fairfax City police. According to a memo from Vaughan included in the court filings, Koger reported the embezzlement of funds between January 2005 and September 2006.
On Jan. 5, in a letter to the boards of the homeowner associations that used the company, Robert A. Koger said that the firm "experienced some accounting irregularities" identified by homeowner association auditors and independent auditors hired by the company. "Be patient and understand that resolving these matters takes time," he wrote.
The next day, according to court records, Koger wrote to Kenneth Ingram, an attorney for several community associations, denying suggestions of a coverup. "Rumors have circulated that Koger Management was trying to brush these claims under the rug. However, this is the furthest from the truth."
Glen Maravetz, president of the Ashburn Farm board of trustees, which represents about 4,600 homes, said his association had used Koger Management for several years and was "quite satisfied" with its service until about a year ago, when auditors discovered discrepancies.
"We thought this was just a mistake, but the deeper we dug into it, our radar was going off," Maravetz said, adding that the association recovered its money "with a little help from outside counsel."
In their complaint, state officials asked that the company be placed under a court-appointed receiver who would control the company's assets and payments while examining its records.
The Feb. 26 court order, signed by Fairfax Circuit Court Judge R. Terrence Ney, stopped somewhat short of receivership. He approved an agreement requiring the company to hire forensic accountant Jeffrey D. Barsky to investigate missing money. Barsky's work is being supervised by attorney Richard S. Mendelson, selected as a monitor by the Virginia Real Estate Board, which regulates businesses and professionals who represent others in real estate transactions.
Under the court-approved plan, Barsky and Mendelson will present a plan to the Real Estate Board, possibly as early as next week, for preventing future losses and making whole any associations that have lost money.
State officials said the Real Estate Board has begun disciplinary proceedings against Robert Koger that could result in the suspension or revocation of his real estate license.