The head of the Annandale Boys Club has "personally profited" from the nonprofit group's lucrative bingo operation by selling the club $500,000 worth of sporting goods, according to a Fairfax County audit report that is highly critical of the club's financial dealings and record keeping.
The 25-page document, which was made available last week to the Board of Supervisors and the public by the county's internal audit office, recommends that the board revoke the Boys Club's bingo license for this and other alleged improper practices..
The report says club president Everett G. Germain has sold more than $500,000 worth of sports equipment to the club since 1973 and that its executive director, Paul Kelly, has "indirectly" benefited from the sale of concessions at the organization's twice-a-week bingo games.
The report also contends there "are major inadequacies" in the club's accounting records and that club officials have persistently failed to provide the county with adequate documentation for some $180,000 in other expenditures and failed to keep adequate records of bingo prize winners in compliance with state and county law.
The audit document will serve as the basis of a public hearing Monday when the supervisors are scheduled to decide whether to renew the club's bingo license, which is issued by the county.
Club officials Germain and Kelly declined comment on the audit and referred questions to the club's lawyer, Grayson P. Hanes, a partner in the prominent Fairfax law firm headed by John T. (Til) Hazel Jr. Hanes acknowleged that Germain has sold goods to the club at a profitable markup, but he said the practice is legal.
"It's not a violation of state law for Mr. Germain to sell equipment to the Boys Club," Hanes said. "That's his only compensation; he's not paid any salary." Hanes said that Germain runs his small private law practice out of the same Columbia Pike office occupied by the Boys Club without paying rent, but that Germain devotes 50 to 60 hours a week to the club.
The club's own auditor described Germain's sales arrangement with the club as "self-dealing," but concluded in a letter to Hanes that the sales were "not . . . a violation of the Virginia Code."
"The Boys Club has gotten around loopholes in the state statute . . . . So far we haven't come up with anything that we can really make stick," said Robert F. Horan, Fairfax commonwealth's attorney, who has twice investigated the group and two weeks ago made an unsuccessful attempt to prosecute the club on misdemeanor criminal charges of failing to keep proper records. Charges were filed in Fairfax County General District Court, but the Boys Club was cleared of the misdemeanor charges by Judge Barbara M. Keenan. Horan said it's now up to the board to "do something about the Boys Club. They can revoke their bingo license."
The club has often been a subject of controversy over its nearly $1 million-a-year bingo operation, which supports youth soccer, football, basketball and baseball programs in Fairfax. In 1977, the club's bingo games were investigated by Horan after allegations that the club made illegal payments to bingo workers.
No charges were brought against the club at that time, but county politicians consider the incident to have helped prompt the recent enactment of Virginia's bingo control law, which forbids direct or indirect payments to any person organizing or managing bingo games. It also requires organizations to "maintain a record of the date, quantity and card value of instant bingo supplies purchases" as well as "the name and address of each individual to whom a door prize, regular or special bingo game prize or jackpot . . . is awarded."
Germain and Kelly have argued that the county is harassing them and cite two recent court victories over county officials challenging their bingo operation as evidence that they are operating within the law.
The rulings were a civil vindication in Circuit Court overturning a decision last year by the county supervisors to temporarily suspend the group's bingo license and the victory in General District Court over the misdemeanor charges that they failed to keep proper records. Horan, however, said the rulings did not squarely address the substance of the problems.
Yet following the court decisions, at least one county supervisor has tempered the hard line taken by the Board of Supervisors against the Boys Club in December when the supervisors unanimously voted to temporarily revoke the group's bingo license.
"They've been singled out because they've been so successful," said supervisor Tom Davis, a Republican who represents the Annandale area. "I think we are all concerned that they have not kept receipts and some of the other things required by the statute. But the Boys Club has admitted to that and is trying to correct it."
Specifically, the county audit report contends that:
* Germain organized and headed a company called Safeway Pyrotechnic that has sold approximately $500,000 in sports equipment to the club at about a 51 percent "gross profit" since 1973.
The state charter for Safeway Pyrotechnic was revoked June 3, 1973, for failure to provide annual reports for two consecutive years, said a Virginia State Corporation Commission spokeswoman. Hanes said that Germain has been operating his business under a trade name and has not paid annual state taxes for the company since 1972. "There is nothing wrong with it," Hanes said, noting that many companies are delinquent in paying state taxes.
* The Boys Club paid $6,206 in fiscal 1981 to Germain's six children, and $13,796 to four other individuals unconnected with the club, although no record could be found for the services these people performed.
Boys Club lawyer Hanes said two of the four individuals mentioned in the report were hired to coach soccer and that the other two performed janitorial work--for a total amount less than half that claimed in the report. Hanes added that only $2,753--not $6,206, as the county report claims--went to Germain's children. He said they performed office duties and served as referees in the athletic program.
Hanes said he could not explain the discrepancy between the figures in the county report and those supplied to him by an auditor hired by the Boys Club.
* About $8,000 in credit card purchases by Germain and other individuals connected with the Boys Club were paid monthly from the Annandale Boys Club and Safeway Pyrotechnic Co. accounts during the fiscal year ended Sept. 30, 1980. "The disbursements lacked supporting documentation to substantiate a legitimate business or charitable expense," the report says. Hanes said he did not have any records regarding the credit card payments, but said the disbursements could be properly explained.
* Kelly, was "indirectly . . . compensated from the bingo operations by receiving the profits from the concession stand" at the club's bingo games, the report says.
Hanes said the concession stand is not operated by Kelly, but by his wife, Judy Carver Kelly, who had been operating the stand before she married Kelly two years ago. Hanes said Judy Kelly received "reasonable profits" from the sale of concessions. Paul Kelly, unlike Germain, is paid a salary by the club, Hanes said.
The county audit report says Boys Club records were kept on illegible slips of paper and then thrown into cardboard boxes in such a manner as to "provide an inadequate audit trail."
"If there is any criticism that can be made of the Boys Club," Hanes said of the charge, "it's the manner in which they keep their records, and we are working to provide the county with all the information it needs."
* County auditors were unable to explain a $99,000 difference in investment and savings account balances recorded in club records and those reported in the club's 1980 federal tax return. Hanes said the club has records for the transactions and can explain the apparent discrepancy.