LITTLE ROCK — A Little Rock police investigation into the Little Rock Wastewater Utility found no criminal wrongdoing in how participants were chosen for a sewer study that included two Little Rock city directors and no criminal wrongdoing in a more than $24,000 payment made to the Internal Revenue Service on behalf of a former employee.
The investigation was initiated in May by City Manager Bruce Moore in regard to an anonymous letter sent to his office and to several city directors detailing the 2006 IRS payment.
Financial-crimes division investigators added the pilot sewer-line study to the investigation in June after a tip that two city directors took part in the program and one of them received free sewer work as a result.
The Police Department report sent to Moore’s office Friday was written by Chief Stuart Thomas. It said investigators found other matters during their inquiry and those matters are still under investigation. The specifics of that part of the investigation were not released.
“We have not been made aware of any other allegations,” Wastewater Utility spokesman John Jarratt said. “We’ll continue to cooperate with the Police Department however we can.”
Jarratt said he had not received the full report late Friday afternoon, and the utility’s chief executive officer, Reggie Corbitt, was out of town and also had not seen the report.
“We’re pleased with the findings overall, and I look forward to reading the report in full,” Jarratt said.
Thomas’ report was sent to city directors Friday night as part of their packets for their Tuesday agenda meeting. Moore said he was aware that the investigation remained open, and said he could not comment on what new concerns the investigators found.
The initial allegations were made in an anonymous letter that said the FBI was investigating the utility’s payment to the IRS. Representatives of the FBI’s Little Rock office said they could not confirm whether an investigation was taking place.
The letter said the investigation concerned a $24,000 payment of back taxes on behalf of former employee Deborah Vought and her husband, Mack Vought, who also worked for the utility.
“It has come to my attention that Little Rock Wastewater Utility is being investigated by the FBI. As a resident of Little Rock and a rate payer, it would behoove you to postpone any action regarding a rate increase until such an investigation is concluded,” the letter read.
The letter was signed, “Concerned citizen and rate payer.”
After the allegation, Jarratt said the utility had made the payment as part of a severance agreement with Deborah Vought. Under the agreement, the utility would purchase six months of her service so she could become eligible for state retirement benefits.
An investigation by the utility’s attorney showed that the utility issued a severance check to Vought in July 1999, instead of writing the check to the state retirement system.
Payments to the retirement system are not subject to taxes, but because the check went to Vought, the IRS sought income tax.
A seven-year battle ensued, and an outside accounting firm advised the utility in 2005 that the payment was subject to income tax because of the mistake.
The original tax bill for $18,543 accrued interest and penalties worth about $6,020 over the legal battle, according to IRS documents.
The investigation report Friday found that “the department provides no commentary regarding management decisions. It does not appear that this incident constitutes a crime.”
Little Rock Mayor Mark Stodola said in May that regardless of criminal wrongdoing, he believed the payment showed a lapse in judgment by the utility’s management.
The second part of the investigation looked into a pilot sewer line study that sought 50 volunteers from throughout the city with homes of different ages.
The utility conducted the study in 2009-10 to produce a service-line inspection plan aimed at reducing the amount of rainwater and groundwater that flows into city sewers.
The program led to a $1 monthly service fee approved by city directors this month that will be added to residential bills starting in January. That fee will be used to reimburse up to $2,500 to homeowners who must replace their sewer lines as determined by the utility.
During the study, the utility used closed-circuit cameras to inspect volunteers’ sewer lines for cracks or breaks. In return, participants received a free double cleanout, a city-required pipe fitting that allows the lines to be flushed for inspection or other purposes, and a backflow preventer, which prevents leaks from sewer mains back into the homeowners’ lines or houses.
The total cost of the inspection and equipment installation was about $1,050 per volunteer.
The investigation report found that the utility had advertised in several mediums for volunteers and that the inspections and improvements appeared to be done after an “advertised, documented and sanctioned study.”
The utility did not receive enough volunteers after advertising the study and made personal requests to several participants whose homes fit the age they needed, Jarratt said in June.
The resulting list of volunteers included two city directors, a former state senator, a former chief executive officer of Regions Bank and other prominent Little Rock bankers, and real-estate agents, as well as Corbitt, his neighbor and his two sons.
The report stated that Ward 3 City Director Stacy Hurst did not actively participate because of problems with her sewer line, although she had been asked to volunteer.
At-large City Director Joan Adcock also volunteered for the study and did receive the inspection and installations, according to the report. However, police found no criminal wrongdoing, according to the report.
Adcock said she did not want to comment on the findings Friday.
The report did not indicate a timeline for the remaining portion of the investigation.
Front Section, Pages 1 on 07/28/2012