LITTLE ROCK — A 2006 payment of more than $24,000 to the Internal Revenue Service by the Little Rock Wastewater Utility on behalf of a former employee will be examined by police at the request of City Manager Bruce Moore.
Moore said he made the request Thursday after he and several city directors received an anonymous letter Wednesday that detailed the payment and included copies of the check paid directly to the IRS in 2006 on behalf of former employee Deborah Vought, as well as the payment voucher approved and initialed by the utility’s executive director, Reggie Corbitt.
At the same time, the utility plans to conduct an internal investigation to determine who released the information to city leaders.
This is the second anonymous letter sent to city officials claiming that there is an ongoing investigation into the utility by the FBI, city officials said.
Little Rock Police spokesman Lt. Terry Hastings said the department received a copy of the letter sent Wednesday, accompanying documents and the request from Moore, but by press time Thursday, no investigation had been initiated.
“The most prudent course of action at this time because there are some serious allegations is to ask the Little Rock Police Department to become involved,” Moore said Thursday. “There are some serious concerns raised. ... I think there are a number of versions of the events that lead to this going around, and the most prudent course would be to review the facts of an investigation and make a determination at that time.”
A phone number listed for Vought has been disconnected, and other attempts to contact her were unsuccessful.
Corbitt was in meetings Thursday afternoon and unavailable for comment, according to staff members at the utility’s office.
Utility spokesman John Jarratt said Corbitt became aware of the anonymous letter Wednesday and sent an e-mail to the Little Rock Sanitary Sewer Committee explaining the circumstances of the payment.
Jarratt said many of the supporting documents are in storage because the payment was related to an employee severance package initiated in 1999. He said the utility staff would likely be able to collect the records and review them today.
Jarratt also said Corbitt contacted the utility’s attorney, Carolyn Witherspoon, who will conduct an internal investigation to “determine who, if anyone, breached security of the system and publicized the private information,” she wrote in an e-mail to Little Rock Sanitary Sewer Committee on Thursday. The committee oversees the utility.
The anonymous letter Wednesday claimed that the FBI is investigating the utility and the payment of back taxes for Vought’s husband. The author wrote that he was raising the issue so that residents would know about the investigation before the public hearing on the utility’s proposed rate increases scheduled for June 5. The Board of Directors is to vote on the matter that day as well.
A spokesman for the Little Rock FBI field Office, Kim Brunell, said she could not confirm whether the office is investigating any allegations against the utility.
The Arkansas Democrat-Gazette obtained through a Freedom of Information Act request an earlier anonymous letter written to several city directors on February 21, 2012, also claiming there is an ongoing FBI investigation, but that didn’t include any details or supporting documents.
That letter reads:
“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 was signed, “Concerned citizen and rate payer”.
Because the utility operates independently from the city in most aspects, the city would not be notified of any investigation by the FBI.
The February letter did not include details of the allegations or alleged investigations. The letter received Wednesday included photocopies of a cashier’s check, a signed payment order and a voucher and deposit memo.
Jarratt said the payment was not made to Vought’s husband or to address any debt or tax lien in his name. He said it was written to address a concern over taxes on a severance package paid to Deborah Vought in 1999.
According to Witherspoon’s e-mail to the Sewer Committee on Thursday, Deborah Vought resigned from the utility in July 1999 after working there for 19.5 years.
She wrote that Vought’s supervisor recommended that the utility dissolve Vought’s position and redistribute her work. He recommended that the utility allow Vought to take early retirement by purchasing six months of her service with the utility so that she could become eligible for state retirement benefits.
“Unfortunately, the check was made payable to Ms. Vought rather than [Arkansas Public Employees Retirement System]. Further, Ms. Vought was issued a W-2 for that [money] which then resulted in the ‘contribution’ being a taxable event,” Witherspoon wrote in her e-mail.
Vought paid the money to the retirement system, but the IRS then sought taxes on the severance pay, which Witherspoon said wouldn’t have happened if the utility had paid the retirement system directly instead of making the mistake of paying Vought.
A seven-year battle ensued with the IRS, and in 2005, an outside accounting firm reviewed the matter and advised the utility that the money was taxable because of how it was paid, Witherspoon wrote.
The tax bill, which was originally for about $18,543, accrued interest over those seven years’ worth of about $6,020, according to IRS documents. Corbitt wrote in his e-mail Wednesday that the Sewer Committee voted in 2006 to pay the full amount to the IRS by way of a cashier’s check.
Witherspoon wrote that because the anonymous letter writer included documents with Vought’s social security number and address, the sender violated the state Personal Information Protection Act.
Jarratt said that utility officials believe the person who sent the information is a current or former employee because of the level of information obtained. Witherspoon also recommended the utility retrain staff on privacy policies, review access to private information and notify Vought of the breach of her personal information.
On Thursday, Little Rock Mayor Mark Stodola also received a copy of the letter.
Stodola said that while the payment may be explainable, there are some other issues that need to be looked at during an investigation of the allegations.
“It raises some questions for me about what severance policies were in effect,” he said. “I’m disappointed that it dragged on for six or seven years. We have IRS opinions and CPA opinions that the money was taxable and it accrued more than $6,000 in interest. It should have been resolved sooner. There are a lot of questions that need to be explored and possibly some issues from a management standpoint.”
Moore said that the board will move forward with a public hearing on the proposed rate increase on June 5 at 6 p.m.
The Little Rock Wastewater Utility has been seeking a rate increase since 2010 to deal with flat revenue and a deadline to fix overflow problems that were highlighted in a federal Sierra Club lawsuit more than a decade ago.
The proposal would increase rates 12.75 percent in 2012, 8 percent in 2013, 7 percent in 2014 and 4.75 percent in 2016. Those increases are averaged over commercial and residential customers, but utility staff members have said the increase would be weighted toward larger increases for commercial customers and would be graded based on how much water a customer uses.
The average residential customer who uses 600 cubic feet of water each month would see his bill increase from $27.73 a month to $29.58 a month for the remainder of 2012. If future rate increases are approved as planned, that bill would increase to $41.31 a month by 2018.
The proposal also includes a monthly $1 service fee added to residential bills to fund a reimbursement program for residents who have to replace broken sewer pipes. The reimbursement would be capped at $2,500 per replacement and would not be available to customers who repair pipes.
Front Section, Pages 1 on 05/25/2012