By the time the director, assistant director and two other staffers in Asheville's Human Resources Department wound up in handcuffs March 30, it could hardly have been a surprise.
News of an investigation into alleged fraud in the city's flexible-spending benefits program had emerged more than a week earlier, when a series of search warrants became public. They document an investigation dating back at least to last December, including searches of City Hall records. The warrants also assert that Human Resources staffers were overreimbursed too much for purchases they'd made, or even paid for items they'd never bought at all.
Benefits Specialist Liz Oldre, Compensation Analyst Laura Masters and Assistant Director Robin Nix now face charges of obtaining property under false pretenses for allegedly accepting reimbursement for purchases they never made. Director Lisa Roth faces an obstruction-of-justice charge for allegedly telling police during a March 8 interview that she'd reviewed Nix's benefit claims and found nothing wrong.
The total amount taken from city coffers was $22,776, according to the arrest warrants.
Meanwhile, the investigation is continuing.
Going to the mattress — and the hot tub
The investigation began Dec. 17, when Detective Michael Downing of the Asheville Police Department met with Capt. Tim Splain, who heads the Criminal Investigations Division.
According to the first search warrant, the topic of the conversation was "a possible fraud involving two employees of the city of Asheville who work in the Human Resources Department at City Hall." The warrant names Masters and Oldre as the two employees.
That day, Splain asked Downing to open an investigation. But the warrants seem to imply that the impetus for the investigation may have come from the Buncombe County district attorney's office, which "is in possession of the documentation in reference to these allegations" and was responding to complaints made by Assistant City Attorney Kelly Whitlock and Health and Wellness Manager Cheryl Walker, another Human Resources employee. A Dec. 21 meeting between Downing and Assistant District Attorney Frank Patton clarified the accusations — that Oldre had been reimbursed for more than the city's $6,000 annual limit, claiming $7,109.53 in 2009, and Masters had suspect claims reaching back to 2007.
That information led to the first warrant, executed Dec. 31, when police seized records of Masters' Asheville Savings Bank account.
Flexible-benefit savings accounts allow employees to set aside pretax income — sometimes with matching or additional funds from their employers — that they can then use for reimbursement to pay for health- and child-care costs not covered by their insurance.
The accounts are meant to help pay for a very specific list of items, such as dental care for a child and copays for doctor visits or prescription drugs.
According to the warrants, however Masters had other ideas. In 2008 she was reimbursed for items including "a hot tub, Tempur-Pedic pillows, Oreck vacuum, Sharper Image air cleaner, Dyslexia software program, Tempur-Pedic mattress cover, Dyslexia Quick-Pen, Lifetime filters and dyslexia Reading Horizons software and a dyslexia tutor." She did not submit receipts or physician's notes for any of these purchases, some of which ran as high as $4,899 (for the hot tub). In 2008 and 2009, Masters allegedly more than doubled the annual limit on her tax-deductible spending account, receiving $14,760 and $14,500 respectively.
In Masters' arrest warrant, police state that the dyslexia tutoring, ostensibly for her daughter, probably never took place.
Climbing the ladder
The second search warrant, executed Jan. 26, states that Masters' bank-account records confirmed the evidence provided to the DA's office by an unknown source and authorized a search of city payroll records for further evidence.
It wasn't the last time the city's payroll would face scrutiny: On March 12, another search was carried out.
That warrant — the latest one made public in the case so far — reveals what happened in the interim.
On Feb. 23, Splain received a letter from Oldre, who left her city job in December.
"Ms. Oldre attached to the letter copies of flexible-spending documents and open enrollment worksheets for Human Resources Director Lisa Roth and Assistant HR Director Robin Nix," the warrant reads. "The letter stated that the documents had been removed from the city of Asheville Human Resources Department because of fear of retaliation and the concern that Lisa Roth and or Robin Nix would 'alter' the documents."
Oldre wasn't the only target of the investigation to turn whistleblower, according to the warrant, as Splain also received a letter from Masters.
"This letter made allegations that Robin Nix had filed several bogus flexible-spending documents and was paid for items she did not purchase. Ms. Masters' letter also alleged that Lisa Roth did not comply with the flexible-spending program and open enrollment/insurance regulations."
The next day, Splain and Downing interviewed Nix, who admitted "submitting flexible-spending reimbursement claims for items she did not purchase." She also confessed to having bought a mattress at Sam's Club for $2,000 and receiving $4,099 in reimbursement. Furthermore, "Nix stated that Human Resources management was aware of policy violations and possible law violations in regard to the administration of the city of Asheville flexible-spending program."
On March 11, Roth had her own interview with Splain and Downing, the last warrant shows, telling them "she has become aware of problems that existed within the flexible-reimbursement program that she had not known about. … Roth stated that as a result of the reviews that she has done since this matter was discovered, she is fairly confident that others in the city of Asheville may have violated the conditions of the flexible-reimbursement program."
The next day, investigators seized flexible-benefits records for city employees dating back to 2005.
Opening the floodgates
All three warrants were made public March 16 and, initially, official response was muted. City Manager Gary Jackson declined to comment on the matter, and Public Information Officer Dawa Hitch said the city could reveal little about the ongoing investigation. The APD was similarly tightlipped.
The next day, the police released this statement:
"Asheville police detectives are continuing their investigation into allegations of benefits fraud in the city's Human Resources Department. The alleged improprieties were discovered by city staff and reported to the Asheville Police Department. The APD undertook the case in conjunction with the Buncombe County district attorney's office. Both agencies are receiving assistance from the State Bureau of Investigation. As part of the investigation, Asheville police and the DA's office on March 16 reviewed 113 files of employees who received flexible-spending reimbursements of more than $1,000. There was no indication that any of those 113 employees participated in any criminal wrongdoing."
The announcement ended with a statement that has since become familiar to those following the case: "The investigation is ongoing."
Later that week, District Attorney Ron Moore said the investigation was not targeting elected officials, who were eligible for the flexible-benefits program if they opted to be covered by the city's health insurance. But Moore, too, cautioned that the investigation was ongoing.
On March 23, Jackson broke his silence, announcing that Assistant City Manager Jeff Richardson would serve as interim human resources director and that the flexible-spending program would be audited monthly until a third-party administrator could be found.
"I am fully confident that Mr. Richardson will manage the department to the highest standards of accountability while the investigation moves forward," Jackson wrote in a memo. "By taking these steps, we will strengthen the program's checks and balances while providing employees with sound direction and support."
A few days later, however, Hitch told Xpress that Roth still retained her position.
But not for long. On March 30 the hammer came down, and all four Human Resources employees were arrested. All except Masters — who faces six charges of obtaining property under false pretenses and another five of forgery — were released on a written promise to appear in court, while Masters was held on a $110,000 bond.
Most of the accused employees are longtime city staffers, and all were paid well above the median income for the area. Masters had worked at the city for 15 years and was making $57,821; Oldre ended her 24-year career earning $55,327. Nix was a 23-year veteran, with an annual salary of $95,589. Roth, who began working for the city in 2006, was pulling down $107,109 a year.
Last year, Asheville spent $71.5 million — 52.5 percent of its annual budget — on salaries and benefits, and in a recent budget meeting, staff touted the pay scale and benefits as a major asset in attracting quality employees.
In contrast to his earlier, more laconic approach, Jackson released a lengthy statement upon the arrest. Declining to name either Roth or Nix, he simply said, "The human resources director and human resources assistant director are no longer employed by the city."
As for the scandal, Jackson added: "This news will be extremely difficult for our organization and its work force, particularly because the allegations are in no way reflective of our core values and commitment to the community. As public servants, we must hold ourselves to the highest ethical standards. Any breach of those standards is simply unacceptable."
He also asserted that the city had responded swiftly. "When questionable practices were identified in Human Resources in December 2009, I immediately turned the information over to the appropriate law-enforcement agencies to launch an investigation," he wrote. "We took this matter most seriously and have expected nothing less than full cooperation with the Asheville Police Department, the district attorney's office and other agencies as the investigation moved forward."
The city also plans to review its ethics policies, noted Jackson.
"We will take every necessary step to ensure the management of our Human Resources Department is guided by good judgment, solid ethics and sound management principles," he declared. "With the leadership and support of our employees, I am confident we will come out of this as a stronger organization with better controls in place and renewed community trust in every city function."