Police investigating possible fraud in city government

The Asheville Police Department is investigating fraud in the city’s Human Resources Department, according to search warrants filed today. According to the warrants, some city employees filed bogus flexible-spending requests and were paid for items they didn’t purchase. No arrests have been made, and the investigation is ongoing.

Three warrants related to the investigation were filed today. The most recent dates from last Friday. According to it, two employees in the city’s Human Resources Department, Liz Oldre and Laura Masters, submitted letters to police and copies of flexible-spending documents, which they had removed from city files because “of fear of retaliation and concern that [HR Director] Lisa Roth and [Assistant HR Director] Robin Nix would ‘alter’ the documents.” Masters’ letter “alleged that Lisa Roth did not comply with the flexible spending plan and open enrollment/insurance regulations.”

Flexible-spending accounts are used by city employees to set aside before-tax dollars for child-care and medical expenditures not covered by insurance. According to the warrants, some employees were paid up-front for items they claimed to have purchased, were allowed to join the plan mid-year (in violation of tax regulations) and exceeded their yearly limit of $6,000.

Nix also told police, according to the warrant, that “it was common practice for employees to be paid ‘up-front’ for a year of child care expenses or dental quotes, where the dental work had not even been completed yet” and that “Human Resources management acknowledges that these past practices have allowed employees the opportunity to commit fraudulent acts with the flexible spending money.” For example, Nix said that on several occasions she’d claimed reimbursement far in excess of the price of an item. In one case, she said she purchased a mattress for $2,000, but was given $4,099 in reimbursement.

Nix asserted that Oldre waived the annual flexible-spending limit for some employees.

The warrant also states that Roth was interviewed, and “stated that 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 that conditions of the flexible reimbursement program.”

In their search Friday, police seized information on every employee enrolled in the flexible-spending program from Jan. 1, 2005, to present.

The other two warrants, also filed today, detail searches in December and January. The first, of Master’s Asheville Savings Bank account, mentions that Masters and Oldre were possibly involved in fraud and may have exceeded the flexible spending cap by thousands of dollars, with Masters claiming $7,200 in 2007, $14,760 in 2008 and $14,500 in 2009. Oldre claimed $7,109 in 2009. The second warrant searched city records related to “questionable claims” Masters allegedly made for reimbursement.

“We can confirm that we executed a search warrant, but because this is an ongoing criminal investigation, we can’t make any further comment,” APD spokesperson Melissa Williams wrote to Xpress today. No one named in the warrants has yet been arrested or charged.

— David Forbes, staff writer

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9 thoughts on “Police investigating possible fraud in city government

  1. Carrie

    Hey Cecil, I need your help again! Wha wha what! What is going on in HR? I’m still not sure why they get mattresses but who gets med/dental paid up front without receipt or bill? I’d love to just tell the city what I expect I need (oh yeah, that’s gov. spending ?). I know you are busy but can you tell me what is going on? Not just with the investigation but why the “policies” are there to begin with.
    Thanks, Carrie

  2. Dionysis

    This sounds like some real hanky-panky. It stretches the imagination to read that Assistant Director of HR is passing the blame to a lower-level employee (“Nix asserted that Oldre waived the annual flexible-spending limit for some employees”). She doesn’t know what her subordinates are doing?

    And for the Director to say that “…she is fairly confident that others in the City of Asheville may have violated that conditions of the flexible reimbursement program…” is hard to believe. That’s the defense, that ‘other city employees do it’?

    Something deeply fishy here.

  3. Dionysis

    “I’m still wondering what the ” flexible” program means?”

    I’m not sure this answers your question, but a FSA (flexible spending account) allows employees to set aside, from their own net earnings, money to pay for such things as medical co-pays, items not covered such as eyeglasses and the like. The provisions of the IRS that allow this require that there be a cap on the amount, and that by the end of the year, any funds not used are lost by the employee. It is also supposed to be administered such that reimbursements from these accounts are just that…reimbursements after the funds are spent. This reimbursement is not allowed for everything; it seems doubtful that a mattress would qualify (unless perhaps it was an orthopedic mattress prescribed by a physician and not covered under the plan).
    There are some serious repercussions from not following the rather strict guidelines established by the IRS.

  4. Carrie

    Dionysis, thank you! That explains so much! It makes me angry to think that government in our city, once again, have failed us. What could have been going through their heads?

  5. Dionysis

    “What could have been going through their heads?”

    It’s hard to say, but I can guess what was NOT going through their heads: either any solid knowledge of how this spending account is supposed to be run, and/or a focus on complying with the law and a sense of ethics.

  6. ashevillelokel

    I find it interesting that the City Police Department is investigating their own HR Department: the same department that hires and fires, and administers the employees insurance plan (the City is “self-insured”).

    It seems to me that Mayor Bellamy should step forward and ask for an “independent” investigation by the SBI.

    Of course since FSA are part of a Federal Tax Plan, the FEDS may well be investigating all this soon.

    If two or more employees were aware of this going on, and no one “squealed” then it becomes a Conspiracy.

    Why have no council members spoken publicly about this issue?

  7. Carrie, sorry I didn’t jump in to answer you sooner – been a slammed week. Dionysis is right. The Flex program is essentially a Health Savings Account type program. The money comes out of an employee’s salary and can be spent, pre-tax, on medical needs.

    The first important thing to note is that this money is derived from the salary, there is no evidence or allegation of diversion of money that did not belong to the employees involved.

    As for how that money might be used to purchase a mattress … well, the employee offers receipts for the “medical” expenses to be reimbursed out of their own account. The question of whether a mattress is a medical issue is for the courts to decide, I would guess. And, of course, submitting false amounts would be fraud, if it occurred.

    In any event, the principal fraud that might have been committed is federal and state tax fraud.

    And, as Xpress has accurately noted, this was uncovered by an internal audit on the part of the city, so rather than casting doubt on the accountability of the city government, it really points to reliability. The system worked. That doesn’t mean that everyone who works for the city is honest … the city, after all, hires human beings. But the system apparently worked.

  8. Carrie

    Hi Cecil,
    Thank You! Just got back in town and saw your response. I appreciate it. You’re right, not all are honest. I was confused about the notion of people “getting cash” up front. Thank you for responding & clarifying!
    Carrie

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