After Requesting Raise in Rates, $6,000 Mistake Raises Questions About LR Wastewater
By: Marci Manley, KARK 4 News
Updated: May 25, 2012
"I think it was a lack of communication between the exiting employee and our plant administrator," said Little Rock Wastewater Director of Administration John Jarratt.
That's his simplest explanation of why and IRS debt from 1999 lingered for a period of seven years, accruing thousands of dollars in interest eventually paid out by the utility.
"I don't have any idea why that lasted so long and how long we'd been aware of it," Jarratt said. "I know that the employee and IRS battled over it for that period of time. The utility was not part of that. "
An anonymous letter was sent to Little Rock City Officials, including City Manager Bruce Moore, on Wednesday. The letter included a copy of a cashier's check, among other documents, from 2006 when the Wastewater Utility issued a payment to the IRS to pay off a lien on a former employee's income tax.
The worker's employment had essentially been bought out under a severance package agreement to allow her to receive state retirement benefits. Instead of issuing the check to the retirement fund, however, it was issued to employee Deborah Vought, who then paid the retirement fund.
By that process, the money was taxable income.
"We didn't understand when we wrote the check to the employee that would be taxable. Taxes were not deducted," Jarratt said. "I think this was a mistake that was made unknowingly because our standard procedure would be to have our financial obligation to the employee."
The financial finagling left a balance of roughly $18,000 dollars going unpaid to the IRS for seven years. That debt generated $6,000 dollars worth of owed interest.
Jarratt said he wasn't sure when or if the utility was made aware of the battle the employee was having with the IRS, but during that time her husband was employed with the utility at the time the cashier's check was issued.
Jarratt is also unaware of what the policy in place actually was in dealing with severance packages, noting the Arkansas State Legislature was also making changes to the Arkansas Public Employees Retirement System (APERS) at the time this all took place.
"I'm not sure how all of this occurred, I wasn't involved in any of that situation. We're trying to get the whole package out of storage," Jarratt said. "Now, it would be standard procedure to issue -- the severance agreement was with the employee so it would be standard agreement to issue the check to the employee."
Still the utility opted in 2006 to pay the income tax balance, which was paid for our of the Operations and Management Budget.
"There was a decisions by our plant administrator who is no longer here and the CEO to reimburse the employee for those taxes. Since we made the mistake, by making the check payable to the employee instead of the retirement fund."
The utility recently requested a rate increase for customers, in part to help support the operations and management portion of the facility, the same budget from which these debts were paid back in 2006.
Now, questions are arising on how the utility manages its money operations.
"I could see how there could probably be a possibility of someone thinking that. To my knowledge, no. there's no other situation like that," Jarratt said. "We have policies, and I think the policy was probably followed for what it was at the time."
City officials have turned over the documents to Little Rock Police. As of Friday, police spokesperson Lt. Terry Hastings said an investigation had not been initiated. Because the money involves federal funds, and there are questions of possible fraud, the department is trying to determine whether LRPD will handle the investigation or if it would be handled by the FBI, according to Hastings.
The anonymous letter, which kick-started the controversy, alleges an FBI investigation into the utility is already underway.
The FBI has not returned our phone calls, the U.S. Attorney's Office won't confirm or deny an investigation, but Jarratt knows some employees have talked with the bureau.
"Maybe two employees, I think, have been questioned by the FBI. I don't know the results of that. That was several months ago when we learned of that. Those employees are still employed here. My office has not been contacted, nor has the CEO's office," Jarratt said.
The utility is conducting its own internal investigation to determine who leaked the documents and how. Some of the materials included the employee's Social Security Number and address. The utility, saying that invasion of privacy is unacceptable.
"Someone went in and got those records and supplied them. It's a huge issue. We don't tolerate that, that was personal information on that employee distributed to the public," Jarratt said.
Despite the controversy, Jarratt said the utility is still planning to move forward with the June 5th public hearing regarding a raise in rates for customers.
That's his simplest explanation of why and IRS debt from 1999 lingered for a period of seven years, accruing thousands of dollars in interest eventually paid out by the utility.
"I don't have any idea why that lasted so long and how long we'd been aware of it," Jarratt said. "I know that the employee and IRS battled over it for that period of time. The utility was not part of that. "
An anonymous letter was sent to Little Rock City Officials, including City Manager Bruce Moore, on Wednesday. The letter included a copy of a cashier's check, among other documents, from 2006 when the Wastewater Utility issued a payment to the IRS to pay off a lien on a former employee's income tax.
The worker's employment had essentially been bought out under a severance package agreement to allow her to receive state retirement benefits. Instead of issuing the check to the retirement fund, however, it was issued to employee Deborah Vought, who then paid the retirement fund.
By that process, the money was taxable income.
"We didn't understand when we wrote the check to the employee that would be taxable. Taxes were not deducted," Jarratt said. "I think this was a mistake that was made unknowingly because our standard procedure would be to have our financial obligation to the employee."
The financial finagling left a balance of roughly $18,000 dollars going unpaid to the IRS for seven years. That debt generated $6,000 dollars worth of owed interest.
Jarratt said he wasn't sure when or if the utility was made aware of the battle the employee was having with the IRS, but during that time her husband was employed with the utility at the time the cashier's check was issued.
Jarratt is also unaware of what the policy in place actually was in dealing with severance packages, noting the Arkansas State Legislature was also making changes to the Arkansas Public Employees Retirement System (APERS) at the time this all took place.
"I'm not sure how all of this occurred, I wasn't involved in any of that situation. We're trying to get the whole package out of storage," Jarratt said. "Now, it would be standard procedure to issue -- the severance agreement was with the employee so it would be standard agreement to issue the check to the employee."
Still the utility opted in 2006 to pay the income tax balance, which was paid for our of the Operations and Management Budget.
"There was a decisions by our plant administrator who is no longer here and the CEO to reimburse the employee for those taxes. Since we made the mistake, by making the check payable to the employee instead of the retirement fund."
The utility recently requested a rate increase for customers, in part to help support the operations and management portion of the facility, the same budget from which these debts were paid back in 2006.
Now, questions are arising on how the utility manages its money operations.
"I could see how there could probably be a possibility of someone thinking that. To my knowledge, no. there's no other situation like that," Jarratt said. "We have policies, and I think the policy was probably followed for what it was at the time."
City officials have turned over the documents to Little Rock Police. As of Friday, police spokesperson Lt. Terry Hastings said an investigation had not been initiated. Because the money involves federal funds, and there are questions of possible fraud, the department is trying to determine whether LRPD will handle the investigation or if it would be handled by the FBI, according to Hastings.
The anonymous letter, which kick-started the controversy, alleges an FBI investigation into the utility is already underway.
The FBI has not returned our phone calls, the U.S. Attorney's Office won't confirm or deny an investigation, but Jarratt knows some employees have talked with the bureau.
"Maybe two employees, I think, have been questioned by the FBI. I don't know the results of that. That was several months ago when we learned of that. Those employees are still employed here. My office has not been contacted, nor has the CEO's office," Jarratt said.
The utility is conducting its own internal investigation to determine who leaked the documents and how. Some of the materials included the employee's Social Security Number and address. The utility, saying that invasion of privacy is unacceptable.
"Someone went in and got those records and supplied them. It's a huge issue. We don't tolerate that, that was personal information on that employee distributed to the public," Jarratt said.
Despite the controversy, Jarratt said the utility is still planning to move forward with the June 5th public hearing regarding a raise in rates for customers.
