Monday, February 4, 2019

Considering The Velken Matter

The North Bay Village Commission faces a stark choice on Tuesday night.  

The Commission has to decide if the Village is run for the convenience of people making money from the taxpayers or for the benefit of the residents.  

Given the Commission's record of ignoring the legal and ethical requirements of employment practices in favor of cronyism, tomorrow night does not look hopeful.  

Here's one of the two matters under discussion.  

Our Village Manager, Lewis Velken, is paid through a third party, Stephanie Leon PA, of Miami Lakes.   

This makes him a contractor, not a village employee.  A contractor relationship is very different from an employee.  A contractor is not a temporary employee.  

According to the IRS definition of a contractor if a worker is paid a fee for a work product, and the organization does not significantly direct how and where the work is done, that's a valid contractor.  

On the other hand, if there is no defined work product and the hiring organization significantly controls how, where and when the work will be done, that's an employee.  

See the IRS explanation at this link.  

Velken is in place to work, as police chief and then as village manager.  There is no beginning, middle or end.  

Velken is an employee by all common definitions, yet someone else is paid for his work.  

This means that the Village is at risk of facing audits, fines and penalties from the IRS.   

The complaint about the the situation has already been filed with the IRS and it is unlikely that they will understand the arrangement as a contractor.   

Why and how was this done?  

According to a deposition by former Village Manager Marlen Martell in the Noriega case, the payment arrangement was done casually and to solve the "problem" that Velken faced with the Florida Retirement System rules which would otherwise have required Velken to repay his pension benefits and suspend further payments until such time as he fully retired.  

There may not even be a written contract to make these payments.

In her deposition, Martell describes the timeline, the decision to pay off the books, and the involvement of the Village attorney.   

  • April 16, 2018 was the first time Velken's name appears as candidate for police chief after the preferred candidate, John Buhrmaster, unexpectedly turned down the position.  

  • April 18, 2018, less than 48 hours later, was when Velken was selected and sworn in as police chief.  
There may have been no background check.  

Martell says there was but according to one source, the investigator only verified employment.  

In the background check I got through Public Records, serious things are missing from what the village gathered on Velken, such as his name change from Luis Velasquez, his address in California, the results of his internal affairs investigations.  They simply are not there.  

Still this payment arrangement went into effect at that time.   

According to Martell, Village Attorney Powell and Velken were quite clear that the purpose of the contractor arrangement was to evade the FRS rule which requires an employee who retired and then takes a job with another FRS agency to suspend their pension and pay back the Deferred Retirement Option Payment, in Velken's case several hundred thousand dollars, or face stiff penalties including criminal investigations and possible loss of pension.   
The rules are very clear and unambiguous.  They read as follows:

You must meet the definition of termination by remaining unemployed by any FRS-participating employers for the first six calendar months of your retirement or the first six months after your DROP termination date. If you return to work during this six calendar month period, you will void your retirement and must repay all benefits received, including your DROP accumulation payout. 

Click here for the rules.

This is not kosher that the village manager, the village attorney and the police chief find that the clear, unambiguous laws would inconvenience the police chief and agree to evade them.  

What's just as puzzling is that neither Martell and later Velken understood that before entering into an informal, unwritten agreement to pay >$10,000 per month ($130,000 per year) to a vendor for any reason, the commission must approve.    

Further, the first payment was July 11, nearly three months after Velken started work.  It shows this on the register. That's odd.  

By July, Martell had been fired, and Velken was appointed interim police chief.   I made a public records request (ignored) for his compensation as he was asserting that his compensation was $40,000 less than Noriega's.  None was forthcoming nor was the amount questioned as the budget was rushed through.  

Since then, after August, Stephanie Leon has received payment each month for "Velken Labor Services"   Again, check the payment report starting on page 106.  These payments were unquestioned until January of this year.  

The issues:

Was Velken a valid police chief?

The presumption is that law enforcement authority comes from either the employer of record (e.g. the police department) or deputization.   It seems odd because Velken  was presented as a cop, but the law is clear.  A civilian contractor without special deputization cannot carry a badge, a gun and direct police matters but he did all of these things.     

From an HR point of view, any disciplines, promotions or other internal actions are questionable and from a legal point of view, any arrests or investigations that he was involved with can be challenged.   

This needs to be investigated and addressed.  

Why did Velken arrange a third party payment?

There's no question he did.  It's clearly laid out in Martell's deposition under oath and several sources confirm that conversations have been held with Velken and no one is denying that the motivation was to avoid FRS penalties.  

The FRS Inspector General is investigating this as a fraud case.  OIG Case # 2019.74   
  • The FDLE have according to what I have been told opened an investigation.   

  • The IRS has accepted and filed a complaint about fraudulent representation as a contractor and possible money laundering.  
The implications of a fraud finding are bad for the village.  We may be subject to penalties and fines from the IRS.  The FRS can go after the village to collect the moneys owed as well as go after Velken, who risks losing his pension.   Technically, the FRS could remove the village from the FRS system incurring millions in obligations.  

Who knew and when?

According to Martell, Powell knew, Velken knew and former mayor Kreps knew as she was signing the checks.   And now everybody knows.   

What the commission is probably hearing.  

This part is speculation .   Obviously neither the Village Attorney nor the labor attorney speak to me.  But I bet, I think, they are probably saying:  
  • "Don't worry.  It's legal.  It's just the usual malcontents (Vericker) who are making a big deal out of this.  It's done all the time."  

  • "Worry.  So the best bet is to regularize Velken's employment in March so it all goes away and hope no one notices.   After all, Velken could sue us." 

  • "And most importantly, it was somehow Bert Wrains' fault."   (Yep.  I've heard that.)
Now, each of these is wrong.  
  • It is not done all the time and it's not legal.  There is not a single other city in Florida that pays their police chief through a third party.  The few who contract out Village Manager services do so based on legislation passed by their commissions. 

    Among the people who are concerned are the IRS, the FDLE and the FRS.   

  • Regularizing the employment, that is hiring Velken as of March 1,  may mean that FRS penalties do not apply to the new job but does not remove the fraud investigations or what happened over the last year.

  • Bert Wrains, our finance director, should not be the scapegoat in this mess.  He neither arranged it nor approved it.  

So what to do now?

  • It is incumbent on the commission to protect the village, not the employee. 
  • Velken should be suspended until the investigations are done.  Then and only then should he be reconsidered in light of his actions.   

  • Powell cannot be the legal advisor on this. He is named in sworn testimony as participating in the questionable actions and we need competent independent legal advice.  

  • Our Labor Attorney Weiss Serota needs to participate in the meeting to give a full, open opinion on what happened and how to proceed.   

  • Finally, I would warn the mayor and the vice mayor that given the nature of this arrangement (never passed by the commission, no existing contract, the acknowledged motivations, and the uncertainty of validity of the appointment), neither of them should sign checks for Stephanie Leon.  Given the situation, there could be criminal consequences.
This commission has shown a reluctance to take action so far, mostly out of an understandable but misguided concern that action would be a continuation of the insane behavior of the last commission.  

In fact, the voters want the damage fixed and the village focused.  The Commissioners have an absolute obligation to get this matter resolved for the benefit of the Village and not to protect a single employee for the consequences of his actions.  

Kevin Vericker
February 4, 2019

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