Wednesday, February 16, 2022

The Commission Is Hearing the Velken Issue Tomorrow Night

The issue at hand is an invoice from the Florida Retirement System for $472,546 that arose from the way Lewis Velken, who was presented to North Bay Villagers as police chief and then village manager in 2018, failed to comply with the FRS rules regarding retirement.  For a detailed view, click here.  

The Commission has this item on its agenda for tomorrow February 17, 2022 and while it won't be resolved tomorrow night, they will have to give direction to the legal staff, law enforcement and accounting.  The responsibility weighs on the five elected representatives, not the state and not the staff.  They need questions answered.  

Questions to resolve:

Was Velken ever an employee or a contractor?  

Velken was never a North Bay Village employee. No one is disputing that.

Indications are that he may not have been a valid contractor either.  There was never a written contract, there is a dispute on whether there was an oral agreement, the Commission certainly never approved a contract and nobody seems to know how much money was proposed.  

In the case testimony, former Village Manager Marlen Martell, Lewis Velken and the payee of record, Stephanie Leon, all gave different figures.  That doesn’t look like a contract.  

Did the Florida Retirement System accept that Velken was a contractor after the Administrative Law Judge June McKinney ruled he was?  

Definitely no or they would not have settled with Velken.   

Was Velken even authorized to approve invoices and disbursements for his own pay?  

Since Velken was not an employee of the Village and Velken did not have a written contract approved by the commission, this is a key point that must be answered.

Should North Bay Village accept that Velken was a contractor?  

Probably not.  Without a signed, commission approved contract, one way to look at it is that Velken was basically just a guy that showed up at the office.   I'm surprised that the North Bay Village continues to refer to Velken as a contractor.

Isn’t this criminal fraud?   

It could be.  I understand that the State Attorney General’s office is looking at the matter and I hope there are other criminal investigations.  

In my opinion, the Commission should formally request (by resolution) that the Florida Attorney General assign an investigator to assist other Law Enforcement to analyze and investigate the situation. The state may not be needed but it's better to be prepared.

What are the odds that North Bay Village will have to pay the $472,000 fine to the FRS?  

In my opinion, very high if North Bay Village continues to insist that Velken was a contractor and continues to take an argumentative position with the FRS. 

The odds might improve greatly if North Bay Village considers the possibility that the Village itself was a victim and works with the FRS to investigate the situation.

Wasn’t Velken also police chief?  

Yes, well, he was presented as such but never had a contract or was an employee.  The Village did submit an affidavit to the FDLE stating Velken was a full time employee, but that was wrong.  Since law enforcement authority comes from the employer, there could be issues around this.   

Was this the only non compliant payment or contract? 

There is no definitive answer for this. 

I have proposed to the Financial Advisory Board that they request a full accounting and legal review of all contracts and third party payments from November 2017 through February of 2019, the time frame that this issue was happening.  The Commission should absolutely instruct the staff to do that now. NBV does not need another surprise bill.

In my experience, when there is misallocated money, it is never just once.  It's time to put it all out there.

Kevin Vericker

February 16, 2022

Wednesday, February 2, 2022

Anti Fraud Measures In North Bay Village

 In my last post, I wrote about 2018 and the lack of controls that would have prevented someone who was neither an employee of North Bay Village nor had any approved written contract from submitting, approving and signing payments to himself from Village funds while evading Florida Retirement System and Florida Statute rules for his own benefit.  In the piece, I wondered what has changed since 2018 that would prevent a repeat of the same.  After publication I received a detailed response to my questions from Deputy Village Manager and HR Director Carla Gomez.  Honestly I'm impressed.  

First - What Is This All About?

On January 5, 2022, the Village received an unexpected invoice from the Florida Retirement System for $472,546 as its penalty in a scheme perpetrated by Lewis Velken to avoid complying with FRS rules.  Velken was never a North Bay Village employee and never had a written contract with NBV yet he was first sworn in as police chief then moved to Village manager under the shambolic administration headed by Connie Leon Kreps.   
From at least August 2018, while he was "interim village manager", Velken submitted invoices for his own services to the village, approved the invoices and signed the checks along with then Mayor Kreps.  
Velken was not an employee and had no written contract with the Village.  
In most organizations, this would have raised huge red flags.  It is standard government accounting practice that every non-payroll disbursement needs to refer to the legislation or contract that supports the payment.  In 2018, in North Bay Village, this didn't happen.  

North Bay Village in 2022 is faced with a huge issue - what to do about the $472,546 fine.  That has to be addressed.  

Looking at that impending payment which would kill our reserves, I also wanted to know two things - 
  • Has NBV fixed the holes that allowed an individual to pay himself without a contract and a careless mayor from signing those checks? 
  • Is there a plan to recoup the more than $70,000 noncompliant payments?

The Answers From The Village - YES  AND HOW

These are the questions I posed to Village Manager Ralph Rosado and HR Direct/Deputy Village Manager Carla Gomez.  The answers are very detailed so I have taken the  liberty of summarizing them. For the full response, click here.  
1.     Are you currently reviewing employee training and procedures on the need for Village disbursements to be clearly supported by more than verbal agreements?  
The short answer is “Yes”  
Following the consulting assessment done by Alvarez & Marsal in 2019, the Village updated the accounting and procurement procedures.  These are detailed in the report but for the purposes of the real question, “How did a non-employee who had no written contract manage to get paid?” it’s clear that in 2018 the procedures were not in place.  
They are now.  
2.      Are you working on clearly laying out a procedure for staff to report suspected non-compliance and fraud?
Again, there is a very long answer but the short answer is that the current administration requires employees to submit an affidavit if there is reason to suspect non-compliance or fraud in payments.  This was not the case in 2018 and it’s a good thing.  
3.      Is there a plan to recoup the disbursements to Stephanie Leon PA (Velken) as they were noncompliant with the Village policies?
Legal is reviewing this as an option.  

Alvarez & Marsal Report

To be honest, I had forgotten about the Alvarez & Marsal Report.  So let’s cover that now.  
When Mayor Brent Latham, along with Commissioners Julianna Strout and Marvin Wilmoth first took office in 2018, it was clear that the Village was out of control.  
As it has emerged now, nowhere could that be more clear than the fact that someone who was not employed by the Village nor had a written contract with the Village was able to oversee the payment of over $70,000 to himself without any alarms being raised.  
Latham took charge immediately and one of his first big moves was to bring in a consulting firm, Alvarez & Marsal, to do a bottom up assessment of North Bay Village and its processes.   
The result was a comprehensive set of recommendations.  North Bay Village Manager Ralph Rosado created and executed a tactical plan based on the recommendation and for several years reported monthly to the commission on progress.  In my view, the most critical aspect has been the rebuild of the Finance Department with strong anti-fraud measures.  Fraudsters will always probe for weakness but North Bay Village is no longer a sitting duck.  
For a complete look at the Alvarez & Marsal Report, click here

People Fought Mayor Latham and The Commission About This Report

The entire Commission agreed to hire Alvarez & Marsal but Latham took the heat.  A failed mayoral candidate and former commissioner who was on the dais in 2018 kept JAQ’ing (“Just Asking Questions” as the kidz say or used to) wondering why it was so costly.   Others began accusing random people of missing money.  But Latham and the Commission persisted and the final report provided the roadmap to reform.  
It's been a long hard road and North Bay Village has not yet closed this chapter, and it won't until the fraudsters make the village whole, but the Village has shut down an opportunity for a repeat performance.  

Kevin Vericker
February 3, 2022

Monday, January 31, 2022

Velken Never Had A Written Contract

Easy to miss in the talk about the Village taxpayers getting a bill from the Florida Retirement System for $472,546 to settle pension claims against Lewis Velken is that Velken was not an employee of North Bay Village and Velken never had a written contract with the Village.  

In 2018, Velken was approving  $70,357 invoices by himself and for himself while Mayor Connie Leon Kreps was signing the checks over a 5 month period in 2018.  More checks were issued in January 2019.  

None of the compliance systems that are supposed to protect against fraud stopped this or even alerted the Village.  

Nobody ever publicly asked why the police chief who became the Village manager was not an employee, or why there was no written contract.  Not the people who processed the invoices, certainly not the Village manager himself as he already knew, nor Mayor Kreps as she signed the checks.  

Even stranger is that Lewis Velken reported on a 1099 that he received $48,570 with the rest apparently held back by his billing agent, a cool $21,787 (31%) presumably for "admin costs" but it does bring up the question of where did that money go?

2018 Was A Crazy Year

An estimate of the costs of 2018 that were laid out to settle ill advised legal maneuvers, severance payments for long term employees, "agreements not to sue" by contractors, and other settlements, are somewhere around $1.2 million taxpayer dollars and now the Village is on the hook for an additional $472,546 in fines to the Florida Retirement System for allowing this fraud to happen.  

It Could Happen Again

There are surely criminal investigations going on as to how an individual could use a third party to avoid pension obligations.  I am assuming that it will include those who facilitated the payments and it remains to be seen if anyone will be held accountable.  

Right now, the Village government is focused on containing the scandal by refusing to talk about it publicly and being annoyed at the FRS for holding the Village responsible.  

The Commission who will ultimately decide the strategy in how the Village pays this has not called for a special meeting to discuss the issue nor private shade session to discuss legal strategy.  

The Village Manager, citing "legal concerns", has refused to answer questions about if the policies and procedures have been updated to prevent this kind of fraud in the future.  

Maybe everyone is just hoping that it will go away if they don't say anything.  That strategy clearly failed in February 2019 when it was the official stance of the newly elected commission.  

Just as concerning is that the well paid auditors never flagged the systems failures that led to an individual not employed by the Village or even contracted to submit, approve and have disbursed tens of thousands of dollars.

Focus On The Here And Now

The taxpayers and residents of North Bay Village need reasons to trust their government before they allow a half a million dollars to slip away.  

The five commissioners who represent the taxpayers have an obligation to explain what they know and what they don't know.  The commissioners and the public need to be absolutely certain that this cannot happen again.  

The commission should insist, in public, that every existing contract and retainer be reviewed for potential abuse.  The commission should also make sure that any agreements exceeding the Charter limit of $10,000 to $15,000 per year have their explicit approval by majority vote.  

The commission should review, in public, the HR and Accounting procedures that have been put in place to flag potential fraud, protect employees who flag these issues, and residents who expose the same.  

The commission should by resolution ask state and federal authorities, including the FRS, to assist the North Bay Village police investigation into the fraud.  

The Village Manager should be prepared with an assessment of what has changed since 2018, steps that are being taken to recover the money fraudulently disbursed,  and what steps are being taken with the auditors to strengthen the defenses against fraud.  

There need to be criminal investigations into the fraud.  North Bay Village police can't do it alone.  They will need state and federal help and the commission should request that on behalf of the Village.  

Is Anyone But The Mayor Stepping Up?

Well, the Mayor is.  It's been over a week since Mayor Brent Latham broke the news about the FRS bill, which you can read here at the Mayor's Blog on the Village website.  

Latham has been absolutely laser focused on the critical aspect of this fraud, demanding that the Village have in place the accounting compliance and the HR policies needed to prevent this from happening again, now or in the future.  He's been pretty consistent on this since 2019 when he first came into office.  

The 4 Other Commissioners And The Village Manager

The mayor can't do this alone.  Under our system of government in North Bay Village, the mayor is one voice among five, holding equal power as the other four members.  

We know where the mayor stands.  The silence from the other commissioners is deafening.  At least two commission members must request the type of special public meeting required to review these issues.  

None have done so.  

The commission has not scheduled a special meeting to discuss the issue and instead has suggested that it might be one item among many at the yet to be publicly scheduled February meeting.  

The Village manager has not made any statements about how they intend to address the issue internally or externally.  

According to sources, the Village is planning to negotiate with the FRS to bring the amount owed under $250,000 so it will be covered by the Village's tax payer funded insurance and maybe they won't have to think about it again.  

If the residents say nothing, North Bay Village can continue to be ripe for the picking by anyone with the nerve and desire.  

Kevin Vericker
January 31, 2022

Monday, January 24, 2022

North Bay Village Taxpayers Invoiced $472,546 For 2018 Pension Fraud

On January 5, 2022, Kathy Gould of the Florida Management Services department sent two invoices to North Bay Village to cover the costs of the Lewis Velken pension fraud.  One invoice is for $345,653 for half Velken's DROP payment and the second is for $126,893 for pension overpayments, totaling $472,546.  


Lewis Velken Settled A Claim of Pension Fraud.

In April of 2018, retired Miami Dade Police Lieutenant Lewis Velken was sworn in as North Bay Village's Chief of Police.  In August of 2018, Velken moved over to become Interim Village Manager where he served until January 2019.  

It turned out that when Velken was sworn in as Police Chief, he was not actually a Village employee, a fact that was never made public.  Instead his pay was routed through a 3rd party, alternately referred to as a friend and in one deposition as his sister-in-law, Stephanie Leon, a Miami Lakes Realtor.  

This was done so that Velken did not have to repay his DROP (Deferred Retirement Option Plan) payment of $691,307 and suspend his pension payments while he worked for North Bay Village.  

The scheme was first made public in 2019, here in this blog, and the Florida Retirement System this month settled the claim with Velken by accepting a payment of $345,653 or half the DROP Payment and disallowing the final 5 years of Velken pension which will reduce his benefits significantly.

The Florida Retirement System Says North Bay Village Owes The Rest

Under state law, North Bay Village is jointly liable with Velken for the payments and the FRS wants North Bay Village to pay $472,546 for its part in the scheme to circumvent the  FRS rules. That means the taxpayers are expected to pay for this. 

Their reasoning is based on Florida Statute 121.091 (9) (c) (3) which reads 
 A retiree employed in violation of this paragraph and an employer who employs or appoints such person are jointly and severally liable for reimbursement to the retirement trust fund, including the Florida Retirement System Trust Fund and the Public Employee Optional Retirement Program Trust Fund, from which the benefits were paid.
It is the phrase "Jointly and severally liable" that comes into play.  That says that both the individual (Lewis Velken) and the employer (North Bay Village) are liable to make the FRS whole.  North Bay Village may be liable.  

How Did This Even Come About?

For people who were not here in 2018, when the Village was led by Mayor Connie Leon Kreps and Commissioners Laura Cattabriga, Andreana Jackson and an empty suit from North Bay Island, it's hard to explain how crazy things got so I will refer you to this article in in the Miami New Times or just scroll through this blog.  

The particular facts in this case are that in April 2018, after firing Police Chief Carlos Noriega (later reinstated), then Village Manager Marlen Martell needed to find a new police chief and recently retired MDPD lieutenant Lewis Velken was recommended.  

There was a problem  According to FRS rules, if you retire from one FRS employer (Miami Dade), you are ineligible to be hired by another FRS employer (North Bay Village) within 6 months or you must repay your retirement benefit ($691,000 for Velken in a lump sum and a monthly pension check)  Wait 6 months and it gets easier and wait a year,  it's free and clear.  

Velken did not want to return his money or short his pension check, and apparently didn't want to wait.  

This part is undisputed and based on the sworn testimony of both Velken and Martell in their court testimony.  

Velken contacted Stephanie Leon of Miami Lakes and had her act as contractor for his payments to be routed to him thereby claiming to be a contractor, not an employee.  

This part is disputed.  According to sworn testimony by both Velken and Martell, they ran the proposal by Norman Powell, the North Bay Village attorney at the time, and Powell said that he did not see a problem with the arrangement.  From Lewis Velken's testimony in his complaint against the FRS. From :
CASE NO.: 19-2746

Transcript Vol. 4 Page 433 where Lewis Velken was testifying about how this came about:   

And what is your understanding of the relationship between Mr. Powell and North Bay Village at that point in time? 
Velken:  At that point, I was told that he was lead  counsel for the village. So, he had the ultimate  say as to whether or not this would be an  appropriate arrangement to -- or agreement to go  into. 

Q And what did he advise? 
A He [Powell] said that he didn't see anything wrong  with it, that he was going to research it further, but there was nothing wrong with it, since they had other contracted employees. And if there was any issues, that by the next day, he'd let them know in the morning, because they had scheduled the sweaing in ceremony for later on, for the 18th, in the evening. 
In the same hearing, Martell recounted that same story.  

Although Velken as a 30 year policeman and Martell as Village Manager should have known better in my opinion, they both state they were relying on legal advice from then Village Attorney Norman C Powell.  

Powell denies that he knew about the arrangement in his deposition and called it a "complete fabrication" in the Miami Herald  article about the issue.  

But he did know about it by September of 2018 when he wrote a series of emails to then Labor Attorney David Miller asking him to prepare an actual full blown employment agreement with Velken.  

What Role Did The 2018 Commission under Mayor Kreps Play?

None.  Well, not publicly.  

You see none of the people who knew brought the issue to the commission for a vote.  

Connie Leon Kreps later stated that she signed the checks for Stephanie Leon (no known relation) and did not question why our Village Manager (Velken) was paid through a 3rd party.  

I have been told that 2 of the commissioners approached Powell in September of 2018 and on page 458 of the transcript referenced that unnamed commissioners approached "lead counsel Norman Powell" to organize Velken's permanent hire.  

On September 5, 2018, Norman Powell sent a series of emails to the Village labor attorney about creating a permanent employment agreement.  These email are published here in an earlier blog  entry.  

Buckle Up.  It Gets Weirder.  There Was Never A Contract.

It turns out Velken never submitted a written contract to the Village

It seems that Velken/Leon never actually had a signed contract with the Village.   

Even though Leon was invoicing and receiving payments for Velken's service and Mayor Kreps was unquestioningly signing them and the Village Manager and Attorney at the time knew Velken was not an employee, there was not even a written agreement for his services and the actual amount agreed orally varies.   

Checks were just being cut and disbursed without a contract and without commission authorization.  

Don't We Have Checks And Balances Against This?

Yes.  The Charter is very clear that any contracted arrangement exceeding $15,000 must be approved by the commission.  That did not happen.  

The Charter is also clear that any employee or contractor who knows of a situation violating local, state or federal laws is obligated to report the violation.  Nobody did.  

The Charter is very clear that the same applies to elected officials, including then mayor Kreps.  That did not happen.  

There could be an argument that the Village cannot be responsible because the individuals involved in the scheme hid the information for reasons of their own.  

If They Hid It, How Come We Have To Pay?

The FRS probably doesn't care about how it happened.  Seriously even I get tired writing about this.  The FRS is simply holding North Bay Village liable and will leave it up to North Bay Village to go after the individual actors.  

In his statement on the matter, Mayor Brent Latham writes "Rest assured that Mr. Velken and his facilitators, and not the taxpayers of North Bay Village, will pay the cost of any wrong doing in this case. "

You can and should read his whole statement here:

I am not a strip club lobbyist so I don't have lot of municipal law under my belt, but I suspect that the Village will have to pay the full or a negotiated amount out of tax revenues and then pursue the individuals who actually effectuated the caper.  

Where Are Those Individuals Now?

Lewis Velken himself terminated his unwritten contract in January of 2019 when the story broke.  Velken previously sent a notice to the Village with an Intent to Sue if his pension was revoked.  Whether or not he is able to do so is an open question.

Velken is currently working as a Reserve Police Officer in Indian Creek.  

Marlen Martell was let go in August of 2018 after 105 days on the job and collected $127,000 in severance and an agreement not sue North Bay Village, plus a year's health insurance.  

Norman Powell's agreement with the Village was terminated in February of 2019 in exchange for a payment of $85,000 not to sue North Bay Village.  Powell is currently suing me.  

Former Mayor Connie Leon Kreps left North Bay Village.  

Former Commissioner Andreana Jackson, who may have known, resigned from the commission after the Commission on Ethics found she had profited from a village sponsored children's event.  

Former Commissioners Laura Cattabriga and Jose Alvarez continue to lurk around North Bay Island asking questions.  

By The Way, Kevin, Where The Hell Have You Been?

Last July, I left North Bay Village when I decided to retire.  I am living in San Luis Obispo, California.  San Luis Obispo, which may be the Spanish for "halfway between LA and San Francisco on the coast", is a lively coastal college town and it looks like the retirement destination.  I'll always love North Bay Village but California has been calling for many years and it's looking good.  

Kevin Vericker
January 26, 2022