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Allegations of criminal activity by HR staff members working for the city of Asheville, N.C., have tested the government’s crisis management process.
In March 2010, four members of the city government’s 12-person HR staff were arrested and charged with multiple counts of felony fraud and obstruction of justice. Lisa Roth, the city’s HR director, and Robin Nix, the assistant director of HR, resigned immediately after the charges were filed. The other two HR staff members facing felony charges are Laura Masters, a former compensation analyst, and Liz Oldre, a former benefits specialist. All four were scheduled to appear in court on June 18, 2010, for a hearing to set their trial date.
“I believe a case like this is really an aberration and an example of a worst-case scenario,” said Steven Wheeless, an attorney with the Phoenix, Ariz., law office of Steptoe & Johnson. “The majority of HR professionals are highly ethical people whose primary goal is to protect their organization from this type of behavior. But I think a story like this is going to grab the attention of employers throughout the country.”
The charges were filed after the Asheville City Police conducted a four-month investigation after allegations surfaced that members of the HR staff were abusing the city’s flexible spending account (FSA) program.
Masters, Nix and Oldre are accused of making reimbursement claims for $22,778 in goods and services that they never purchased or received. They could face several years in prison if convicted of the felony fraud charges.
The city’s former HR director, Roth, is charged with obstruction of justice and making false statements to investigators when she was questioned about the alleged fraud. Police said that Roth does not appear to be involved in filing any of the fraudulent claims and apparently did not benefit from any of the reimbursements.
The attorneys representing the defendants have declined to comment on details of the pending charges but have said they are confident that their clients will be acquitted.
Employees can defer a percentage of their wages before taxes into an FSA to help pay for health care and child care expenses. Reimbursements from FSAs are regulated tightly and must be for legitimate expenses incurred by an account holder.
Rules, Regulations Flouted
During the investigation, police say, they found that the HR staff members flouted the FSA rules and regulations regularly by allowing employees to exceed the maximum deposits allowed by law and by permitting several workers to start contributions to their FSAs midway through the year.
“It’s particularly bad when the staff of the department entrusted to comply with the law is accused of committing fraud,” said Wheeless.
While the four have not been tried, the damage to the reputation of the city’s HR department and possibly the entire city government could be severe.
“Frankly, I just don’t see how you recover fully from something like this,” said Michael Colledge, manager of faculty compensation for Brigham Young University and a member of the Society for Human Resource Management Ethics Special Expertise Panel. “Once trust is broken in a situation like this one, it is a very hard thing to regain and will take years to rebuild.”
When faced with a scandal or crisis, a business must act fast. Executives must demonstrate that they are committed to rectifying the problem, experts agree.
“Management must act quickly and decisively to address the problem. Outstanding executives will be the ones who are up to the challenge and make it clear that they are on top of the situation,” said Denise Kay, president and co-owner of Employment Practices Solutions in Denver.
Gary W. Jackson, city manager of Asheville, acted quickly once the results of the police investigation were revealed. The same day that the police report was released, Jackson notified all city employees via an e-mail and video about the situation and that the four accused of the crimes were no longer employed by the city. In the video and memo, he explained the pending charges and said that the city’s assistant manager, Jeff Richardson was directing the city’s HR function.
“The best way to handle a situation like this is to be upfront and communicate with all the organization’s stakeholders,” said Kay. “In the case of a city government, that’s not only the employees but the whole city’s population, which could be a daunting task, but it has to be done.”
Checks and Balances
Kay and others interviewed for this article agree that scandals like the one in Asheville can be prevented by having proper checks and balances. While employee empowerment is important, unchecked authority and autonomy can be a recipe for disaster.
“I always use the phrase that Ronald Reagan made famous back in the ‘80s: ‘Trust but verify,’ ” said Jonathan Segal, a partner with the law firm of Duane Morris LLP in Philadelphia. “Reviewing these processes periodically and ensuring that there aren’t any breakdowns in communications or failures to follow established procedures is also a good idea.”
Although it’s not clear what actually led to the breakdown in Asheville’s HR department, often bad situations stem from poor hiring decisions and employers that don’t conduct thorough background checks.
“Often HR managers and directors have been promoted up through the ranks without little regard or consideration to their actual people skills,” said Wheeless. “Just because someone is an excellent benefits administrator or compensation analyst doesn’t mean that they’re also a good manager of people. And to be a really good HR director, I believe, requires strong people skills.”
Bill Leonard is a senior writer for SHRM.
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