A little over a year after a city utility engineer was charged with diverting more than $1.1 million from water-main-extension projects into a private bank account, the city has recovered all but $30,000 of the money.
Joseph Phan, also known as Chau Phan, still faces 70 counts of first- and second-degree theft. His criminal trial is scheduled for September; he has pleaded not guilty.
But the city has seized his bank accounts, real estate, a retirement account, a college fund and a Rolex watch and a diamond ring in its efforts to recover what officials say is one of the largest embezzlements in city history.
The largest amount recovered —$510,579 — comes from the city’s insurance firm, Zurich. The $30,000 not recovered is the deductible for claims against that liability policy.
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“While it’s difficult to guard against an employee with criminal intent, we showed we will come after you with everything we have to make taxpayers and ratepayers whole,” said City Attorney Pete Holmes, whose office led the legal efforts to recover the stolen funds.
The case also sparked almost immediate reviews at Seattle Public Utilities (SPU), where Phan, 45, had worked for 16 years. Three independent analyses by auditors and accounting experts produced 98 recommendations, including that no employee, except cashiers or those in accounting, may accept cash or checks.
Payment for water-main-extension projects performed by city crews now is made directly to the city treasurer, not to the engineering group in which Phan worked, said Guillemette Regan, director of the agency’s risk and quality-assurance division.
“We’ve undertaken a four-year workplan to reorganize how we manage our financial business and internal controls,” Regan said.
In Phan’s job as a project engineer, he met with real-estate developers and residential customers to estimate the costs of hooking up city water lines to new construction. Phan drafted contracts for projects and collected payment, checks made out to the city of Seattle or Seattle Public Utilities.
About 2008, according to the criminal charging documents, Phan opened an account in his own name and “City of Sea” at Bank of America where he deposited more than 70 checks over the next three years.
King County prosecutors allege that Phan used the money to pay off credit-card debt and buy property, including two houses that he rented out. They say he gave money to relatives and his church, and bought himself a Honda Element. An estimated $250,000 of city money was converted to cash.
Phan was fired in 2011 — not for the embezzlement, but when internal audits found that he had accessed his own city utility account to record payments for his home and a rental property totaling more than $1,000 when none had been made.
After he was fired, a developer contacted Phan’s manager at the city to ask about crediting the deposit from a previous, abandoned project to a new project. He provided a copy of the check. Phan’s manager could find no record of the check being deposited with the city.
SPU investigators eventually found copies of dozens of checks in Phan’s project files, and police established that all the checks had been deposited in Phan’s account and not the city’s, according to the charging documents.
Phan was arrested March 1, 2012. A civil lawsuit was filed March 9 and a temporary restraining order granted March 13 of last year prohibited Phan or his wife from hiding or disposing of any assets, according to the City Attorney’s Office.
In addition to property and cash, the city seized $96,000 from Phan’s city retirement fund, $43,000 from a state GET college-savings fund and almost $20,000 from a life-insurance policy.
Holmes said the civil lawsuit has been taken over by Zurich Insurance, which could sue Bank of America for negligence in opening a fraudulent city account.
“Our goal was to get full recovery,” Holmes said. He said Phan not only stole from utility rate payers but put all city employees in a negative light.
“We’re also city employees. That was part of our motivation as well,” he said.
Material from Seattle Times archives was included in this report.
Lynn Thompson: 206-464-8305 or firstname.lastname@example.org.
On Twitter @lthompsontimes