A former Seattle Public Utilities project engineer was charged Tuesday with 70 counts of theft for allegedly stealing $1.1 million from the city in what prosecutors call the largest embezzlement of public funds in modern King County history.

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A former Seattle Public Utilities (SPU) project engineer was charged Tuesday with 70 counts of theft for allegedly stealing $1.1 million from the city in what prosecutors are calling the largest embezzlement of public funds in modern King County history.

Joseph Phan, 44, was charged with 67 counts of first-degree theft and three counts of second-degree theft for allegedly diverting customer checks for water-main-extension projects into a private bank account.

“I don’t know what is more shocking, the sheer greed involved in this scam or the simplicity with which the defendant allegedly perpetrated this fraud,” said King County Prosecutor Dan Satterberg in a statement announcing the charges.

Phan remains in King County Jail in lieu of $750,000 bail.

Investigators say he used some of the money to buy a rental house and a car and to pay down credit-card debt. Police seized $220,000 from his bank account but say about $500,000 is unaccounted for.

First-degree theft carries a maximum prison sentence of 10 years, but the standard sentencing range is 3 ½ to just less than five years, according to the prosecutor’s office.

Prosecutors filed two special allegations against Phan in order to seek an exceptional sentence above the standard range. They argue that the thefts are a major economic offense and that Phan used his position of trust to facilitate the crimes, according to the prosecutor’s statement.

Phan was fired from SPU’s Project Engineering and Management Division in February 2011 after an internal investigation found he had twice accessed SPU’s billing system and credited his own utility account.

Seattle City Council members Tuesday called for an independent audit of the utility’s financial practices in the wake of Phan’s arrest.

City Councilwoman Jean Godden, chairwoman of the Libraries, Utilities and Center Committee, grilled SPU officials on how an estimated $200,000 in receipts for city water-main projects could be unaccounted for each year over a five-year period.

She questioned the degree to which Phan was adequately supervised and whether basic financial checks and balances were in place.

“Doesn’t SPU periodically check projected water-main-extension revenues against revenues actually received? Why wasn’t this problem identified during that process?” Godden asked.

Melina Thung, SPU’s deputy director for finance, said Phan presented contracts to customers for payment rather than sending out a utility-generated invoice. He then collected the payments and deposited them into an account he opened in his name and that of the city of Seattle.

Thung said the utility has taken immediate steps so that invoices are issued by the utility and that customer checks are submitted to accounts receivable.

The City Council added an auditor to the city auditor’s staff as part of the 2012 budget. That person, still to be hired, will be dedicated specifically to SPU and Seattle City Light.

City Auditor David Jones said SPU generates about $800 million a year in revenues and Seattle City Light about $900 million. Previous city and state audits did not review Phan’s division.

Jones told the committee members that the best way to prevent employee misconduct is to remove the temptation to steal in the first place by adopting rigorous financial procedures and controls.

Two previous state audits of SPU found a lack of controls in the utility’s customer-service call center. The utility created a division of Risk and Quality Assurance in January 2011 and began a systematic review of customer billing records dating back a decade.

Those internal reviews have resulted in the firing of five employees, including Phan, for accessing their own utility accounts and making improper adjustments to their bills.

Thung told council members that the focus on the call-center problems delayed the utility’s examination of other operations involving cash transactions.

Council members asked Jones and SPU officials to report back with an action plan at the committee’s April 3 meeting.

SPU Director Ray Hoffman is serving jury duty and did not attend the council hearing. He did offer a lengthy, written apology to council members, utility customers and city employees whose reputations and public trust, he wrote, will be damaged by the theft allegations.

“It saddens me that actions of a handful of individuals have damaged the department’s reputation. Yet, at the same time I acknowledge that if the right internal controls had been in place, the likelihood of such transgressions would have been much smaller,” Hoffman wrote.

Lynn Thompson: 206-464-8305 or lthompson@seattletimes.com. On Twitter @lthompsontimes.