Oregon disciplines tax workers over fraudulent $2.1M refund

PORTLAND, Ore. (AP) — Oregon officials have taken disciplinary action against four Department of Revenue employees who failed to catch a fraudulent tax return that resulted in a 25-year-old woman receiving a $2.1 million refund.

Two employees have been reassigned to jobs in which they will no longer have the authority to approve cash refunds, spokesman Derrick Gasperini said Wednesday.

Two others received unspecified disciplinary action for the blunder, but can stay in their current positions,

The personnel moves followed an internal investigation into a bogus tax return submitted by Krystle Reyes of Salem, who pleaded guilty Tuesday to fraud and tax evasion and was sentenced to 5 ½ years in prison. The audit found no evidence that the employees colluded with Reyes.

"Several internal controls weren't working as they should. We're making immediate changes to our processes so we can be confident this won't happen again," said Jim Bucholz, director of the Revenue Department.

Reyes filed an electronic return in January via Turbo Tax, reporting erroneous earnings of $3 million. Her request for a $2.1 million refund was red-flagged by an automated system for a manual review. Revenue department workers mistakenly OK'd the refund, and Turbo Tax then loaded the full amount onto a debit card for Reyes.

Authorities say she spent $150,000 of the funds before reporting the card lost or stolen, at which point the ruse was discovered. The state recovered roughly $1.9 million of the funds.

A report released Wednesday on the internal investigation is heavy on agency jargon and does not provide details on who Reyes listed as her employer on the fake return or other details about how she carried out the scheme. Reyes previously worked at retirement facilities or senior care homes and reported income of less than $15,000 per year in 2009 and 2010, The Oregonian newspaper reported.

Gasperini said the agency is —by law — not allowed to release specific information about a tax return, even a fraudulent one. Other parts of the audit report are deliberately vague, he said.

"We could potentially be giving a roadmap for taxpayers on how to defraud of us if we're specific," he said.

The Revenue Department said two of the employees disciplined were managers and two were line staff. One of the employees was demoted to a position that could result in a reduced salary.

Following the arrest, the agency re-examined the returns of 108 people who received a refund of at least $50,000 during the current processing season, and no new instances of fraud were uncovered.

The department has since modified its computer system so only high-level officials can sign off on tax returns that appear too large. The system also creates an audit trail to verify the manager who has conducted the final review of a large refund. Bucholz said other changes will be made following the audit.

"We must be good stewards of the public's money and trust," he said.

Copyright 2012 The Associated Press.


5½ years for Ore. woman who got $2.1M bogus refund

This July 5, 2012 file photo shows Krystle Marie Reyes, the Salem woman charged with defrauding the state out of $2 million, appearing in Marion County court, in Salem, Ore. Oregon officials have taken disciplinary action against four Department of Revenue employees who failed to catch a fraudulent tax return that resulted in Krystle Marie Reyes receiving a $2.1 million refund. (AP Photo/The Oregonian, Randy L. Rasmussen, Pool, File )

SALEM, Ore. (AP) — A 25-year-old woman who duped the state of Oregon into giving her a $2.1 million tax refund pleaded guilty Tuesday and was sentenced to 5 1/2 years in prison.

Krystle Marie Reyes, of Salem, entered guilty pleas to one felony count of tax evasion and three counts of felony fraud. She had faced eight felony charges.

Reyes' court-appointed lawyer, Gale Rieder, said her client faced "overwhelming" evidence, The Oregonian reported (http://is.gd/hiVixm ).

Rieder said her client "wanted to take responsibility for what she'd done."

"She's remorseful and saddened by the impact on her family," the lawyer said. "She has no criminal history."

The woman received the refund on a debit card and spent about $150,000 before twice reporting the card lost or stolen. At that point the ruse was discovered. The state has recovered about $1.9 million of the money.

An Oregon Department of Revenue spokesman said Tuesday that the findings of an internal agency audit would be released Wednesday.

Reyes filed an electronic tax return in late January via Turbo Tax, erroneously reporting earnings of more than $3 million, authorities have said. Her request for a $2.1 million refund was initially red-flagged by an automated system.

The Oregonian quoted from a 24-page search warrant affidavit regarding what happened next.

The return was set aside for review by processing staff and managers for potential fraud. But "some time later," the affidavit said, a Revenue employee overrode the flagged payment and the refund was issued.

By policy, three agency employees are required to verify the override, the newspaper said. However, according to the affidavit, no one responsible for reviewing the return opened the file to look at it or looked at the W-2 form Reyes filed.

Reyes previously worked at retirement facilities or senior care homes and reported income of less than $15,000 per year in 2009 and 2010, records show.

Before her June 6 arrest, Reyes' spending spree included about $1,800 in cash to buy a 1999 Dodge Caravan and spending $851 on tires and wheels.

The affidavit says other purchases included a queen-sized air mattress, a deep fryer, an air conditioner and a cream and gray floral rug. She bought a sofa and recliner with brown leather trim.

Andrew Campbell, a senior assistant state attorney general who filed the charges against Reyes, declined to comment on Tuesday's plea deal.

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Information from: The Oregonian, http://www.oregonlive.com

Copyright 2012 The Associated Press