By FRANK X. MULLEN JR. • fmullen@rgj.com • December 21, 2008
A former treasurer of the Panther Valley Water Users Association is being investigated in connection with siphoning water for profit and embezzling as much as $2 million, according to investigators and utility officials.
The man allegedly sold water rights that the company didn't have to developers and is being investigated in connection with construction of an illegal valve that siphoned at least $140,000 worth of water by bypassing the Truckee Meadows Water Authority mainline meter. He allegedly took out a bank loan and bought heavy equipment and other items with water company funds without the knowledge of the company's board of directors, officials said.
Although the company's board is required to approve purchases of more than $100, the treasurer was able to misappropriate hundreds of thousands of dollars unbeknownst to other company officials, according to company documents and board members.
Washoe County sheriff's detectives confirmed they have been looking into the financial activities of former Panther Valley water utility treasurer Robert Klein since May, but no arrest warrants have been issued.
Klein could not be reached for comment.
"Mr. Klein has fled the area and this is an ongoing case," Detective Morgan Jaeck said. "Once there's a warrant, we'll seek him out then. It's a complicated case. This guy had carte blanche for eight years."
Jaeck said the case involves a tangled web of documents, with still many records to receive.
"We're not sure how long it will take to get to the end of this road," he said.
Illegal valve installed
The missing money came to light after Truckee Meadows Water Authority engineers in August 2006 discovered a partially open valve that allowed water to bypass a TMWA meter that keeps track of deliveries to about 400 Panther Valley customers. The engineers shut down and "double locked" the valve, officials said, but by December 2006, Panther Valley's metered water use was again lower than expected.
In September 2007, after monitoring the area's water use for months, TMWA workers checked the pressure on the water lines feeding Panther Valley. They discovered water was flowing beyond the supposedly closed and locked valve. They dug down to the main line and found the TMWA valve had been disconnected, replaced with a dummy valve, and someone had installed an illegal wide-open valve below ground next to the disabled device.
That meant that for nearly a year, Panther Valley customers were paying their local water company for the water they used, but TMWA was paid only for the small percentage of water that flowed to Panther Valley through its main meter. TMWA officials said the Panther Valley utility eventually owed $250,000 in fees and late charges for water that bypassed the meter.
"In 20 years, it's the most elaborate bypass I've ever seen," TMWA distribution manager Pat Nielson said. "We were truly shocked when we dug up that dummy valve and found the illegal one.
"(The illegal valve) probably cost $1,200 to $1,400 and was buried in the ground, while the dummy valve at ground level looked fine. The problem was (the perpetrator) got greedy. If that underground valve was only partially opened instead of wide open, I don't know how long it would have taken us to find out."
Water and money
But investigators and utility officials said the dummy valve was just a part of multiple frauds against the water company.
The Panther Valley Water Users Association, a nonprofit cooperative, was founded 46 years ago to bring water to an enclave of north valleys residents far from city water service. The company got water from Sierra Pacific and later from TMWA, the area's current water provider. The company serves about 400 customers in the Panther Valley area north of Reno and is self-regulating.
Dennis Richards, Panther Valley utility president, said TMWA informed the company in April that it owed at least $139,000 for water delivered to Panther Valley before October 2007.
Richards said Klein told him he knew nothing about any "misappropriated water."
"TMWA threatened to turn off our water, but as far as I knew, we had paid for what we received," Richards said. "But things were being kept secret by Bob (Klein). He was operating in a different reality."
He said the board treasurer usually handled all business activities and the other board members took the treasurer's word for all financial matters.
"This cooperative was founded 46 years ago by honest people and managed by honest people," Richards said. "We trusted Bob (Klein) for eight years. We took his word for everything. Nobody but board members come to our meetings, and the board members left the finances in (Klein's) hands."
As board members began looking at the association's books, Richards said, they discovered Klein allegedly sold water rights that the company did not have and made commitments to sell additional nonexistent water rights. Klein also allegedly collected hundreds of thousands of dollars in "connection fees" from developers, and those funds are no longer in the association's accounts, officials said.
Board members also found a bank loan had been taken out and equipment purchased without their knowledge.