Ex-worker Kathy Nelson accused of stealing over $223,000 from Water and Sewer Department

FORT WALTON BEACH — Five months after being terminated from her position at the Okaloosa County’s Water and Sewer Department, Kathy Nelson has been charged with grand theft.

Nelson, who is 57, was also charged with aggravated white collar crime in connection with a scheme to exchange water taps for cash. Investigators say the defendant deprived the county of more than $223,000 over a nine-year period and in return for her deception, the employee is believed to have received cash kickbacks from at least one builder.

Nelson, who lives in Mary Esther, turned herself in at the Courthouse Extension on Tuesday morning. She was also charged with communications fraud and unlawful compensation for official behavior, according to an OCSO media release.

Billing irregularities in customer accounts overseen by Nelson came to light at the Water and Sewer Department in April, and a preliminary in-house audit revealed she had not collected at least $57,000 in water and sewer Capacity Expansion Charges, commonly referred to as “taps,” between 2013 and 2017.

The audit revealed Nelson entered fictitious information, invalid receipts, and altered documents in the customer service database to make it appear the proper charges were paid by three construction companies when in fact they were not.

Her arrest report did not identify the contractors and Sheriff's Office spokeswoman Michele Nicholson said the case was still an active investigation.

A forensic audit by the Okaloosa County Clerk of Court, Inspector General, turned up billing irregularities in 83 accounts linked mostly to the same three contractors.

Nelson was fired on May 4 and the information was turned over to the OCSO for a criminal investigation.

One witness told investigators that the day Nelson was suspended from work, she phoned her and asked her to retrieve an envelope full of cash from the defendant’s office and bring it to her home. The witness refused and the cash was never located. Another witness claimed to be present on an occasion where cash was exchanged. A third witness reported she overheard the defendant discussing how she perpetuated the scheme.

Another witness said that Nelson had told her she had an old log book that had unused meter numbers in it. Nelson said she would take an old number, "give it a new life and sell it to someone cheaper," according to her arrest report. Nelson also told this woman that she would make deals on the side and charge "finder's fees" for her efforts. She said she only did it when she needed the money and that she was not in danger of going to jail because the "statute of limitations" had run out.

Investigators determined of the 83 billing irregularities revealed in the forensic audit, at least 56 showed probable cause for criminal charges and that she deprived the county of more than $116,000 between August 2011 and April 2017.

In a separate scheme, investigators say Nelson transferred site-specific taps to non-contiguous properties in violation of Okaloosa County ordinances, mostly benefiting the same three builders to the tune of more than $107,000 between April 2008 and February 2017.

In return for manipulating and falsifying fees in favor of the builders, Nelson received cash kickbacks. The investigation is continuing.

After being terminated, Nelson wrote a letter to her former employers in which she disputed the accusations. The letter was placed in her personnel file, which the Daily News reviewed in early June.

In the letter, she expressed outrage at being accused of "intentionally" making what she calls errors.

"An error is an error as in mistake," she wrote. "I do not agree with the facts of my termination."