Three years after the start of an investigation into bid-rigging at Roanoke's bus system, federal authorities have filed their first charges.

Court documents unsealed Friday named Diane Holdren, the owner of an interior design firm and the wife of William "Chip" Holdren, the former assistant general manager of Valley Metro.

Diane Holdren's company, Holdren's Interiors, was awarded contracts for an office renovation at the bus system's headquarters that were the result of a bid-rigging scheme, federal authorities allege.

At a hearing in U.S. District Court, Holdren pleaded not guilty to a felony charge of theft of government funds. However, she is expected to change her plea to guilty at a hearing scheduled for Tuesday, said her attorney, Matt Broughton.

It's not uncommon for federal defendants to enter an initial plea of not guilty, even if they do not plan to contest the charges.

The investigation began in 2008, when the city's municipal auditor spotted irregularities in the purchases of furniture and artwork by Valley Metro.

After noticing that most of the contracts for a $223,301 office renovation went to Holdren's Interiors, auditors found that written bids from other companies had been fabricated, according to a report that was later turned over to the U.S. attorney's office.

The quotes were falsified in an apparent effort to make it appear there had been competitive bidding on the project, according to search warrants used to seize records from the bus system's headquarters and Holdren's home in December 2008.

Diane Holdren fabricated and inflated all of the bids, "thus guaranteeing that Valley Metro would have to pay more than the true costs associated with the project," court papers unsealed Friday stated.

When shown the quotes that purportedly came from them, 16 vendors told auditors that they never bid on the contracts that eventually went to Holdren's Interiors, the auditor's report stated. Except for the names of the vendor and a few other details, the written bids were identical - even repeating the same typographical error.

At Friday's hearing, U.S. Magistrate Judge Robert Ballou allowed Holdren to remain free on her own recognizance. She faces up to 10 years in prison.

Holdren has cooperated with authorities since the investigation began. "She's done everything that was asked of her," Broughton said. "We're talking about a mother of three children and a member of this community."

Holdren formed her company, which she runs from her home in southwest Roanoke County, in 1999. The firm's website states that it provides "personalized, custom services for the discriminating consumer."

So far, Holdren, 51, is the only person to be charged in the long-running investigation.

Assistant U.S. Attorney Charlene Day said authorities are continuing to look into the case.

Holdren's husband was fired by First Transit, the Cincinnati company that manages Valley Metro, as a result of the investigation, company officials said in March 2009. A procurement official also was suspended.

Diane Holdren was charged with stealing government funds because the money Valley Metro used for its office renovations came from a grant from the Federal Transit Administration.

Court documents do not cite an exact amount, stating only that the amount of the federal grant was greater than $80,000. A report from Municipal Auditor Drew Harmon put the total amount of the office renovation at $223,301.

As a result of violations in procurement laws, the report stated, "project costs were excessive and overall prices paid by Valley Metro were significantly higher than they would have been in a competitive process."

After it began its inquiry into the furniture purchases, Harmon's office noticed large bills at restaurants that were billed to First Transit. That led to a second investigation that led to the dismissal of Valley Metro's general manager, Dave Morgan.

According to the audit, Morgan used a credit card issued by First Transit to pay for more than $14,000 in restaurant meals, golf fees and premium cigars. Receipts from 28 bills showed purchases of large amounts of Miller Lite, numerous mixed drinks and two $55 bottles of wine, for an average of 13 drinks per meal for Morgan and his guests.

The audit into Morgan's expenses was turned over to federal authorities. It was not clear Friday if that matter is included in the ongoing federal investigation.