My Citibank deposits the miles directly into my AA account on a monthly basis. If, in a certain month, I have no charges, but say $200 of returns/credits, Citibank can and will deduct the 200 miles from my AA account.

I think that if Citibank writes off a certain $ amount of her balance, they are entitled to those miles back. Your co-worker has no right to them any more, IMHO.