There are situations when the first sentence may be correct. If somebody talked about a situation that has still not changed a reporter can often choose whether to keep the original speaker's tenses or change them. Both structures are common.
For example:
A: - Where do you live? Have you heard me, I asked where do you live?
----
Direct: Where does she work?
Indirect: I've often wondered where she works/worked.
----
Direct: It will be windy tomorrow.
Indirect: The forecast said it will/would be windy tomorrow.
----
We do not keep the original speaker's tenses if we don't agree with what he/she said, if are not certain of its truth, or if we wish to make it clear that the information comes from the original speaker, not from ourselves.
-> The Greeks thought that the sun went round the earth.
-> Did you hear that? She just said she was fourteen!
-> He announced that profits were higher than forecast.

[on the basis of 'Practical English Usage' by Michael Swan] --> a very good book btw ;-)