Stolen funds came from schools, not State or Feds. Will the truth possibly prevail?

That’s an interesting development. 

The Auditor General who has been looking into the theft of funds from the Mid-Central School District just dropped a bomb on public impressions and media reports. 

Because he just announced that area schools were the victims of Scott Westerhuis’ financial machinations, and not the State of SD or Federal Government:

The $1.4 million that a Platte man funneled from his employer before his murder-suicide came from his neighbors and nearby communities, the state’s auditor general said Monday.

And..

…….the money that went missing came from the 14 central South Dakota public school districts to share special education teaching services and other contracting services.

And..

He said the funds used for the Gear Up grant were all returned to the state and federal departments of education. But probes of Mid-Central’s finances found that $1.4 million in general funds was unaccounted for.

Read the entire story here.

Does that change your view of the story? 

The State of SD, and the Department of Education discovered the accounting problems in the first place, triggering them to yank the grant from the beleaguered co-op. Unbeknownst to all, that action caused a heretofore unknown financial manipulation to crash, and the author of the financial scheme, Scott Westerhuis, murdered himself and his family as a result. 

Clearly, others did bad things along the way. There are those accused of taking shortcuts, altering documents and enriching themselves. And as this has been discovered, lawmakers have passed legislation, and are proposing more measures to fix the loopholes.  To resolve then in an attempt to prevent them in the future.

Isn’t that how “the system” is supposed to work? Discover problem. Review and investigate. Fix problem. 

Too many people, such as the media and other opportunists, overly sensationalize things for gain. And the simple truth gets muted as a resort.  

We’ll get to see more of that this morning as State Senator Stace Nelson will be called to testify as to unreported criminal activity that he claims he knows about, and has paraded around to the state’s media… but hasn’t reported to law enforcement and refuses to disclose to his colleagues on the Government Operations an Audit Committee.

In appearance after appearance after appearance in front of the state press corps, like others who think they have something to gain from the spotlight, Senator Nelson has paraded wild claims of corruption that might make for a good 15 second soundbite in the media, but does not stand up to cross-examination.

There was wrongdoing and several loopholes that needed closing in the matter of the theft of funds from the Mid-Central education cooperative. The Attorney General is prosecuting what can be prosecuted, and the legislature is passing laws where there need to be laws. 

Instead of wild claims that benefit a person’s political standing or a television station’s ratings, sticking with facts and truth seems to work the best in the long run. It’s the opposite of sensational. It’s boring, it’s tedious, and it takes a long time. Not exactly what we want to see in the 24 hour news cycle, where if it bleeds, it leads.

But we can always hope that even through all the noise and static, the truth might win in the long run. 

And isn’t that who we want to win?

33 Replies to “Stolen funds came from schools, not State or Feds. Will the truth possibly prevail?”

  1. mhs

    Maybe now the focus will finally shift to 13 professional education administrators that completely failed their respective district’s taxpayers and utterly neglected their fiduciary duty to govern the co-op.

  2. Troy Jones

    I did not see this coming.

    While I never bought into the broader, sensationalized assertions of conspiracy/corruption (too hard to pull off a conspiracy with more than one person) and always thought it was simple embezzlement, I did not think the theft was from a diverse set of parties (14 school districts). I thought the “source” was going to be the distant federal government.

    I read a business management book years ago about the dangers of “group think” and how it can expose companies to risks. Two of the concepts was the “blue ribbon” or “buddies” mentalities which are actually one concept with two manifestations.

    “Blue Ribbon Mentality”- Good, smart, well-motivated people suspend their normal critical thinking impulses because of the quality of the people around them. They think “if Joe doesn’t see a problem, I must be seeing things” or “I must be seeing this wrong and don’t want to say anything or I’ll look dumb.”

    “Buddies Mentality”- Everybody in the circle has a personal relationship and it is trusting. Thus, there is a hesitance to ask questions lest they offend someone.

    If these are an explanation (not an excuse) for how this happened, it requires a different set of solutions than just stricter more burdensome laws and oversight. Embezzlers can find ways to penetrate even the strictest set of controls (if there is enough money to be had) but sometimes the laws, oversight and controls become so cumbersome and expensive to execute. The most effective means to prevent embezzlement are not always about burdensome oversight and controls but good governance protocols and training of the overseers.

  3. Al Adel

    Angela Kennecke, will you and KELO, at the top of the 6:00 news tonight, bring these new developments to your viewing audience?

    Well?

    Rest Easy.

  4. Springer

    How could this amount of money disappear and no one noticed??? I understand what Troy said above, but still…

  5. Anon

    It’s hard to believe that nobody driving past the Westerhuis 7600 sq foot house with the $900,000 gymnasium wondered where he was getting the money to pay for all that.

  6. Steve Sibson

    “We’ll get to see more of that this morning as State Senator Stace Nelson will be called to testify as to unreported criminal activity that he claims he knows about, and has paraded around to the state’s media…”

    Perhaps new information is on its way:

    “Wedel says Scott Westerhuis told her to stop rocking the boat.

    “He said, ‘you’re pretty naive, I don’t think you really know how things work around here,’” Werdel said.

    Werdel says she even arranged a private meeting between Secretary Schopp and Stacy Phelps and that afterwards Schopp met with her.

    “And she grabbed me and gave me a hug and said, LuAnn, I’ll try to protect you, but you just need to just not worry so much about the grants. You need to focus on larger policy issues,” Werdel said.

    But Werdel says she continued to bring up those “red flags” about how the grants were run and that’s what she believes got her fired.

    “I want our kids to graduate from high school. I want our kids to become productive members of society and this is a lot of money that could have done those things. A lot of this does lie on the shoulders of South Dakota, Werdel said.

    Wedel says she was surprised that the ten other people, which included Department of Education Directors, never spoke out about the email warning she sent.

    “Is there a climate of fear where people are afraid to speak? I don’t know,” Werdel said.

    And by the time the Department of Education cancelled its contract with Mid Central, over all the same problems Werdel pointed out in 2011, it was too late.

    “I don’t think they wanted anything brought to mess up what was going on. GEAR UP was really doing well. Melody was becoming the new secretary of education. They didn’t want anyone rocking the boat right then,” Werdel said.

    Werdel was contacted by the South Dakota Division of Criminal Investigation today for an interview about the GEAR UP grant.”

    http://www.keloland.com/news/article/investigates/exclusive-former-education-official-explains-her-gear-up-warnings

    Note Schopp fired Werdel.

    Seems to be more to this scandal than $1.4 million. GOAC and Executive Branch players are trying to cover this up with the kind of spin we have on this post. School districts receive state and federal funds, along with local taxes. The fact that school districts got charged for monies taken from an account that had comingled funds, including Gear Up money, does not make the scandal go away. Nor does it excuse the SDDOE.

    Last point, Senator Nelson is now the one “rocking the boat” and the mission is to get rid of him just like they got rid of Werdel.

  7. Troy Jones

    Springer,

    If you and 13 people had a jar of skittles on a table and all of you left it in the possession of a person you trusted, could you tell if when everyone came back if 1 skittle was taken from each jar? Would you notice if 14 were taken from your friend’s jar? Could you tell if 14 skittles were taken from only your jar?

    Of course we don’t have all the facts or timeframe under which this occurred but imagine this scenario:

    Westerhuis started stealing $20K a year from each district (Might be small enough to not raise red flags) and did it for 5 years. Total stolen $1.4mm.

    Is that scenario easier to imagine than taking $100K from each at one time? Is that scenario easier to image than taking $1.4mm from one entity (state or federal)?

    Steve,

    Is this what you are suggesting- The Governor, Secretary Schopp, and her staff cooperate in covering up and or abetting the embezzlement of $1.4mm from 14 school districts to benefit Scott Westerhuis?

    I’m sure you’d love to find something which indicts the entire system and in particular the Governor and Legislature and specifically certain Republicans. But, besides there being no motive for them to do this, there is a much simpler explanation (Occam’s Razor): Scott Westerhuis was a thief and couldn’t handle getting caught.

    One more thing. As much as you want to say there “SEEMS to be more to this scandal,” there really doesn’t SEEM to be more. The state and federal funds are accounted for. Werdel might have had suspicions (which to some degree have turned out to be warranted) but her facts appear to be wrong. There wasn’t monkey business occurring with the Federal or State funds. Secretary Schopp appears to have known that and thus dismissed her concern and thus her biggest “mistake” might be having confidence in the 14 school districts (a mistake I can understand happening- See my earlier post on the dangers of group think).

    Having mistaken confidence in Scott Westerhuis and 14 school districts is not a crime or a conspiracy. It is a mistake.

    A businessperson who had never made a mistake has not taken enough risk.
    A lawyer who had never lost a case hasn’t taken on hard enough cases.
    A banker who has never made a bad loan hasn’t taken enough risk.

    I could go down the line but mistakes happen. The key is to learn from them so they don’t occur again. There is an adage: Its better to have a pilot who forgot to put down his landing gear than one who has not because that is one less mistake the pilot might make. The point is we need leaders who have made mistakes and we can’t have an environment where one mistake renders them in a low-level desk job.

    1. Springer

      $20,000 is not a Skittle. If a school district can have that much money fall thru the cracks per year, there is a problem. When it’s my taxpayers money the schools are using, they had better account for every penny (Skittle).

      1. amon

        Audits are conducted to verify the accounting. School personnel take care of educational services and rely on auditors to check the books.

      2. Anonymous

        I agree; I thought that government entities had accountants working for them and that every penny had to be accounted for. If $20,000.00 was “missing” and an expense wasn’t accounted for, wouldn’t that be enough to trigger a search for the missing money, or did these school districts have too much money on their hands so that $20,000.00 wasn’t worth looking for?

        1. Anon

          Embezzlers don’t let the money just disappear. They create a fuzzy paper trail, make it look like it was spent on trips not taken, meals not eaten, gasoline not burned, employee bonuses not paid, office supplies not purchased. There’s always a paper trail. It’s just that at the end of a month or a year, it’s really hard to prove nobody went to that restaurant, made that trip, bought that tank of gas, etc.

    2. Steve Sibson

      Troy, creating public/private partnerships and then blaming the private entity when things go south, so that the protected class can wash their hands, is the system of legalized corruption that now has been exposed with two scandals and seven dead bodies. This is not the time to ignore the truth. This is now the time to stop playing politics.

      The only valid solution is to reduce the size and scope of government. We can start by saying that South Dakota’s state government is too big to succeed.

  8. Troy Jones

    Steve,

    First, I’m 100% with you on shrinking government but I think the better argument is the facts (vs. you and I arguing about matters that are subjective, speculation, or in most cases unprovable)— These programs are excessively expensive, don’t deliver results (I think they often deliver harmful results) which are disproportionate to the cost.

    Second, spending too much time trying to attribute blame can be a distraction from the point above. This clearly was a mistake but mistakes are the part of life in every facet. There is no protection or controls which take the risk of mistakes out of life.

    Springer, I’m not comparing a skittle to $20,000. It is an analogy. But, I can tell you this: The cost to absolutely account for every penny (skittle) every day in every school district would cost more than would be saved. At the end of the day, entities have to set their level of financial controls at a point based on cost/benefit. Personally, I don’t want my taxes raised to fund a bureaucratic accounting room.

    1. Steve Sibson

      “There was wrongdoing and several loopholes that needed closing in the matter of the theft of funds from the Mid-Central education cooperative. The Attorney General is prosecuting what can be prosecuted, and the legislature is passing laws where there need to be laws.”

      Troy, the above excerpt is from Pat’s post. That solution is more government not less. I think you and I may be close to agreement on what the agenda should be. And that is to remove ineffective programs instead of continuing with a changed process.

      Second, I believe we need to stop supporting public/private partnership so that accountability can be applied to a responsible entity instead of this finger pointing. Most believe that the SDDOE is here to help school districts, instead of blaming them and suing them because these taxpayer funded public entities formed a private corporation called a coop. Now they are holding the bag on this corruption and the state is white washing they hands of it through the artful help of attorneys which I assume that the taxpayers are also funding.

      I agree that we should perhaps stop with the finger pointing and instead say it is now time to start eliminating the size and scope of our state government and the many layers of bureaucracy being used to complicate the process. It is now time to take state government away from the so-called experts and give it back to the people.

  9. nonymoose

    Theft is easier when gov’t is small. Obviously. No one’s watching. If a third of the money Westerhuis stole was spent on more and higher salaries, he would be in jail and the other two thirds wouldn’t be missing. Saying government need to be small to be efficient is like saying a prison needs less guards because the in-prison crime won’t be detected so it never happened.
    I don’t feel safe in an airplane with a pilot who’s forgotten to drop the gear, even once.

    1. KM

      Awww, another liberal who wants the government to be their mommy and daddy. Good people do bad things all the time. Clearly many people got caught up in some really bad decisions and manipulation. Eventually, people are going to be held responsible for their actions. So tragic it did not happen before that family lost their lives.

  10. Anonymous

    Damgaard is the guy who’s right on this.

    “At the heart of this controversy are two tragedies,” instructor Marshall Damgaard said. “One tragedy is the horrific death of six human beings.  The other one is the fact that the state of South Dakota in terms of federal and state dollars has invested $62 million since 2005 and no one has come forward with documented legitimate evidence saying how many American Indian kids have gone to college because of that investment.”

  11. Autonomous

    How about shift the focus to the administrators & board members that allowed this scheme to carry on. Just a thought.

  12. Greg D

    Here some help from CH.

    Board Members:
    J. Farke (Armour), B. York (Burke), P Haukaas (Colome), T Neugebauer (Ethan), C Van Der Werff (Gregory), T Reinesch (Kimball), B Mathis (Mt. Vernon), D Merrill (Plankinton), T Olson (Platte-Geddes), L Persson (Stickney), J Munson (White Lake), R Peterson (Wolsey-Wessington). Also present at that January 2013 meeting were Superintendents from Armour, Burke, Colome, Corsica, Ethan, Gregory, Kimball, Mt. Vernon, Platte-Geddes Stickney, Wessington Springs, along with Dan Guericke (Mid Central), Scott Westerhuis (Mid Central), Stephanie Hubers (Mid Central), Penny McCormick-Gilles (Mid Central), Christy Finney (Mid Central), Sandy Stukel (Mid Central).

    Current Board members:
    Board members present: Tina Westendorf (Armour), Holly Mosterd (Burke), Joel Koskan (Colome), Chad Clites (Corsica-Stickney), Dale Larsch (Mt. Vernon), Tammie Olson via phone (Platte-Geddes), and Jim Munsen (White Lake).

    Members absent: Karen Timanus (Gregory), Lisa Pazour (Kimball), Casey Schmidt (Plankinton), Tonya Aldrich (Wessington Springs), and Jim McGillvrey (Wolsey-Wessington)

    Superintendents: Andrea Powell via phone (Armour), Eric Person (Burke), Scott Muckey (Corsica-Stickney), Tim Mayclin (Kimball), Pat Mikkonen (Mt. Vernon), Joel Bailey (Platte-Geddes), Lance Witte (Wessington Springs) and Bob Schroeder (White Lake).

    Others present: Valerie Johnson (Director), Kathy Holter (Interim Business Manager), Catrina Brown (Business Manager), and Casey Bailey (Virtual School Director).

    I see some cross pollination from old and new, that should raise red flags immediately.

  13. Troy Jones

    Steve,

    I agree with your first point. More laws, etc. is not always the answer as sometimes the cure is worse than the disease.

    I agree and disagree with your second point.

    Disagree: Partnerships aren’t the problem but accountability might be the problem. Don’t throw out the baby with the bath water as you can get accountability. And, we might be here as we now know the financial control weakness may be with the local school districts. And, I say “may be” as I think there is just as good a chance it was a committed and talented embezzler at work. They ultimately get caught but it takes awhile.

    Agree: SDOE has a role to play in ensuring this doesn’t happen and it is consistent with what I’ve said for years is the biggest weakness in our education system: We want local control but we don’t arm our school board members with the skills and internal control mechanisms to properly govern our schools (which are multi-million dollar operations). With very rare exception do I think there is ANY school district with a SINGLE board member inherently skilled and experienced and supported to do their job.

    The SDDOE can do the following to get school board members up to snuff:

    1) Online seminars on financial controls, administrative operations, etc. and sharing of information on what is happening with regard to “best practices” and “worst practices.”

    2) Standards on governance similar to what public corporations must operate under.

    3) Standards, review and enforcement on conflicts of interest. I don’t say this because I think people are dishonest but awareness of conflicts is good for all concerned. When a school board member isn’t aware something is a conflict, they open people up to later accusations of wrong-doing or the perception of wrong-doing. I want to make it clear I think 99% of school board members are properly motivated but they too often allow things to give a wrong appearance.

    4) Standards, review of adherence to governance standards and protocols.

    I probably could list more if I gave more time but I hope you get the picture. We can and must run our schools better. The taxpayers deserve it and more importantly the kids deserve it.

    Springer, embezzled money never disappears. It goes into the pocket of the embezzler. They do it by misleading where it went and purpose and ultimately gets in the account of the embezzler.

  14. nonymoose

    @ KM & Dave R It makes perfect sense. Regulations aren’t put in place to tell business what to do. Government regulations PREVENT businesses from the opportunity to cheat and steal. The more opportunities available and fewer regs to prevent it, eventually some business is going to try it. Think of all the rich people who spend a significant portion of each business day regulating their business so an employee doesn’t try to steal the boss’s money.
    Scott Westerhuis saw an easy opportunity due to the void in the state’s regulatory structure, including laws designed to eliminate inspection of transactions and testimony of state officials.

  15. Troy Jones

    Nonymouse,

    To empower and responsibility of the State to look at that level of transactions in every school district in the state will cost many multiples of $1.4million AND begins the process of eliminating local control.

    Pick your medicine. I do not want my state taxes raised to fund such a bureaucracy because 14 school districts has less than .5% of their budget over five years stolen from them.

    We open that can of worms across the state, accountants will be the #1 job in government.

  16. Steve Sibson

    “How about shift the focus to the administrators & board members that allowed this scheme to carry on. Just a thought.”

    Because the Gear Up grant application said this:

    “GUSD will be implemented by a diverse, experienced, and committed group of partners, led by the South Dakota State Department of Education and its Office of Indian Education. Partners include the Mid-Central Educational Cooperative, American Indian Institute for Innovation, Oceti Sakowin Education Consortium, South Dakota Board of Regents, Lakota Funds, Wells Fargo, Microsoft, and the DIAL Virtual School. The program will be evaluated through a rigorous, well-designed, and independent evaluation.”

    https://www2.ed.gov/programs/gearup/gu-abstracts2011.pdf

    Troy, note the “partnership” includes both private and public entities.

    The SDDOE was suppose lead the execution of this grant, not delegate and not do audits until it was too late. SDDOE also did not fully support the Directors of Indian Education when they had concerns. One was fired and the other quit. Sadly, the SDDOE is trying to shift the blame, with the help of the chair of GOAC, an attorney who I think is being paid by the taxpayers, and others. Even Senator Curd is saying the GOAC work is unacceptable on this issue.

    I suggest it is time for Republicans to take a strong stand and start that process by admitting that South Dakota’s liberal big government process is broken and we need to return to conservative limited government principles. But those who are benefiting the most from the legalized corruption, that is built on public/private partnerships, will not let that happen without a fight.

  17. Troy Jones

    Steve,

    I’m all for shrinking government. I’m just opposed to arguments which don’t serve the cause in my opinion.

    The money in Gear-Up wasn’t stolen. None. Everything you said was about Gear-Up.

    The money stolen was by the manager of the cooperative from the member school districts. To prevent what occurred:

    1) You have pass a law which would prohibit local school districts from entering into cooperatives (which in almost all cases are done to save taxpayers money by sharing program administration and overhead on programs which otherwise be more expensive if provided by each district separately). So much for your support for local control and making the State government more intrusive. Or,

    2) You have to support a massive expansion of the SD Department of Education’s ability to audit every transaction of every school district in the state. So much for your support for reducing taxes.

    3) And, since you have the same opportunities for theft and graft in our counties and cities, I assume you want do the same things for counties and cities. Talk about big government liberalism.

    1. Steve Sibson

      Troy, have you looked at the salaries paid at AIII? Was that Gear Up money and were all of those so-called salaries appropriate, even though they are legal? Then we have the issue of $4 million of Gear Up money that appears to have been obtained with less than “truthful” means. Shouldn’t the lead partner been on top of that, instead of resorting to a civil suit on an entity that is now broke and has been dissolved. And if the School Districts will be forced to pay that back, what impact will that have on teacher pay?

      And this spin that MCEC is at fault, not the SDDOE is a common tactic by the ruling elite to make sure that when things go bad, some patsy is holding the bag.

      Instead of continuing to expand the reach of the SDDOE, I think it is time for the Department to be eliminated and allow the money we are using to run it, and money the School Districts are using to comply with their rules, go to pay the teachers. That should allow us to reverse that huge tax increase passed by the liberal Republicans and Democrats.

      And one more point, why are Republicans supporting a grant that supports the Democrats’ multicultural and educational policy positions?

  18. nonymoose

    Troy,
    You cost/benefit analysis of proper accounting within school districts is highly exaggerated.
    Do you have a laissez-faire attitude towards .5% of your business budget and allow it to be open for embezzlement by an employee or customer?
    Proposing that fiscal laziness for a school district or any governmental agency seems opportunistic for you and inviting to criminals.
    Facts are, these opportunities converted to theft seem to happen all too frequently in the “wild wild West” of non-regulated South Dakota.

  19. Troy Jones

    Nonymouse,

    I’m not advocating against proper controls. I’m just opposed to STATE oversight of schools districts to that degree and I’m unwilling to have my state taxes go up to fund such oversight.