Mid-Central Financial Discrepancies Were Unauthorized Payments to Westerhuis/Phelps Corporation

So that’s why Dan and Stephanie never answered my question.

Back in October, I noticed that the monthly balances on the Mid-Central Educational Cooperative financial reports from June 2011 to March 2014 didn’t match up:

In every available financial report from June 2011 to March 2014, the beginning balance does not match the ending balance reported in the previous month’s financial report. For example, MCEC reported an ending balance in January 2012 of $2,396,755.32. MCEC then reported a beginning balance in February 2012 of $2,297,428.29. Apparently, from January 31 to February 1, $99,327.03… moved. Looking at other financial information on the documents available, I can’t tell where.

The beginning balance increases from the immediately preceding ending balance in just one report, June 2012, a gain of $192,442.56. Every other report from June 2011 to March 2014 shows the beginning balance decreasing from the immediately preceding ending balance. The average decrease is $110,807.75. Two discrepancies exceed $400K, in April 2012 and August 2013. The smallest discrepancy is the last, $300, in March 2014, after which these report-to-report discrepancies disappear.

The 32 discrepancies add up to $3,324,232.50 [CA Heidelberger, “MCEC Financials: Monthly Balances Don’t Line Up; Lots of Revenue Labeled ‘Misc,” Dakota Free Press, 2015.10.12].

My initial calculation omitted two monthly financial reports that weren’t posted online with the Mid-Central minutes. A month later, when Mid-Central attorney Scott Swier finally responded to my open records request by providing those two missing documents, I found the total balance discrepancies added up to $3,442,649.45.

I sent e-mails to Mid-Central on October 12, October 21, November 13, and November 24, 2015, asking executive director Dan Guericke, interim business manager Stephanie Hubers, and/or counsel Swier for explanations of those balance discrepancies. I received no reply to those inquiries. No one could provide me with any logical explanation for $3.44 million in balance discrepancies other than my conclusion that money went someplace it shouldn’t have.

On February 16, 2016, a month after her resignation from Mid-Central, in an interview with Special Agents John Barnes and Brett Spencer of the Division of Criminal Investigation, Stephanie Hubers confirmed my conclusion. She told Agents Barnes and Spencer that she had overseen unauthorized transfers of Mid-Central funds to cover payroll at the American Indian Institute for Innovation:

excerpt, Special Agent Brett Spencer, Probable Cause Affidavit, State v. Hubers, 2016.03.14, p. 9.
excerpt, Special Agent Brett Spencer, Probable Cause Affidavit, State v. Hubers, 2016.03.10, p. 9.
excerpt, Special Agent Brett Spencer, Probable Cause Affidavit, State v. Hubers, 2016.03.14, p. 10.
excerpt, Special Agent Brett Spencer, Probable Cause Affidavit, State v. Hubers, 2016.03.10, p. 10.

Recall that AIII was one of the corporations that Scott Westerhuis created in what looked from the start like a scheme to conceal financial misconduct in an impenetrable web of organizations not subject to direct state supervision. Mid-Central contracted with AIII to manage the multi-million-dollar federal GEAR UP program for Native American education. The principals of AIII were Scott and Nicole Westerhuis from the Mid-Central business office and Stacy Phelps, who stands charged alongside Hubers and Guericke of multiple felonies in connection with the Mid-Central/GEAR UP scandal.

Hubers told Agents Barnes and Spencer that she had seen these unauthorized transfers ever since she had begun working for Mid-Central on September 30, 2005. Hubers suspected and Agent Spencer alleges that Scott Westerhuis and his wife and fellow Mid-Central employee Nicole were “skimming off of the funds AIII was taking in to satisfy their own personal needs” (Spencer affidavit, paragraph 69).

Since 2005, the evidence of financial wrongdoing at Mid-Central was right in front of us. It was staring Dan Guericke and board members and Melody Schopp in the face, just waiting for any of them to say, “No, really, Scott, how does this happen every month? Voided checks and journal entries my foot—show us where our money is, now.

The discrepancies in the Mid-Central financials that I read seemed so big, so blatant, that even I hesitated to post about them when I first noticed them. I thought, “Come on, there must be some simple bookkeeping explanation. Crooks wouldn’t leave evidence this obvious of their crookery.”

I was mistaken. The crooks and their crookery were that obvious. The apparent head crooks are dead and beyond the law, but their assistant Stephanie Hubers now gets a date with the judge.

Related: The AIII website, theaiii.com, is now suspended.


18 Responses to Mid-Central Financial Discrepancies Were Unauthorized Payments to Westerhuis/Phelps Corporation

  1. Will Jackley prosecute more two years is all for millions of dollars.

  2. Not to be overly conspiratorial, but…: isn’t the scenario of the Westerhuis family being murdered to stop all the audit/investigation action even more plausible now that more details of the scheme are out?
    Is it more plausible that Westerhuis with this lovely family shot them all with a shotgun (imagine the logistics of doing that) then himself after setting the house on fire to avoid the shame of the crimes he committed…grand theft, fraud…? few years in the clink…
    ….or that others in on the scheme offed them all burning the house to destroy all evidence of them….??
    Aren’t there still millions not accounted for? if this was going on for 10 years, how much might be missing??
    In those last hours as news of the state pulling the grant…did Westerhuis take the “if I’m going down, so are you,” tack that maybe incited retaliation??
    This could be the kind of money people kill people over…no?

  3. Wait until the audit report is released by Legislative Audit. I suspect it might show a spider web of financial misconduct, self-serving and questionable contracting, as well as untraceable transactions.

    It probably won’t….but should point back to the Department of Education. They pass out $ millions in grants and contracts to multiple recipients, not just MCEC, and all of them have financial oversight requirements…or should have. Who was responsible for making sure those funds were properly spent and services were provided?

    Give one of the indicted immunity to roll over and step back so your shoes don’t get covered. Then we will learn more of the truth. DOE has reached rock bottom…and continues to dig.

  4. Charlene Lund

    Given BOHICA’s comments perhaps someone needs to be checking into the finances of all of the education coops: BH Coop, Three Rivers Coop and Oahe Educational Coop to name a few. Just a thought.

  5. Bohica where does the Secretary of Eduation apply here.

  6. Charlene…you are so correct…not just the co-ops but all DOE contracts also. Knowing the Auditor General…I suspect this is on his radar…unless someway called off the scent.

    I know Schopp will say they are an Education entity, but with the amount of money, both Federal and State, that flows through the Dept. of Ed. they should have a well trained fiscal oversight division within that Department to safeguard accountability and results…just common sense. If she didn’t/doesn’t have that…then a change starting at the top needs to happen.

  7. Moses…Just like the desk note on Eisenhower’s desk… “The Buck Stops Here”…. follow the smell to the top.

    All of this would not have happened if the Department of Education had not made the contract initially with MCEC. Cory had posted previously that DOE terminated the contract, but had previous knowledge of mismanagement, but didn’t pull the trigger.

    What did Schopp know….and when did she know it. This is the end game of something DOE should have dealt with long before they did.

    And what about the MCEC Board of Directors and Executive Director? Were they drones or just ignorant? It appears the Executive Director was part of the problem. Cory is correct, Who doesn’t keep a check book and know that the ending balance from month 1 should be the beginning balance of month 2? Voided and other adjustments need to be disclosed and included in a reconciliation. Just saying…part of the problem was the perception that someone could get away with it due to a lack of oversisght.

  8. nice work cory. how much came from the omitted records once disclosed?

    “two monthly financial reports that weren’t posted online with the Mid-Central minutes”

    over and over, people in positions of oversight of public money succumb to temptation. psychologically I wonder is it life in the usa struggling for every penny pinching boss, human nature (greed), or failed values of honesty?

    truly sad that 6 people died so violently as a result. and the town of platte has to suffer so deeply. a judge will likely struggle with meting out responsibility for this great, great price.

    the state administration too has great responsibility in this back-to back-fraud with JOOP’S EB5 FRAUD. politicians evading accountability! failure of leadership. will it ever happen? Jackley bears this ultimate responsibility. daugaard could do something to make it happen. they are both lawyers with the highest of ethical responsibilities.

  9. I think mr. fix-it with his “honey do” (no intended chauvinism) tool belt, has a tiny taste on his tongue of the tremendous, aging obstructionism republicans have maliciously created that has hampered Obama’s good faith, non-partisan, pragramatic effort nearly every moment of the last 7.5 years.

    and daugaard’s EB5, MCEC, and rounds coverup crisises haven’t involved ANY partisan obstructionism. just cory’s relentless blog for good against evil republican partisanship. what a service by a democrat!!

    I do think jackley timed this AFTER the session for more partisan cover. bastards with no integrity. they are finally getting a taste of governing for the good of the people, not just the Regents.

  10. Truman had the “buck stops here” sign.

  11. These are good people, that made poor decisions for whatever reason, that we won’t know. I am very saddened by the loss of 6 people and the innocent children. I am sad for the city of Platte. But, I think these are the small potatoes of the bigger picture. I think everything is calculated in government and we don’t know the half of it. The AG waits till the legislature body go home. The Governor and DOE Melody sat side-by-side on TV and backed each other up. The governing bodies, before them–EB-5 and all the cover-ups. It certainly jars the trust and makes paying taxes, our hard-earned money; really difficult.

  12. No, good people don’t shoot up their family. Good people don’t steal millions from Native American children.
    Scott and Nicole could have turned themselves in. Many Plate people would have offered to take care of the kids.

    South Dakotans have to realize that their shit can stink like everyone else’s.

  13. What is the difference between the Westerhuises and the Joopster? The Joopster had Mike Rounds’ permission to divert millions to himself. Westerhuises did not.

    Westerhuises should have simply signed both sides of a contract granting themselves the government money they wanted and offered a kickback to the Rounds family. They would be alive an prospering today, and Jackley would be doing his Sgt. Schultz routine. The mayor of crooks would have a fatter bank account too.

  14. I want to clarify. I am not giving the people involved a by. They are felons and Scott murdered his family. They have to pay for their crimes. Scott W. was not a man; he acted in a manner we will never understand. My point was that we need to move up the ranks. Gear-Up should never have been contracted to MCEC. These folks could not handle that kind of money with very little if any transparency. Millions over a very short period of time with no guidelines from the state DOE should not be floated to Special Education Coops. MCEC was not capable of handling this grant and should never have had the opportunity. The DOE should have set up maintenance through the state office under a scrutinized committee; if that’s possible. There are SEVEN foundations set up by Scott W. one of which was AIII. All seven were padded with administrators and staff with this money. How did this help Native American Children?? This all came to light; following the murders. How this could go for ten years and not be noticed; is beyond me.

  15. Glenn Dykstra

    I don’t live in South Dakota anymore but have been following this tragedy. I don’t understand why these funds weren’t audited on a yearly basis, and if they were, why wasn’t some alarm sounded? If there is public money spent with no accountability, it seems strange to me, but where there is available cash, there’s often willingness to help one’s self. I just sat through a yearly board meeting with a public water district here in Missouri, where an auditor justified every single nickle spent and accounted for every single dollar taken in. We learned our lesson a few years ago when our secretary (a young mother of three) had been pocketing all the cash customers monthly water bills for several years. It was certainly nothing like this situation in South Dakota, but where money changes hands, there needs to be yearly audits and oversight. When the alarm goes off and nothing is done about it, there’s something rotten in Denmark.

  16. I seem to recall docs/contracts were altered after the fact in EB5 fraud too (was it benda who changed the pay-out provisions of the $500,000.00 check in trust hand delivered to NBP?)

    is this a con-man pattern the state falls for easily?

  17. Leslie, the two missing financials added about $118K to the total discrepancies of $3.44M that I found from June 2011 through March 2014.

    The discrepancies I found averaged $101K per month. Hubers says the skimming was happening when she started working at MCEC at the end of September 2005. That’s 67 months prior to the financials available online on which I found discrepancies. If the skimming took place at a steady pace, the Sep 2005–May 2011 haul would have been $6.78M, bringing the nine-year total to over $10 million.

  18. Thank you for that clarification, MK. Glenn, I agree. I don’t think it’s just hindsight that allows us to say alarms should have been sounding and someone higher up should have acted sooner. Board members did ask about the financial discrepancies, but they let themselves take Scott’s word too easily. Hubers knew something bad was happening, but she declined to speak up to board members (“not allowed to talk at board meetings”? Come on, Steph—ever hear of e-mail, or face-to-face conversations before the meetings?). Secretary Schopp say something gravely wrong with the books in 2012 but didn’t drop the hammer until 2015.