Kyle Schoenfish Still Silent on Real Mid-Central Questions

Rep. Kyle Schoenfish (R-19/Scotland)
Rep. Kyle Schoenfish (R-19/Scotland)

Speaking of Mid-Central, Rep. Kyle Schoenfish (R-19/Scotland) is speaking of Mid-Central. The Scotland auditor has been circumspect (i.e., silent) about the work his family’s accounting firm did in auditing the books of the scandal-sunk educational cooperative. Last week, Bob Mercer got Rep. Schoenfish to “break his silence” on the matter… or so the overtagging headlines read.

After some Trumpy gas about the “incredible staff” in the Department of Legislative Audit, Rep. Schoenfish really just said he has nothing to say about Mid-Central:

“The reports issued by DLA should answer questions the public may have,” Schoenfish said.

…“Because of the accounting firm I work for, (Schoenfish & Company) and their role and assistance to state agencies in bringing accountability to Mid Central and the fact that their lead auditor Randy Schoenfish is an expert witness in related court proceedings it would be inappropriate to discuss specifics of this matter,” he said [Bob Mercer, “Schoenfish Breaks Silence on Audits,” Black Hills Pioneer, 2017.05.25].

Aside from the reference to his dad as Mid-Central’s lead auditor (hints of, “Don’t blame me! Talk to my dad!”), Rep. Schoenfish’s comments to Mercer represent little advance beyond his sparse previous comments on Mid-Central. Pressed this winter for answers to questions about Mid-Central’s obviously shady finances by his fellow District 19 legislator Senator Stace Nelson (R-Fulton), Rep. Schoenfish said the questions were “fairly easy to address” but never addressed them himself. Now Rep. Schoenfish says the Auditor General’s report addresses those questions… which it doesn’t, because the questions the public has include questions about what Rep. Schoenfish himself knew and did about the illegal activities at Mid-Central. Schoenfish still isn’t saying anything about those questions.

Rep. Schoenfish might do better to cite grant expert Michael Wyland and say that the effort by Mid-Central and others to blame his auditing firm for Mid-Central’s woes is bogus:

Blaming the auditors is highly unlikely to be successful for at least three reasons. First, audits are not designed to uncover criminal activity such as embezzlement. Second, audits are dependent upon management’s representations of the organization’s finances. If management misrepresents the finances with skill, the auditors won’t know it. Third, the auditors in this case noted material weaknesses in MCEC’s financial controls as well as missing or incomplete management reports expected of federal grantees. The 2014 audit prepared for MCEC included a note from the auditors that it was the eighth year material weaknesses had been reported to the MCEC board of directors [Michael Wyland, “This Cooperative’s Defense: ‘Blame the Auditors, Not the Board!Non-Profit Quarterly, 2017.03.02].

See, Kyle? We did our job, we identified weaknesses, but the folks at Mid-Central committed the crimes. Saying that isn’t that hard.

But hey, like everyone else, Kyle Schoenfish has the right to remain silent.


30 Responses to Kyle Schoenfish Still Silent on Real Mid-Central Questions

  1. Whatever he could say, one fact remains. He’s the guy who was auditing the books when some criminals made off with over $1 million of taxpayer money meant for kids. He didn’t catch it. Pretty fish could say, “not my fault,” but it happened right under his nose. He just can’t get around that. That’s a big failure.

  2. Daniel Buresh

    That’s not Schoenfish’s failure. I will blame a lot of people for this, but the auditing company is not at fault here from what I can tell. Rorschach is just trying to politicize this while making his/her understanding of this situation apparent. He/She doesn’t know jack about how audits work.

  3. If Schoenfish would say anything, he would both be subject to civil lawsuit for not conforming to accounting standards of confidentiality and loss of his professional insurance coverage.

    Regarding Rors and Burs comments, I am of the opinion nobody knows enough either way and anything different is wild speculation.

  4. Roger Elgersma

    I have taken an auditing class at Augustana. I do know that the purpose of an audit is to verify if the book keeping was done correctly. So when Wyland says that an audit is not supposed to find criminal activity or embezzlement, he is totally wrong. As a consultant, Wyland should know this. Wyland’s second point is that audits are dependent on managements representations of the organizations finances, wrong again. An audit is supposed to find the truth if the managements representations of the organizations finances are accurate or not. He then says that if management presents the finances with skill the auditors won’t know it. That is to say if the management is slick enough liars, they could fool the auditors. Well an excellent audit would check with outside sources to verify amounts of income and expenses to see if the numbers are correct. So a good audit would catch most lies. Thirdly, he mentions that they pointed out material weaknesses for eight years without fixing the problem, total neglect and irresponsibility.
    I heard a top level CPA at Rice University say ten years ago that the last twenty years his profession lost their reputation of being honest. He was eighty years old and rather disappointed. But he was correct. That went back to the time Professor English at Augustana was concerned that the accountants could not become consultants as well. Wyland is a consultant.

  5. Porter Lansing

    Agreed, Roger. I have a friend who’s an auditor in the Dept. of the Interior. He said the same things you just pointed out. An auditor’s job is to intercept and expose cheating accountants.

  6. Two things:

    1). Roger and Porter: you have also strong opininions for taking an auditing class and talking to an auditor.

    2). An audit has primarily two purposes: Affirm the financial statements accurately reflect the financial condition at the time according to generally accepted accounting principles. And, assess strengths, weakness and conformance to financial control procedures.

    Wyland is correct audits aren’t designed to find embezzlement but they can and often do.

    Wyland is correct audits significantly rely on management representations but that doesn’t mean audits can’t discover misrepresentations.

    Wyland is correct that a component of an audit is to inform the board and management of financial control weaknesses but that doesn’t insure the weaknesses are corrected.

    The reality is most fraud and the such is caught when the perps screw up or aren’t around a moment something needs to be covered up which is why in a lot of positions they are required to take two weeks off, can’t call the office, and can’t read emails.

  7. Porter Lansing

    But, Troy. Nothing you say has any validity. You’ve been caught and proven as an agent of deception soooooo many times, it’s not even worth reading your posts. You’re just blah, blah, blah.

  8. Porter Lansing

    Here’s Snowflake with his pants around his ankles honoring his Devil of Deception, again. Folks … when a liar like Troy Jones shows us who they are, it’s best to just go ahead and believe them.
    http://www.journalofaccountancy.com/issues/2003/jan/auditorsresponsibilityforfrauddetection.html

  9. Schoenfish is the bank security guard who didn’t notice a robbery taking place. He is the bus driver who didn’t notice a sexual assault happening in the seat behind him. He is Sgt. Schultz from Hogan’s Heros. He is the pencil-pushing equivalent of a professional wrestling referee. Schoenfish is this guy:

    http://www.boredpanda.com/funny-you-had-one-job-fails/

  10. Porter,

    I’m intimately familiar with the rules of accountancy. Why don’t you instead show what you know and address exactly what I said, where it is incorrect, in your words without trying to make it about me. Talking to an auditor and finding a link on the internet doesn’t make you an accountant. Is that how you approach Doctors or give diagnoses to your friends?

    Is my first statement correct on incorrect (#2 above)? Please explain.

    Audits aren’t designed to find embezzlement but as the link you posted says, detecting fraud is for accountants to have their antennae up for fraud as they do the audit. It is a thread which is woven through the two primary purposes of an audit above because fraud:

    1) Can be a misstatement of the financial condition of the company (it is possible for there to be fraud and yet for the the financial statements to be fairly presented. It would take a while for me to outline the scenario but those who due diligence understand that and do their own investigation for such scenarios and do not rely on the audit in this area).

    2) Fraud is often the result of weak financial controls or failure of management/staff to conform to financial controls. However, just as there is an exception on misstatements, it is possible for there to be fraud without a violation of sound financial controls. Again, I could outline how but it would take alot of time and words.

    My main point is the recent release of information from the Department of Legislative Audit doesn’t yet give sufficient information to confidently discern who all the parties who participated directly, indirectly, and by a deriliction of duty in this fraud. But, it gives a great deal of information for further inquiry which will ultimately get to the bottom of this.

    The link you referenced is one of almost 300 Statements of Auditing Standards by the American Institute of CPA’s. In addition to those statements, CPA’s deal with hundreds more Statements of Financial Accounting Standards by the Financial Accounting Standards Board, thousands more Statements of Federal Financial Accounting Concepts and Standards from the federal government, and who knows how many Statements from the International group.

    While I don’t want to minimize fraud detection or the value of audits to detect (or prevent) fraud, one Statement linked on fraud in light of literally THOUSANDS of statements can give an impression audits are the the be-all and end-all with regard to fraud.

    As I said in the third posts, I don’t think we know enough to point a gun at Schoenfish as Ror inferred or give him a pass.

    But, DLA may know enough and it may be possible to read between the lines of their reports which seem to give an indication Schoenfish’s complicity may be minor, if at all.

    Or, DLA knows there are matters which will be resolved in other venues (i.e. court) and very deftly were careful not to usurp conclusions which are legitimately to be determined elsewhere and thus reading between the lines is a fool’s game.

  11. Porter Lansing

    You’re a proven liar, Jones. I’ve destroyed your arguments and self esteem enough times to suit myself. Someone else spank this agent of deceit.

  12. Are you willing to admit that Medicare fraud can be hard to detect then, and cut the federal auditors some slack also? You know you can’t have it both ways, Troy.

  13. Troy also says audits are not done to detect embezzlement. What on earth! Missing money not accounted for is most certainly a possibility of embezzlement!

  14. Jenny,

    I have never said anything about Medicare auditors. I have no idea what you are talking about.

    I said the primary purposes of audits aren’t designed to catch fraud and embezzlement. Fraud and embezzlement detection is an ancillary purpose (actuall a systemic component of preventing fraud but I don’t want to split hairs) primarily as a by-product of doing its primary purpose.

  15. Jenny,

    BTW, you realize Medicare audits are substantially different than the audits being discussed in this thread, don’t you? Medicare audits primary purpose is program compliance and fraud detection which is why this division of HHS actually has personnel who carry guns and can direct arrests.

  16. You’re not following me, Troy. Can you follow the money without being partisan? Where does the buck stop for you before you GOPers will get upset enough?
    Why can’t you and your War College people get upset over missing tax money. You can’t even report it on your blog!

  17. Porter Lansing

    Troy Jones is trying to throw a “squirrel” and protect Schoenfish, who did a shoddy job. It’s his standard M.O. and number one reason why he can’t be trusted. Who does business with this guy? He’s spiraling from wanting to punch people in the mouth who don’t say things he doesn’t like to deception and misdirection on important government investigations. Beware The Jones …
    – My problem with the statement that “audits aren’t designed to detect fraud” is that this is the B.S. fallback position of every accounting firm that gets caught with its pants down. It’s propaganda when used this way as a defense. Andersen tried it with Enron and Worldcom. Ernst tried it with Healthsouth. Etc.
    If you’re saying “audits aren’t designed to detect fraud” as an indictment and a criticism of the profession, I have no problem with that, as long as it’s clear to the reader that auditors have a responsibility to try to detect fraud. The auditing standards say so. If the auditors aren’t trying to detect fraud, that’s a serious problem and probably a 10(b) violation, too, because they say in their opinion letters that they complied with the auditing standards when they did their audits. It’s not some expectations-gap B.S. like the Big Four and the AICPA would like the public to believe.
    The detection of fraud is a most important portion of the auditor’s duties, and there will no be disputing the contention that the auditor who is able to detect fraud is — other things being equal — a better man than the auditor who cannot. Auditors should therefore assiduously cultivate this branch of their functions — doubtless the opportunity will not be long for wanting — as it is undoubtedly a branch that their clients will most generally appreciate.”
    http://goingconcern.com/lets-discuss-auditors-and-responsibility-detect-fraud/

  18. Jenny,

    What is this thread about? Go to the top. CH’s subject is the matter of the MECC’s auditor not adding any information to the public record and why an inordinate focus on the auditor might not be appropriate. I’m trying to address the subject of the thread. Nothing more and nothing less.

    With regard to the rest of the story, I know federal taxpayer money was misappropriated and used for personal use and that upsets me. I know one of the perps killed his family and that upsets me. But, until I know all the facts (which takes time), I’m not going to stick my head in every rabbit hole that pops up.

    As a member of an entity (not on board or in management), I’ve been the victim of embezzlement. I’ve also been involved in a business which money was embezzled. In both cases, there as an audit, good honest senior management and pretty good financial controls. Plus, I’ve been hired to rectify/mitigate the consequences of fraud/embezzlement. What i’ve learned and observed over 20 years is this:

    While audits and financial controls are critical to catching fraud and embezzlement, the best “friend” of catching it is passage of time and the thief’s greed- overtime the thief will grow more confident, start increasing the magnitude of the theft, and ultimately make a mistake. In the end, based on what we know so far, it appears to be exactly what occurred here.

  19. Porter, it’s like how much more tax money must get stolen before the GOP oligarchy of SD gets mad enough?

  20. You have mixed your metaphors, Troy. Rabbit holes don’t pop up. Maybe you mean you’re not going down every rabbit trail. Or maybe you mean you’re not going to play whack a mole. Or maybe you mean you only want to stick your head in one or two rabbit holes. I don’t know.

  21. Oh, it was just one bad egg, nothing to see here, move on. Disgusting the partisanship in SD.

  22. Porter Lansing

    Excellent, Jenny and Schach … We’ve got this guy rabbit holed, pigeon holed and holed up with his deceit. Here’s my analysis of the Jones Model.
    ~ Jones’ deceptions and misdirections usually fall into a distinct pattern. He uses an example that doesn’t portray the true investigation of the question. e.g. Last week he wrote dozens of paragraphs about how James Comey said Trump administration hadn’t tried to “end the investigation” of Russian interference and thus Comey was lying when he said there may have been Russian interference. Just “interfering” with an investigation and not “trying to end” an investigation is in itself a high crime and a legitimate cause for impeachment. Even though Trump hadn’t tried to end the case his attempt to influence the case is the issue and Comey didn’t contradict himself.
    On the Schoenfish story, Jones is saying that an accountants “main job” isn’t to detect fraud. True that, but unquestionably one of the accountants jobs is to detect fraud (it’s written in their handbook), even if it’s not the “main” job. That Schoenfish didn’t detect fraud when it was absolutely one of their duties shows a shoddy performance … possible criminal.
    In short, Jones tries to use emotional word pictures to portray an image that misdirects from the “crux of the biscuit”.

  23. Porter,

    Distinct from financial statement audits are two products provided by CPA firms DESIGNED to catch or prevent fraud and embezzlement.

    1) Forensic Audit: This is a specific product designed to determine if fraud/embezzlement has occurred and quantify the extent/amount of the fraud embezzlement. For instance, an financial statement audit may see transactions with a particular vendor “properly” supported by a “properly” signed purchase order and look no further. In this type of audit, the CPA may miss collusion between the customer and vendor where a purchasing agent is paid money in kickbacks. A forensic audit will investigate whether the purchase order is both properly signed by all the right people, have the correct back-up AND is properly priced. In this type of audit, if there is something amiss in both process and price, the forensic audit will most likely catch it.

    2) Assessment of Financial Controls: This is a specific product designed to analyze the nature of the company’s financial transactions and design a customized set of procedures and protocols unique to the nature of the company’s financial transactions which will minimize the opportunity for fraud and embezzlement to be successful for a sustained period. With this product, companies discover what type of transactions might allow nefarious things to occur and correct it.

    #1 is very expensive (a several times multiple of the annual audit fees) because of the number of transactions looked at (audits only do statistical tests) and the depth by which they are analyzed. Few companies do this because of the expense (cheaper to do #2 below and staff the recommendations plus more effective long-term) unless they have a specific reason to investigate.

    #2 is also expensive but usually less than a forensic audit because it is about systems vs. transactions. This is most often done periodically as a company grows. When it a small mom-and-pop, financial statement audits aren’t even done because of expense. But, with growth, systems become more critical and owners/senior management periodically wants an assessment of the systems so they do it.

    Non-profits are too often behind the curve with regard to financial controls and audits because every dollar spent on controls and audits is not available for the mission- get an audit or house and feed 10 more homeless people every night?

  24. Porter Lansing

    One of the jobs of the Schoenfish audits was to detect fraud. There was exceptionally large fraud and Schoenfish didn’t even catch a whiff of it. Schoenfish did a shoddy job and one wonders about collusion with the audited. Can one really be an auditor and a consultant to the same entity?

  25. Ror,

    I was using metaphors? Wow. LOL You are correct but I hope you got my point.

    Regarding Schoenfish, after reading the two reports, I can’t discern definitively if Schoenfish’s firm was complicit, incompetent, duped, or actually performed the duties as contracted in the engagement. And, if there is a hint in the DLA reports, I’m not sure I’m understanding it to say it out loud.

  26. Porter Lansing

    But, Troy. Your opinion is biased and invalid. Worthless in other words.

  27. Porter,

    You realize I don’t have an opinion with regard to Schoenfish’s exposure on the matter, don’t you? My whole point is I don’t have enough information to form a conclusion. If you have such information to form such an opinion, I’d be happy to hear it. You’re comments are too focused on personal attacks and stuff you cut and paste from google searches for me to know what that specific information is.

    Also, I think Schoenfish is restricted from making public comments on the matter (by advice of counsel, conformance to legal, contractual, and professional CPA standards, and/or direction from E&O insurance provider).

  28. Porter Lansing

    Mr. Jones …Duh! Because your opinion is not an opinion at all, but more of a breakfast waffle, that’s why it’s invalid. Because you tried to use semantics to assert a deception to the question, that’s why it’s biased. You tried to defend Schoenfish until your ploy was exposed and now you’re reverting to “no opinion”. That’s why it’s worthless. LWIY … you’ve lost enough to know what that means.

  29. Porter: “Because you tried to use semantics to assert a deception to the question, that’s why it’s biased. You tried to defend Schoenfish until your ploy was exposed and now you’re reverting to “no opinion”.

    Read the very first post I made (third post) where I said two things very clearly:

    Schoenfish is likely unable to make any public comment and my opinion is we don’t have enough information to know if Schoenfish has any personal or professional exposure.

    I repeated those exact same points in my last post. What you exposed is either your inability to read or your lack of understanding accounting practices, standards and products.

  30. Roger Elgersma

    Troy, you think I talked to an auditor and took one class. Actually I do have more credentials. I have a BA in Business Admin, a BS in Business Management, a BA in Religion with an ethics concentration, one course short of a major in Accounting, one course short of a major in Economics, and one course short of a major in Philosophy.
    When it comes to stopping fraud, there are two main positions that are responsible to stop fraud. Management and the Auditors. Suggesting that the auditors checking for fraud is just an afterthought is ridiculous. Management already produced financial statements. The auditors job is to verify if management was correct. That is in itself proof that the auditor is responsible to find fraud.
    Your pointing out that your point no.2 is accurate is deceitful in itself. You say that the auditor is supposed to affirm that the financial statements accurately reflect the position of the company finances. To say they have to show accuracy is to say they checked if there is fraud. Then you say that detecting fraud is secondary, that is where you become deceitful. Then you follow with the second purpose is to show strengths weaknesses and conforming to proper standards, well in GEARUP they obviously did not conform to standards and it was chatted about for years without any improvement because it was a cover up for fraud. If they can afford a million dollars for a consultant, they could afford a reasonable book keeper. Any auditor that was awake for part of the day would have seen a problem.
    Managements responsibility includes both the GEARUP management and the Governors office. They both failed in their responsibility. The auditors also failed since they are the primary outside check. There is both plenty of blame to spread around and plenty of people who were negligent and can not just blame everybody else.
    Auditing class was the one class of dozens of business classes that I took that consistently pointed out the need for checking for accuracy and fraud. When you say I think this because of one class in auditing you forget the contrast of that class with all the other classes I took. My degrees are all from three Colleges and Universities that have been rated number one in the Midwest in their respective categories. So I have had a lot of excellent professors to compare my auditing class with. My auditing professor was adjunct and had a lot of experience with owning and keeping track of a lot of businesses out of state, so he had much experience with keeping track of what good financial controls are and what it takes to keep it done right.