The Government Operations and Audit Committee may feel like an ugly duckling. GOAC voted unanimously to invite four people to its August 29 meeting to testify about the GEAR UP/Mid-Central scandal, and all four people have declined that invitation.
Under advice of state counsel Paul Bachand, Education Secretary Melody Schopp and her financial officer Tamara Darnall have declined, citing the state’s pending backstop litigation against Mid-Central to reclaim any funds from the defunct cooperative’s member schools that the feds may try to reclaim from the state over the GEAR UP foul-up.
Kuhn offers no excuse of pending litigation as Schopp and Darnall cite. Kuhn offers none of Schoenfish & Company’s golly-gee-happy-to-help fawning (“We are quite flattered you feel our background as auditors could be of assistance…”). Kuhn offers not one hint of her knowledge of what happened at Mid-Central with GEAR UP and the other federal grant programs on which she got her hands. Kuhn doesn’t even try to mimic the audacious rebuttal EB-5 czar Joop Bollen presented to GOAC in November 2014 in response to questions about the GOED/EB-5 scandal. Kuhn just has her lawyer remind GOAC that their invitation was “a request for a voluntary response” and then “respectfully decline” to offer any response, written or in person.
I would still make the argument that I made during the EB-5 hearings in 2014 and which Senator Stace Nelson made during the last GOAC meeting in July: if GOAC has the power to demand information from state officials about state programs, it has the power to demand information from whatever private contractors and other entities the state engages to carry out those programs. SDCL 2-6-2 says GOAC should be able to review “any phase of the operations and the fiscal affairs of any department, institution, board, or agency of the state….” “Any phase” should include operations farmed out to other entities. Privatization should not create a veil of secrecy around state programs.
I’ll cut Schopp, Darnall, and Schoenfish & Company some slack for their willingness to respond in writing. GOAC should now get serious about its subpoena power and demand that Brinda Kuhn finally inform the public what she knows, what work she did, and how much public money she got from the work the federal and state Departments of Education made possible at Mid-Central.
“I have told you over and over what Stacy Phelps and Mid Centrail is [sic] doing with the GEAR UP grant and the College Access grant.”
“Mark pulled me outside of the meeting and said he could not even believe what he was hearing in regards to the data and how mismanaged this grant has been due to Midcentral management.”
“You told me last week not to worry so much about the grants and to focus on larger policy issues….”
Secretary Schopp waited a day to respond:
According to the documents included in Schopp’s August 22, 2017, GOAC submission, Werdel submitted that resignation e-mail at 1:49 p.m. that same day.
If the e-mail trail stopped here, we’d say, “Holy cow! There we go: Werdel warned Schopp of GEAR UP misconduct at Mid-Central in early 2011 and multiple times prior to that, and Schopp ignored it!”
But today Schopp shows us four e-mails Werdel sent right after that resignation. Three are emotional apologies to Schopp and others included on Werdel’s January 10 e-mail. Werdel expresses regret for embarrassing the Secretary, deems her January 10 comments “inappropriate,” and says she should have expressed any concerns in private.
More important, however, is a fourth, less emotional e-mail, in which Werdel expresses confidence in Stacy Phelps and Mid-Central’s then-exec Dan Guericke:
Key passage undermining Werdel’s January 10 statements:
…I can assure you that the program in in good hands. Mr. Dan Guericke, CEO of MidCentral Education, authorized representative of Wakan Glu, has a very experienced staff in regards to Indian Education. His program manager is Mr. Stacy Phelps, who sits on President Obama’s Advisory Council on Indian Education. I would not leave this program in anyone’s hands if I didn’t have the utmost confidence in their ability to run the program. They have a history of providing quality programs in SD [LuAnn Werdel, e-mail to Lana Shaughnessy, 2011.01.11].
Werdel’s warning on January 10, 2011, suggests that she had frequently warned Schopp of misconduct by Phelps and Mid-Central. However, Werdel’s comments specific to Phelps and Mid-Central the next day seem to undermine her warning.
This was the conclusion of audits by Eide Bailly and the Department of Legislative Audit. GEAR UP funds were paid to Mid Central on a reimbursement basis, and once funds were reimbursed to Mid Central, the funds became Mid Central’s. Misappropriation of money occurred from Mid Central’s accounts [Schopp/Bachand to GOAC, 2017.08.22].
The state chose tiny, poorly managed, understaffed Mid-Central Educational Cooperative to supervise a multi-million-dollar federal grant. The state handed Mid-Central millions of federal dollars over several years. The state bears no responsibility for any wrongdoing Mid-Central committed with that money.
Education Secretary Melody Schopp raised my eyebrows with her claim last week that the Mid-Central Educational Cooperative scandal didn’t lose any federal GEAR UP grant money. That claim has Republican Senator Stace Nelson livid:
The burden of ongoing corruption in SD just got real for the taxpayers in Armour, Burke, Colome, Corsica, Ethan, Gregory, Kimball, Mount Vernon, Plankinton, Platte-Geddes, Stickney, Wessington Springs, White Lake, and Wolsey-Wessington School Districts! On June 29th, the “Lead Grant Partner” to MidCentral Education Cooperative (MEC), responsible for the administration, management, and oversight of the GEAR UP grants since 2005, named those schools contracted to MEC for services in its $4.3 Million lawsuit to recoup monies fraudulently misappropriated. The “Lead Grant Partner?” The SD Department of Education (DOE)!
Wait! It gets worse! DOE Secretary Melody Schopp testified before the Government Operations & Audit Committee (GOAC) on July 24th, claiming her office did a great job of managing GEAR UP over the years. Sec. Schopp claimed she didn’t have any indications of inappropriate financial dealings until 2015. Sec. Schopp claimed that independent auditors at Schoenfish accounting repeatedly cleared MidCentral as operating properly which caused her to continue to approve the contracts over the years.
The money DOE is suing school districts for? That Schopp’s office was responsible for administrating? Really isn’t missing… Maybe! Sec Schopp explained the monies are only missing if the federal government does not find out the $4.3-million massively bloated appraisals for donated free Microsoft software (a claim submitted by DOE & MEC), was an illegitimate claim. South Dakota Legislative Audit considered it illegitimate, and its been used against Phelps, and Guericke in their criminal trials by the attorney general.
The twelve years of DOE mismanaging the GEAR UP program Sec. Schopp is proud of? Approximately $60 million spent (about one quarter considered suspect by legislative auditors) to prepare Native American youth for college, with only 285 students claimed enrolled in higher education!
More bad news for the 14 school districts? A class-action lawsuit by Native American students against MidCentral naming Round’s former Secretary of Education Rick Melmer, DOE’s GEAR UP grant writer/program evaluator Brinda Kuhn, and USD GEAR UP Evaluator & South Dakota Board of Education member Kelly Duncan. They could name the districts in their suit.
U.S. history is replete with political corruption like New York’s Tammany Hall, and the Chicago Daley political machines that robbed taxpayers from within government through cronies protected from prosecution. We are seeing the same subversion of law in South Dakota for protection of cronies, in an ever brazen fashion.
Lawsuits still surround the Rounds/Daugaard Administration’s EB-5 corruption, one for $32.5 million and another against South Dakota for $18.55 million. Legislators they endorsed, and provided significant help to get elected, willingly shut the GOAC down from fully investigating. Contrary to legal precedents dating back to British jurisprudence, they claimed the legislature did not have authority to investigate state corruption or require witnesses appear to testify. In a complex scheme involving numerous state officials and $120 million missing? Not one state official was ever held accountable. It was all conveniently blamed on a man dead under mysterious circumstances, the file of which the attorney general sealed.
Ten years of millions of dollars of government corruption at the center of the mysterious deaths of four children and their parents? Again! Politically connected responsible state officials not charged, and establishment elected officials outrageously again claiming the GOAC cannot investigate or summon witnesses despite extensive legal precedents to do so (Google: Anderson v. Dunn (US 1821); Kilbourn v. Thompson (US 1880); In re Chapman (US 1897); Harriman v. Interstate Commerce Commission (US 1908); Marshall v. Gordon (US 1917); et al). Cover up or intentional incompetence?
Reports are former directors of DOE Indian Education blew the whistle to Sec. Schopp before 2011; one was fired the other was forced to leave. What will history call South Dakota’s corrupt machine? [Sen. Stace Nelson, op-ed, received by Dakota Free Press 2017.08.03]
In over three hours of testimony to the the Government Operations and Audit Committee in Pierre yesterday, Secretary of Education Melody Schopp said none of the money that Scott Westerhuis and his helpers stole from the Mid-Central Educational Cooperative before his spectacular murder-suicide in September 2015 was stolen from the feds or her department:
State government’s Department of Legislative Audit determined $1.4 million was missing after finishing a special review of Mid Central Educational Cooperative at Platte.
Auditor General Marty Guindon released the review May 19.
But Schopp said Monday the money didn’t come from Gear Up funds her department oversaw.
“That is the biggest takeaway—there was no Gear Up money stolen,” Schopp said. “They were not from Gear Up funds, as has been promoted in the last couple of years.”
Secretary Schopp also noted that the feds have accepted the valuation of software used to satisfy GEAR UP grant matching requirements and have not asked the state to pay back any GEAR UP money. That puzzles me a bit, since the state last month sued Mid-Central and its members schools for $4.5 million, largely to recover missing matching funds.
Guericke’s defense attorney, Mike Butler, says his client’s only crime was trusting Scott Westerhuis.
“My client is guilty of trusting Scott and Nicole. He worked there for 16 years; I think everybody trusted him. And he exploited it and when he felt he was going to be exposed, he did the ultimate horrible act. The act of a coward. He killed everybody and then he leaves these people standing in the wake and the Attorney General comes in and says, ‘I need a few more people to pay.’ I think it’s just horrible what’s going on,” Butler said [Angela Kennecke, “Defense in GEAR UP Case Claim They Did What Westerhuis Told Them; ‘Everybody Trusted Scott’,” KELO-TV, 2017.03.16].
Attorney General and gubernatorial candidate Marty Jackley argues that GEAR UP can’t fall on one guy:
“It would not have been possible for Scott Westerhuis acting alone to accomplish all that was discussed over the last two days. It took somebody addressing payroll. It took somebody making invoices, it took somebody finding matching grants; it took somebody testifying in front of the South Dakota legislature. There were a lot of things happening beyond just Scott Westerhuis,” Attorney General Marty Jackley said [Kennecke, 2017.03.16].
The defense is arguing that A.G. Jackley is reaching too far in punishing anyone beyond those already dead for the gross abuse of GEAR UP funds. Some of us will argue that as long as Jackley looks no further than Platte, as long as Melody Schopp remains Secretary of Education in Pierre, A.G. Jackley isn’t reaching far enough.
Candidate Graeff is also reminding us that we still haven’t held anyone in Pierre accountable for the deadly GEAR UP scandal. He calls for Secretary of Education Melody Schopp to resign immediately:
Little has happened to hold accountable those individuals tasked with oversight of the Gear Up program. Obviously the South Dakota Department of Education needs new leadership. We also need to recover those missing/misappropriated federal funds. Sad to say those lives lost won’t be able to be recovered.
…Schopp dropped the ball on the whole Gear Up program. Her lack of oversight, accountability, and responsibility has left another black mark on South Dakota.
…The lack of oversight, including the accounting firm who did the annual Mid Central Education Cooperative audits, should be thoroughly investigated as well [Russell Graeff, campaign press release, 2016.11.02].
Graeff evidently understands that ballot measures and corruption are key Democratic issues. We’ll see how well those issues stack up against Stace Nelson’s name recognition and noisy conservatism on Tuesday.
Update 2016.11.04 08:15 CDT: Democratic District 19 House candidate Melissa Mentele informs me that, after a family-related absence from the campaign trail, she’s jumping back on the horse and coming to today’s ballot question fora as well!
Interestingly, it’s not Pat Powers but Scott Ehrisman who suggests that Scott Heidepriem’s representation of the American Indian students suing Mid-Central Educational Cooperative over the GEAR UP scandal could be a political move:
So a Republican friend calls me last night and asked if I saw Scott onStormland TV. Then they speculated that he may be running for governor again since he is involved with this Gear UP lawsuit. I guess I would not go that far, but if Huether is running on the Democratic ticket, I would like to see a primary challenge from someone, even if it is two closet Republicans [Scott Ehrisman, “Get out the Man Purse. Is Heidi-Scott Back?” South Dacola, 2016.06.01].
Heidepriem is one of five lawyers listed on the complaint filed by Alyssa Black Bear last month. John Hinrichs, Kasey Olivier, Ashley Miles, Steven Emery… I suppose any one of them could be running for governor, too… or they and Heidepriem might just be doing their job as lawyers and helping victims of South Dakota’s corruption fight back.
The Department of Education and Melody Schopp are mentioned in the Black Bear complaint but not named as defendants (yet?). Secretary Schopp is distracting herself and the electorate by playing Republican and saying the new federal education laws are too darn complicated:
“My first blush on (ESSA) is that it’s very complicated,” Schopp said. “It’s not like any of us love No Child Left Behind, but it was easy to explain.”
The guidelines add another 200 pages to the existing 1,000-page ESSA law, and Schopp worries that the complexity will inhibit stakeholders from understanding future changes to the state’s education system.
“It should be very explicitly clear, not for the education geeks, (but) for every parent and public taxpayer about what our system is going to look like,” Schopp said Friday [Megan Raposa, “Schopp Concerned About Proposed Education Law Regulations,” that Sioux Falls paper, 2016.05.29].
Remember: our courts wouldn’t be clogged with all this litigation if former Education Secretary Rick Melmer hadn’t farmed GEAR UP out to his friends back home in Charles Mix County over a decade ago. And none of these lawsuits would be happening if current Education Secretary Melody Schopp had acted on the warnings it had of financial misconduct at Mid-Central when she came into office six years ago.
In his Platte press conference yesterday, Attorney General Marty Jackley said the charges he was bringing against Dan Guericke, Stacy Phelps, and Stephanie Hubers (Guericke and Phelps: conspiracy and falsification of evidence; Hubers, grand theft) were “initial” charges. The conspiracy charges refer to Guericke, Phelps, the deceased and accused embezzlers Scott and Nicole Westerhuis, and “other unknown co-conspirators.” In her February 16 interview with DCI agents, Hubers, who took illegal payments from Scott Westerhuis from 2009 through 2014 totaling $55,339.49, alleges that two assistants received similar illegal payments. According to Hubers, one assistant asked for more money, and Scott Westerhuis acquiesced to keep that assistant from squealing to Guericke.
Attorney General Jackley has more leads to follow and more shoes to drop. On whom migh those next shoes fall?
Other Mid-Central staff? The top three business personnel in the Platte office have been implicated in theft of hundreds of thousands, perhaps a million dollars. If the Westerhuises weren’t dead, they could both have face charges of aggravated grand theft, the highest classification of theft, a Class 2 felony worth up to 25 years in the pen. Hubers says Scott Westerhuis gave her stolen money laundered through his GEAR UP-managing corporation AIII because he felt “she was worth more than what MCEC was paying her” (DCI Special Agent Brett Spencer’s words, Probable Cause Affidavit, State v. Hubers, paragraph 44). Hubers’s statement implicates two other Mid-Central staffers; might the Westerhuises have sprinkled more of their sizable ill-gotten gains to other Mid-Central staff to win goodwill and tamp down questions?
Other AIII staff? Unless Stacy Phelps was handling all the books for the American Indian Institute for Innovation himself, someone else had to be processing the illegal transfers from Mid-Central. Scott Westerhuis acted as chief financial officer for AIII, but their 2013 Form 990 lists the following board members and employees:
One would imagine that if DCI hasn’t already included the above AIII players in its 65 witness interviews, those folks will be hearing knocks on their doors shortly.
Rick Melmer? Rick Melmer drew big dollars from Mid-Central for still unspecified work on GEAR UP and when pressed gave shaky answers about those payments. Guericke’s charges include falsifying Mid-Central’s contract with Melmer just two days before the state canceled Mid-Central’s GEAR UP contract and just three days before Scott Westerhuis allegedly torched his embezzlement-funded house and killed his family and himself. In the somewhat Swiss-cheesy narrative of his probable cause affidavit on Guericke, Special Agent John Barnes does not nail down Melmer’s involvement in backdating his contract. The charges say that Scott Westerhuis sent an e-mail to Melmer on September 14, 2015, at 3:37 a.m. (Westerhuis apparently wasn’t getting much sleep that week) saying, “Hi, Rick, this is what the original one would have looked like.” Melmer replied at breakfast:
That e-mail seems to walk Melmer to the edge of awareness of, if not participation in, the conspiracy. He didn’t like what he was hearing from Westerhuis, but the text only indicates that he was concerned that Mid-Central couldn’t find the original contracts, not that he felt he was being asked to help create a bogus, backdated contract. Special Agent Barnes does not say Melmer signed anything on September 14. Even if he did, he might not face charges: former Mid-Central board chairman Lloyd Persson signed the bogus contracts a few hours after the Westerhuis-Melmer exchange, and Jackley indicated at yesterday’s presser that Persson won’t face charges.
But recall the bigger picture. Melmer rolled the first marble into the whole GEAR UP/Mid-Central/AIII Mousetrap when, as Mike Rounds’s Secretary of Education, he steered GEAR UP responsibilities back to his home folks in Platte. Instead of keeping a big important federal grant under close supervision in Pierre, Secretary Melmer thought it would be a good idea to move supervision of those millions of dollars 135 miles away from the capital, to a co-op designed to provide special education services to small neighboring school districts which now would coordinate a statewide outreach program for Native American students. Farming GEAR UP out to Mid-Central wasn’t criminal, but it allowed Scott Westerhuis to hatch a criminal enterprise in which a number of people, possibly including Melmer himself, got tax dollars that they didn’t earn.
Keith Moore? Mike Rounds’s past director of Indian education and the current head of the South Dakota Fellowship of Christian Athletes figures in the Guericke charges just like Melmer: Guericke allegedly conspired to backdate Moore’s contract with Mid-Central just like Melmer’s to comply with the state audit in September 2015. The charges and affidavit provide no e-mails or other details from Moore. But like Melmer, Moore cashed in on Mid-Central contracts and gave vague answers about the work he did. Like Melmer, Moore failed to submit some work logs (an alarming fact that Bob Mercer reported way back in May 2015, before any of the rest of us were paying attention). Melmer and Moore said they were never asked to fill out work logs, which sounds exactly like what Stephanie Hubers says in paragraph 56 of Special Agent Brett Spencer’s affidavit: “Your affiant asked if Hubers had to fill out effort logs and she said that she did not. Hubers says she was never asked to fill out effort logs.”
Melody Schopp? Our current Secretary of Education has said she saw “incompetence” in Mid-Central’s bookkeeping in 2012. She responded with “technical support.”
The GEAR UP/Mid-Central/AIII criminal enterprise went on for at least ten years. Secretary Melmer and Secretary Tom Oster apparently noticed nothing. Secretary Schopp didn’t notice anything fishy until her second year in office. She didn’t cut Mid-Central off until three years later.
Rep. Lance Russell called on Secretary Schopp to resign back in November over her lack of oversight. We now have the Attorney General confirming that that lack of oversight cost the taxpayers as much as seven figures. Whatever further questions the Attorney General may have for Secretary Schopp and her staff, the primary question taxpayers and the Governor should have for Secretary Schopp is, “Why are you still drawing a state paycheck?”
The PAST Foundation? This Ohio-based organization is among the numerous players in AIII’s long-standing scheme to build an American Indian boarding school focused on STEM education. The PAST Foundation received the third-largest chunk of GEAR UP funds from Mid-Central during the last two years of the scam. The PAST Foundation, headed by USD grad Annalies Corbin, has also worked on Mid-Central’s Teacher Quality grant program and the South Dakota Innovation Lab. The PAST Foundation, like every other big-money Mid-Central partner, should now face serious scrutiny as the Attorney General tries to nail down where every dollar that passed through the Mid-Central office went, how many of those dollars went for legitimate expenses, and how many of those dollars went to friends of Scott for no good purpose.
I’m sure you readers can identify numerous other GEAR UP/Mid-Central players who may figure in the big picture of the vast Westerhuis scheme. Let us hope Attorney General Jackley continues to talk to those players and assemble the complete narrative of what went wrong in Platte and in Pierre.