The lawsuit filed Thursday in Hughes County circuit court specifically asks for $4,316,431 from Mid-Central and its member schools for projects matching requirements. GEAR UP requires a 50 percent non-federal match.
The suit also seeks $97,544 from the cooperative and its members as compensation for: billings of $65,000 from Stacy Phelps, who was Mid-Central’s head of GEAR UP; overbilled salaries totaling $18,095; services without required personal activity reports totaling $11,325; travel expenses without Mid-Central’s approval for $1,795; and unapproved food expenses of $1,329 [Bob Mercer, “State Sues Mid-Central for $4M over GEAR UP Funding,” Rapid City Journal, 2017.07.01].
In its June 15, 2017, minutes, Mid-Central reports an end-of-May bank balance of $915,311.44. If the state wins its $4.5-million lawsuit and claims every one of those Mid-Central pennies, the member schools will still be on the hook for almost $3.6 million. That’s 27% of the $13.3 million in state aid those 13 school districts are slated to receive this school year.
*13 or 14?Mercer and Walker/Raposa list 14 MCEC member school districts; however, two of the listed schools, Corsica and Stickney, are consolidated in one district.
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.
Mid-Central is offering its building for sale at the appraised value of $350K. According to Core’s May 16 minutes, Valerie Johnson and Core’s superintendents, the same superintendents who sit in on Mid-Central meetings, countered with an offer of $290K. Funny: Mid-Central’s member schools already paid for that building once. Now twelve of them plan to pay for it again.
Given that the Auditor General says $1.4 million is still missing from Mid-Central’s taxpayer-filled and Westerhuis-drained coffers, it’s surprising that the state Department of Education and Uncle Sam are allowing Mid-Central to liquidate any assets. Given the overlap of staff and boards, it’s surprising that Core, which for all practical purposes is Mid-Central minus one, is transferring any money to acquire assets that its members have already paid for.
I’ve just finished reading the 2015 audit. Auditor General Marty Guindon concludes that Mid-Central really, really screwed up. Mid-Central responds by saying the Auditor General is wrong, that they did nothing wrong, and that all blame falls on the dead.
The Auditor General issues adverse opinions—translation: can’t trust them at all—on Mid-Central’s compliance with requirements in running not only the now infamous GEAR UP program but also the Teacher Quality Partnership Grants. Mid-Central gets a qualified opinion—translation: can’t trust some specific statements—on its administration of the Carol M. White Physical Education Program, the College Access Challenge Grant, and the Special Education Cluster Grant. The audit finds “management override of internal controls” took place in all of those programs. It finds errors in “allowable costs/cost principles” and “matching” in GEAR and Teacher Quality Partnership Grants. It finds flawed “subrecipient monitoring” in GEAR UP.
The audit finds Mid-Central had no policies or procedures to identify, stop, or prevent Scott Westerhuis, Nicole Westerhuis, Stacy Phelps, Brinda Kuhn and Lance Witte (not named in the audit, but his conflictual situation is well described on p. 11) from engaging in multiple conflicts of interest that put the integrity of the co-op at risk. Kuhn, for instance, appears to have tens of thousands of dollars for work on GEAR UP and Teacher Quality without any sign that Kuhn’s work was approved by contract by the Mid-Central board.
The auditor identifies numerous questionable costs:
$97,544.14 in GEAR UP salaries lacking proper documentation.
$4,165,185 in undocumented GEAR UP grant-matching costs (most of which consist of Microsoft software that Mid-Central claimed as its grant match but which no one interviewed says was actually used for GEAR UP).
$213,897.25 in Teacher Quality salaries and expenditures, most of which look like undocumented salary double-dips for Nicole Westerhuis and Stephanie Hubers and inadequately supported payments for the Phelps/Westerhuis American Indian Institute for Innovation and BC Kuhn Evaluation.
$1,262,131.43 in undocumented Teacher Quality grant match, money that apparently should have come from AIII, BC Kuhn, the Rural Learning Center, and Mid-Central. (Interestingly, Mid-Central appears to have squeezed more match than necessary from USD, the Region 3 educational co-op, TIE, and the PAST Foundation.)
$76,208 in unsupported Wakan Gli grant costs.
$277,874 in overstated/miscalculated indirect administrative costs to pay Mid-Central employees for work on multiple grants.
$7,837,967 in illegal withdrawals from Mid-Central’s checking account from January 2007 through September 2015, $1,388,630 of which remains unrestored. Back in Ocotber 2015, shortly after the Mid-Central scandal broke with the Westerhuis murder-suicide-arson, I found the evidence of a fair chunk of those illegal withdrawals in the Mid-Central monthly finance reports from June 2011 through March 2014.
The audit documents on pp. 24–25 the discrepancies in Mid-Central’s FY 2015 annual financial report:
In short, anyone reading Mid-Central’s financials at the end of FY2015 had no idea how much money Mid-Central really had.
The Mid-Central Board of Directors looks at all those findings and says, “Not our fault”:
MCEC takes these allegations very seriously. However, MCEC disagrees with the DLA’s finding of any alleged deficiencies. It is apparent that no amount of reasonable oversight would have detected the complex scheme of fraudulent and illegal activities conducted by Scott and Nicole Westerhuis.
…Scott and Nicole Westerhuis were Platte natives, well respected members of the Platte community, and trusted overseers of MCEC’s financial activities.
Unfortunately, Scott and Nicole Westerhuis were living outside of their financial means. As a result, they engaged in a complex scheme of fraudulent and illegal business activities using their positions at MCEC and AIII. In fact, investigators determined that the scheme devised by Scott and Nicole Westerhuis resulted in them embezzling over $1 million [Mid-Central Educational Cooperative, Response to SDDLA Special Report, 2017.05.17; in DLA audit of Mid-Central FY2015, 2017.05.19, pp. 63–64].
A minor quibble—a lot of the living outside their means was a result of the Westerhuises’ coming up with this brilliant scheme, not the other way around.
The major quibble—Auditor General Guindon isn’t saying Mid-Central needed to engage in fantastic efforts to outfox the criminal masterminds on their payroll. The Auditor General is laying out pretty basic financial expectations: manage conflicts of interest, follow grant rules, make sure every contract and expense goes through the board, and document work and expenses.
But Mid-Central lays out eleven points on the Westerhuises’ masterful, impenetrable deceit to say We didn’t know! We couldn’t know! It’s not our fault! “…[T]here is nothing that the Board could have reasonably done to prevent this complex scheme of fraudulent and illegal activities,” Mid-Central concludes, surely with an eye toward the Black Bear lawsuit seeking to take some money out of their expiring hide.
Just in case anyone still thinks someone should have been able to catch the Westerhuises and Phelps and Huber and Kuhn and other employees in this scam, Mid-Central cites [pp. 60–61the failure of the South Dakota Department of Education to implement proper procedures and controls over GEAR UP identified in the 2014 DLA audit. Mid-Central reminds us that they engaged Schoenfish and Company of Parkston to do their yearly audits (again, with an eye toward that lawsuit and their effort to shift liability to Schoenfish).
And if all else fails, Mid-Central basically shrugs off the Auditor General’s recommendations as moot:
The DLA’s Special Report provides a series of recommendations for MCEC going forward. MCEC and its Board take these recommendations very seriously and thank the DLA for its assistance. However, as of June 30, 2017, MCEC will terminate its provision of educational services to its member schools. Therefore, the DLA’s recommendations for future improvements become moot [Mid-Central, 2017.05.17; p. 67].
Millions of dollars either lost or misaccounted, and Mid-Central says, not our fault, not our problem, we’re outta here.
New Hope Christian Camp and Retreat Center, located on the former Westerhuis estate, has undergone extensive renovations and its “retreat center” is nearly complete, likely ready for use by the end of May, according to Daum, with the Platte Area Ministerial Association.
…The Ministerial Association hopes the camp will bring healing for Platte residents who were stunned by what authorities ruled as murder-suicide.
New Hope sits on the land formerly owned by Scott and Nicole Westerhuis, a pair of Platte residents allegedly involved in a string of scandals resulting in the termination of an annual $4.3 million management contract held by Mid-Central Educational Cooperative, at which both were employed. In Sept. 2015, Scott is accused of shooting and killing Nicole and the couple’s four kids, setting the family’s home ablaze and killing himself [Caitlynn Peetz, “New Hope Retreat Center Opening Next Month,” Mitchell Daily Republic, 2017.04.12].
Correction/Update 16:11 CDT: Auditor General Marty Gunidon e-mailed me to correct my original report. He will not be presenting his final report on Mid-Central/GEAR UP on Tuesday. He is appearing before the Government Operations and Audit Committee to brief new members of the committee on “the timeline and nature of the work we have conducted regarding the Department of Education, Mid Central Education Cooperative and related parties and the status of where we are with the reports. I will not be discussing the reports or the findings contained in those reports at Tuesday’s meeting as they are not yet ready for release.”
I regret the error and have amended the headline to reflect Auditor General Guindon’s statement. I apparently misread Mercer’s statement, “Come this Tuesday, he presents his report to the Legislature’s Government Operations and Audit Committee” to mean Guindon would present his final report rather than a version of the briefing he presented to the Legislative Executive Board this week. Even absent a final report, expect Senator Nelson to seek an opportunity to ask some hard questions.
I leave the original text of my post below, with new italics to reflect my erroneous statements.
There have been significant concerns and questions expressed by voters in our district, by other legislators, and even KELO’s Angela Kennecke in a news story, regarding our district Rep. Kyle Schoenfish’s reported involvement in the auditing of certain entities at the center of this scandal. On Jan. 31, I officially forwarded those questions to Rep. Schoenfish. He responded on Feb. 4 stating the questions were “..fairly easy to address.” Despite that statement, to date he has refused to provide answers to those questions asked by Kennecke and others. Additionally, Rep. Schoenfish failed to show up for two of our district’s five cracker barrels (legislative forums), one in Corsica on Feb. 16, and the other in his hometown of Scotland on March 11. He now claims repeatedly in his articles to our local papers that he has been “attacked” by “dishonest politicians and people” and claims to be a victim of “meritless political attacks.”
Rep. Schoenfish is being “attacked” by his own record and the ugly appearance that comes from avoiding answering questions that the public has a right to have answered. In regards to his missing or avoiding cracker barrels, if I as a husband, daddy, grandfather, small Sioux Falls business manager, hobby farmer and busted-up old Marine can make time to meet my obligations and drive several hours to attend the voters’ cracker barrels to be answerable to you, I expect a young, single man living at home and working for his father to make time for the responsibilities he knowingly signed on to (and got paid for), or to resign if he is unwilling to do so [Sen. Stace Nelson, “Facing Corruption; Facing the Voters,” Yankton Press & Dakotan, 2017.04.17].
If Senator Nelson uses Tuesday’s Mid-Central discussion to continue his vengeful assault on Rep. Schoenfish, he may not find back-up on the committee. Six of the seven other Republicans on the committee are reliable GOP mainstreamers who seem inclined to avoid in-caucus attacks on committee time; the seventh, Senator Neal Tapio, is too busy dreaming of federal office to pay attention to Nelson, Schoenfish, or GEAR UP. If Nelson turns to the two Democrats on GOAC, he’ll find Rep. Susan Wismer likely focusing her sharp accountant’s mind on the numbers, not the names, and Senator Billie Sutton balancing his duty to his District 21, where GEAR UP blew up, with his urge to moderation (and possibly the need to finish his McGovern Day speech announcing his run for Governor).
Senator Nelson’s tough questions are a side reason to tune in to GOAC on Tuesday, April 25. The main reason is to listen to Auditor General Marty Guindon and read his report on what he has found in the dark, twisted accounts of the Mid-Central Educational Cooperative.
In a April 6, 2017, letter, 20 legislators led by Representative Elizabeth May (R-27/Kyle) ask their colleagues on the Government Audit and Operations Committee to hold public hearings investigate “the operations and fiscal affairs of SD departments, institutions, boards, agencies, and their personnel” involved in the GEAR UP and Mid-Central Educational Cooperative “scandal.”
Public inquiry results, reported in local news across the state of this now notorious breach of trust, indicate up to $100 Million in lost taxpayer monies intended to prepare and educate disadvantaged SD Native American youth for college. Unofficial reports indicate the inappropriate and apparent illegal misuse of these monies occurred over many years and under the supervision and direction of persons officially associated with South Dakota departments, institutions, boards, and agencies [Rep. Elizabeth May et al., letter to GOAC Chair Senator Deb Peters, 2017.04.06].
$100 million? Grant expert Michael Wyland has estimated that, from the beginning of South Dakota’s involvement with GEAR UP under the Rounds Administration in 2005 to the revelation of the GEAR UP scandal with the Westerhuis suicide-murders in 2015, South Dakota appropriated $48 million in federal and state funds to the program, and not all of that money was lost. Rep. May and company appear to be alleging crimes of much greater financial scope.
A few dishonest politicians and people attacked me over some issues before the last primary and general elections and the voters of District 19 gave a resounding rejection of those shameful attacks. They have continued to attack me through various means over the same issues recently but our job as legislators is to serve you the people and not to waste our time constantly criticizing those who disagree with our views and votes. We are a citizen legislature in South Dakota and legislators make great sacrifices so they can serve and make a difference. It has been very rewarding this last week to have received so much encouragement and support from legislators of both parties, state officials, friends, family and clients back home and across the state rejecting those recycled attacks. I will only use the meritless political attacks as motivation to continue to serve the best I can in public service and professionally [Rep. Kyle Schoenfish, “A Review and Response,” Mitchell Daily Republic, 2017.03.09].
Voters of District 19 who may want clarification as to what shameful, meritless political attacks he was talking about were unable to query Rep. Schoenfish as to the source of his pique this weekend, since he skipped the wrap-up crackerbarrel held in his hometown of Scotland on Saturday. Kyle’s mom came to speak up for him, but that doesn’t quite count as “serv[ing] the best I can in public service and professionally.”
It’s hard to say what has Schoenfish so irked. The only time his name popped into the headlines this Session was not at the hands of any “dishonest politician” (unlike some of Schoenfish’s other language, that phrase isn’t redundant). Schoenfish’s only major press time came from Angela Kennecke, who noted that the fatally scandalized Mid-Central Educational Cooperative is blaming Schoenfish’s accounting firm for not catching over $3 million in discrepancies in Mid-Central financial reports. Schoenfish seems not to have called Kennecke back yet about that story, but consultant Michael Wyland has at least argued that Mid-Central’s blame-the-auditor defense is unlikely to fly.
Whatever Schoenfish is mad at, he should make up his mind on his response strategy. If his nameless critics aren’t worth mentioning, then he shouldn’t mention them or their critiques. If they are worth mentioning, then they (critics and critiques) are worth mentioning by name, in detail, and with a direct, succinct rebuttal consisting of simple facts. Instead, Schoenfish only throws a vague, whiny combo of “poor me!” and “awesome me!” that answers no questions.
Mid Central says if it is found to be at fault, its fault is “slight in comparison to the fault of Schoenfish & Company.” Mid Central says the accounting firm should have caught any missing money [Angela Kennecke, “SD Legislator’s Accounting Firm Named in GEAR UP Lawsuit,” KELO-TV, 2017.02.28].
Dragging the accountants into the lawsuit matters in part because one of those accountants is Republican Representative Kyle Schoenfish of District 19.
KELOLAND News tried to reach Kyle Schoenfish Tuesday for comment. We’ll let you know when we hear back from him.
This isn’t the first time the accounting firm of Schoenfish & Company has been under scrutiny over not catching the misuse of GEAR UP funds.
An independent group of citizens has prepared a list of ten questions it would like lawmaker Kyle Schoenfish to answer and has submitted them to the South Dakota Auditor General.
They specifically ask about discrepancies in Mid Central’s balances and if Schoenfish ever reported them to anyone outside of Mid Central. We’ve posted those ten questions online on this story if you’d like to read them.
KELOLAND News spoke with Randy Schoenfish, Kyle’s father who told me he cannot answer those questions due to client confidentiality [Kennecke, 2017.02.28].
Hey: when your client sells you out and tries to make you foot the bill for a lawsuit, are you still bound by client confidentiality?
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!