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Mid-Central Ed Co-op Scandal Shows Need for Contract Oversight, Fewer Middlemen?

Scott Westerhuis’s apparent murder-suicide and the burning of his lavish-beyond-visible-means house on September 17 has sent investigators and journalists digging deeper to find what sort of sins or errors might have been going on at Mid-Central Educational Cooperative, where Scott Westerhuis and his wife Nicole worked as business managers, and possibly in the state Department of Education. Ferguson and Ellis write that conflicts of interest are at the core of the MCEC investigation. Indeed, MCEC’s employment of cronies and high state officials within Westerhuis’s trail of corporate entities should trigger those alarms.

But possible conflicts of interest are only part of the MCEC picture. From a policy perspective, there are two more areas that the Legislature’s Government Operations and Audit Committee and the auditors combing MCEC’s books should help us understand: no-bid contracts and multi-layered administrative waste.

First, no-bid contracts. Millions of dollars have flowed into the state via federal grants like GEAR UP. The state Department of Education receives that money. When the DOE uses that money to buy goods and services, one would think the DOE would have seek competitive bids. But when the DOE can hand that money to an educational cooperative like MCEC, which doubles as an “educational service agency” (MCEC is also ESA 3), things get murkier. When MCEC contracts with non-governmental non-profits like the American Indian Institute for Innovation and Oceti Sakowin Education Consortium to deliver GEAR UP services, is the disbursement of that federal money still subject to the competitive bid process? How well can an external entity like GOAC make sure the state’s use of that federal money follows the rules when the money passes through a number of public and private funnels that may be subject to different rules?

Consider these four lines from MCEC’s FY2016 budget:

MId-Central Educational Cooperative, budgeted expenditures, "Fund 13," FY2016 budget, downloaded 2015.10.05.
Mid-Central Educational Cooperative, budgeted expenditures, “Fund 13,” FY2016 budget, downloaded 2015.10.05.

Over three-quarter million for the American Indian Institute for Innovation, an additional $114K for AIII’s director of student services Brian Wagner, a quarter-million-plus more for former DOE chief Rick Melmer—if these were state contracts, we’d know that AIII, Wagner, and Melmer had to compete for them. We’d be able to look up the particulars of their contracts and know what they’re doing to earn that cash. But since the DOE shifts this money to MCEC, we have no such transparency.

Ensuring competitive bidding should draw GOAC’s attention. Checking administrative waste should draw the attention of the Blue Ribbon Task Force on Teachers and Students.

Consider again the flow of GEAR UP money. The South Dakota Department of Education intends those federal dollars to prepare American Indian kids for college. Until last month, the DOE disbursed that money to MCEC to coordinate statewide American Indian education activities. MCEC business manager Westerhuis apparently created a handful of separate corporate entities, each with their own administrators, to do GEAR UP work for MCEC. MCEC also hired a number of consultants to help execute GEAR UP projects.

Each level of that organizational tree adds waste. DOE staff use staples and stamps. MCEC staff drive to meetings. AIII and OSEC and Rick Melmer and Keith Moore all take their cut for their expenses. And then whatever’s left actually teaches kids.

Do we really need that many pulleys in the system, each introducing friction, each diminishing the energy available to lift kids into success? If we had fewer pulleys, wouldn’t it be easier for the Department of Education, the Legislature, and the public to follow the inputs through the system to their final impact on kids?

With such a complicated system of delivering educational services, it’s hard to tell how much money is actually getting to teachers and students, let alone whether it’s doing any good. And while a lot of the DOE money we’re talking about here is federal and private grant money that can’t be used for the number-one item the Blue Ribbon panel needs to be concentrating on (teacher salaries, kids—teacher salaries), this convoluted system of passing money from the state to coops to consultants to who-knows-whom seems to beg for scrutiny and simplification.

And of course, if we reduce the number of organizational steps between receipt and expenditure of these big grants, it will be harder for conflicts of interest to happen, as it will be easier to connect the dots between, say, a member of the state Board of Edcuation and grant dollars disbursed by the Department that Board oversees.

The EB-5 scandal got the Legislature to make one small, positive change in our conflict-of-interest laws. Perhaps the MCEC scandal will prompt our Legislature to go further to impose more transparency and efficiency on our Department of Education to ensure that we can all better track how our education dollars are being used to help our kids, not our consultants.

I just wish it didn’t take guys shooting themselves in Charles Mix County to get the Legislature to take action against corruption.


  1. Notinks 2015-10-06

    Perhaps I have missed it somewhere along the road, but it appears no one has even mentioned Dan Guericke in any of this. Why hasn’t anyone tried to interview him or even question his culpability?

  2. The King 2015-10-06

    Take a look at the SD Board of Education. Here’s another huge conflict of interest:
    “Julie Mathiesen, Sturgis, was appointed to the Board of Education in February, 2011. Julie serves as the Director of Technology and Innovation in Education (TIE), a regional professional development organization based in Rapid City, SD.”
    TIE is a regional cooperative just like MCEC. Enough said. Time to clean house!

  3. Oldhag 2015-10-06

    Notinks is spot on! Where is the interview on Danny Boy! He had to approve of all of this! TIE is MCEC’s mothership even though Randy Morris is no longer on the planet to guide this corruption, it has gone on for over a decade. OCETI goes back to Randy and search Ted H, these new kids don’t seem to be as sly as their mentors. Stacy Phelps was TH’s protege. Why isn’t the FBI conducting this investigation? There is no question this involves federal $$. Why would Guericke state, “It would not have led to him losing his job?” Why wouldn’t it have led to him losing his job? If Scott wasn’t going to lose his job, still had lots of $$$ coming in through his contracts, why wipe out his family and himself? How much accelerate and what type did it take to burn that huge home to the ground? Did he purchase that after last years audit or the night before? Will we ever know where the bodies were found in the house? Any texts on their cell phones…?
    Melmer, Moore, Graves, show us your work product, so we can understand why you are so invaluable. No competitive grant is awarded on those excessive salaries. Graves is also DIAL Board President, how much does he get for imparting his wisdom in that role? He must do that in his sleep too! How nice to have a $20k travel stipend… on top of your other stipends,while being paid on a full-time Superintendent’s contract. Don’t worry Graves, your board is easily persuaded and you won’t even need to send another explanatory e-mail to those with heads in the sand.

  4. Joe 2015-10-06

    The Mitchell Superintendent is correct in that it is an issue between him and the Mitchell School District.

    My opinion though if its a few thousand to over see something, I don’t have a problem with it, when its a $30K+ a year consulting job, its probably too much.

    The problem is, that lack of pay for everyone associated in education, makes it so local school districts don’t have a problem when their Superintendents are consulting on the side, because it allows for them to pay them less. In Arizona most Supers make around $100K

  5. Jackie 2015-10-06

    Notinks: I agree with you. Why has Dan Guericke not been mentioned once???

  6. Annie 2015-10-06

    Is anyone looking into the South Dakota Partnership for Teacher Quality (SDPTQ) Grant that MCEC is a partner in? It’s a federally funded grant to produce highly qualified teachers and improve student achievement.

    It all sounds fine until you look at who the partners are: MCEC, USD School of Education, SD Dept of Ed Office of Indian Education, the American Indian Institute for Innovation, and BC Kuhn Evaluation.

    The players are almost the same as GEAR UP. Guericke, Melmer, Moore, Westerhuis and Phelps to name a few.

    What is going on at Mid-Central? And why haven’t they all been fired?

  7. Curt 2015-10-06

    The key term in all of this is ‘privatization.’ It’s been the favorite buzzword among Repubs since Reagan, which coincidentally is about the time these ‘educational co-ops’ started popping up. They provide a convenient method of funneling ‘resources’ (which, of course means our money) to hacks and cronies who in turn dutifully tithe a slice back to the Governor’s Club and the State Republican Party. It works neatly – for them. Never mind that it drains off precious funds intended to support worthy efforts such as Native American higher ed prep.
    The real scandal is that has all been pretty widely known and understood for years. Remember the Heidepriem-for-Governor campaign? They tried to tell the story.

  8. Donald Pay 2015-10-06

    Curt is right, especially about this being known for years. The entire educational coop system really needs to be restructured so that they work for students, teachers and districts, not for Pierre. Many of us thought that was the original intent of the coops, but maybe we were fooled right from the beginning. If the intent seemed good, it didn’t take long before Pierre started corrupting the system.

    People need to take a much closer look at all of these entities, and not just assume they are doing the right thing. I’d suggest a major problem exists in the South Dakota Science and Technology Authority. This group meets, supposedly in the open, but every bit of any real business is done in executive session, mostly on what they claim are “contracts.” An “authority” that hides all its business must have something to hide.

  9. Psalm 37 2015-10-06

    Somebody, please tell me why FCA allows Moore to continue to be the State Director.

  10. 96Tears 2015-10-06

    Good observation, Curt. Heidepriem did try to tell the story of deep-seeded corruption in Pierre and the reporters blew him off — even though the Governor’s race was for an open seat. The single worst impediment to open government and to a competitive two-party system is the lazy or bought-off media in South Dakota. Yes, they’re underfunded. Yes, newspapers are a dying enterprise. Yes, they’re short-staffed. So what? A blogger (CAH) who is paid table scraps in comparison with fulltime reporters in South Dakota is out-scooping the hell out of all but two or three reporters on this newest scam. Kennecke is kicking everyone’s butt.

    A state government as fully and as deeply corrupt as South Dakota’s top echelon could fill up pages in any other state. Why did South Dakota get the short straw of reporting when it has produced some of the finest talent for national media outlets?

  11. Donald Pay 2015-10-06

    You can blame the media for not pursuing stories enough, sure. Back in the bad old days, KELO fired reporters who went after certain stories about the Oahe Irrigation Project. And the Rapid City Journal got paid to put out propaganda for the dirty MIRF, never reporting on how it had failed in another community.

    But the real problem comes down to the voters. They seem to overlook corruption. It’s been pretty obvious to anyone who cared. The history is there, and it’s repeats every few years over 5 decades. You have to choose to ignore it. Now that people are dying from corruption, maybe state voters will take a look in the mirror.

  12. Oldhag 2015-10-06

    I agree 96Tears! Kennecke is kicking butt! How soon before she will be silenced? What good does this site do, but give some of us who obviously have inside information a place to vent and not feel so isolated and alone? Does it have the power to bring about the right outcome?

    How is Dan Guericke not culpable in these innocent childrens’ deaths? There is no question he has been in the midst of grant fraud and corruption for years, long before Scott and Nicole. How could he not know it would come to this? Some of those Board members have been on that board since the dinosaurs roamed. Do the articles of incorporation and bylaws of those organizations allow and promote that type of collusion?

    Has anyone got their hands on these grant applications that were submitted to see if these excessive salaries were written into these budgets? If Graves wasn’t identified in the grant application, he had to be approved by the grant, the same for Melmer and Moore. Has anyone gotten a copy of any of the annual reports that were submitted on these grants as their is supposed to be a clear accounting on what was spent on what and by whom to the funding agencies. Are there discrepancies in what they told the feds in the annual reports? if so, that is illegal. When Melmer stated, some think I was paid too much, some not enough, what do the funders say? Every grant has a budget that includes all expenses in the application, if they modify what they originally stipulated, there has to be a trail to document approval, whether on personnel or $ amounts. Dan would/should know all about any and all of this information. Look into his background see if he has made slanderous statements about innocent people on grant misappropriations that refused to succumb to his crony network. You might all find it interesting considering these recent tragedies.

  13. leslie 2015-10-06

    anybody see troy lately?

  14. grudznick 2015-10-06

    Mr. Pay, I have no doubt the corrupt Jimmy Carter regime was firing friends of good old Captain 11 back in the day, but today not everything is a vast conspiracy like it was then. Young Ms. Kennecke won’t be bullied into being quiet. She is leading the media charge on this and she will pin her hair back and wrestle it all to a final truth.

  15. Jana 2015-10-06

    Wonder why the GOP grabs all the political donations and has voters registering with an R besides their name?

    Follow the money. With the crony contracts and an easily corruptable system, the GOP is buying donations and voter registration with our tax dollars. Want a big contract? You know what to do…or not to do.

    Add in an underfunded media, inbred political appointments and you have the recipe for earning us our reputation as one of the most corrupt states.

    Hell of a system they’ve got going at taxpayer expense. Heck, ask the former head of the GOP if that system works for him!

  16. Donald Pay 2015-10-06


    Carter was a lot of things, but he wasn’t corrupt, nor would he have been interested in seeing someone fired who was basically in support of his position. No, Carter had nothing to do with how Joe Floyd ran KELO-TV, but there were a few state Democrats who probably put on some pressure, along with the usual Republican and Chamber of Commerce suspects. Back then, there was bi-partisan corruption on the Oahe question.

  17. grudznick 2015-10-06

    That would have been a heck of a trench though, if they’da kept digging it. Today it could have been draining the north eastern meandered waters.

  18. P. 2015-10-06

    Scott Westerhuis is going to be the fall guy in this one. He was part of the wrongdoing – but this goes high in the state government, and private sector. Do I believe that there are people that would stage murders to look like a murder-suicide to protect themselves? You bet I do! Do I doubt the investigative prowess of our South Dakota entities? Yep – and the truth will never be found. Thus, a man is buried away from his family while his name is further sullied.

  19. Lvninchasmix 2015-10-07

    What about the MURDERS? The money can be traced and there should have been a better eye on that anyway but that is how corporations are run. Non profits or not. The suits get the big money. But I have to wonder too. If Scott would not have been fired or arrested at the time of the murders and still not to this day with all these agencies looking into the matter then what could have possibly driven him to do what he “apparently” did? Why would the A.G. office make a statement like “what else could it be”? Really? Why did they need a dog to find the last body? Would assume that the fire burned hottest at the point of origin and if scott pulled the trigger on himself last and right after starting the fire, then wouldnt there have been a SHOTGUN laying next to his remains? Or was the SHOTGUN somewhere else and if so then how did it get there? What else could it be? What do the security cameras at the westerhuis home show? Am sure they were destroyed but the gym had to have cameras. And what about what was saved to the cloud from Scott’s cell? He had his security cameras visible on his phone so cant that information be retrieved? Did they even have “accelerate” which we would assume to be gas at the home? Did they own a mower? Did they mow there own lawn? Scott was a suit and tie and can’t believe that he would quickly google how to syphon gas out of a car? A family that rarely hunted so did he just take a chance that he would have 6 shot gun shells at home and would hit target with all 6? Did he stop to purchase on his way home? This smells just like the Benda case and although I commend reporters for looking into the money trail, I have to wonder who is updating us on the “EVIDENCE” of a murder suicide or should we just be fine with knowing that these children will never be play again because “what else could it be?”

  20. Oldhag 2015-10-07

    You are spot on with asking to take a look at the South Dakota Partnership for Teacher Quality (SDPTQ) Grant …same old same old. There may be another mystery as the same organizations are all involved, hopefully people don’t die. received lots of attention when I was a decade younger, even their website reports nothing of interest has happened since in 2012! Have you followed where all their $$$ came from? Is there a connection? I am not being rhetorical.
    Innocent children gave their lives for this corruption and how many other lives in SD have been negatively impacted by “the suits” pocketing the Millions of $$$$$ of grants flowing into this special state whose lives would have been different if the programs that won the awards had actually been carried out? How do you put a bottom $ to that waste?

  21. Platte Resident 2015-10-08

    Scott was capable of committing this heinous act, and I believe he did so. In fact, many people in our community had been bracing themselves for the A.G.’s announcement–hoping he didn’t do it but somehow knowing deep down that he did. I sat in a local café listening to all of the tables around me, and while no one wanted to be the one to actually say it out loud, it was obvious what people were thinking.

    Wild speculation and conspiracy theories do nothing to help heal our town. I’m not interested in chasing phantom bad guys. I’m more interested in the real bad guys who are corrupting South Dakota’s education system and government. That’s why I appreciate the Dakota Free Press’s continued investigation.

  22. lvninchasmix 2015-10-08

    Wild speculation and conspiracy theories are EXACTLY what helps “heal our town”. It is part of the grieving process. Denial. And speaking of denial. Why would it be hard to believe that there are “real bad guys who are corrupting South Dakota’s education system and government” and not real bad guys that destroy and massacre families? It is wonderful to live in this part of the country where you can go and eat at a cafe’ and discuss terrifying acts that occurred as you slept but that has made us a bit naïve about the world around us. We have to wake up and understand that you can’t believe everything you are told. There needs to be PROOF. With PROOF there can be understanding and until then it is our right and our privilege to ask questions and receive truthful FACTUAL information. I just don’t believe that FACTUAL information is “what else could it be?”

  23. Lars Aanning 2015-10-09

    Sinecures…will our tax dollars that funded these grants be returned???

  24. Lori Bouza 2015-10-15

    I hope you keep digging on this one. Those four children should not have died in vain. I believe this scandal goes very deep in our government at the state level. The homicide/suicide for Benda got swept under the carpet, it shouldn’t have and neither should this one! The people of South Dakota deserve the truth and the people responsible for those deaths need to be held accountable.

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