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Mid-Central Releases “Very Positive” Audit Report

Mid-Central Educational Cooperative lawyer Scott Swier sends to the media the forensic audit of MCEC conducted by Eide Bailly. Swier accompanies this audit with a press release from MCEC declaring the audit “very positive.”

Mid Central Educational Cooperative (MCEC) is pleased to share a very positive report from the independent accounting firm hired to conduct a forensic examination of MCEC’s use of Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) funds.

Eide Bailly LLP, a top 25 CPA firm, recently completed its forensic examination of MCEC’s accounting and financial records related to GEAR UP. The examination covered the time period of July 2013 through October 2015. The purpose of the examination was to:

  • Account for and examine the expenditures submitted by MCEC for reimbursement through GEAR UP;
  • Account for GEAR UP reimbursements paid directly to MCEC by the South Dakota Department of Education (SD DOE); and
  • Identify potential questionable activity, if any, related to MCEC and GEAR UP.

Eide Bailly examined thousands of records consisting of bank records, credit card statements, monthly claim forms, vouchers and other supporting documentation to verify the receipt of GEAR UP reimbursements with the expenditures submitted by MCEC to the SD DOE for reimbursement.

Through a reconciliation of this information, Eide Bailly was able to account for all GEAR UP reimbursements paid to MCEC.

Eide Bailly identified a limited number of expenditure issues and discussed these with MCEC. MCEC identified these expenditures as being compliance-related such as missing signatures on documentation, paying sales tax on invoices, or paying for disallowed expenditures. MCEC has since hired its own Certified Public Accountant to provide additional oversight regarding these compliance issues.

MCEC initiated the forensic audit after the death of MCEC Business Manager Scott Westerhuis and his family in September.

“MCEC is pleased to receive the positive findings from Eide Bailly’s forensic audit,” said Board Chairperson Pamela Haukaas. “MCEC provides an exceptional educational experience for its member school districts, and we are committed to doing everything possible to earn and keep the trust of those school districts.”

Eide Bailly’ audit report is 201 pages and 7.5 MB. We have some reading to do….

Update 10:44 CST: Among the items of interest:

  1. Eide Bailly finds that from October 2012 through September 2015, MCEC deposited $6,905,900.13 in GEAR UP payments into its bank account.
  2. The top 20 recipients of MCEC’s GEAR UP expenditures from October 2013 through August 2015 are as follows:

    Top 20 recipients of GEAR UP money from Mid-Central Educational Cooperative, October 2013–August 2015. Eide Bailly, forensic audit of MCEC, 2015.12.01, p. 5.
    Top 20 recipients of GEAR UP money from Mid-Central Educational Cooperative, October 2013–August 2015. Eide Bailly, forensic audit of MCEC, 2015.12.01, p. 5.
  3. Eide Bailly interviewed two people: MCEC exec Dan Guericke and MCEC interim business manager Stephanie Hubers.
  4. [11:25 CST] The majority of GEAR UP reimbursements issued to Scott and Nicole Westerhuis are labeled “Match/Support.” A clean-up note “Match/Support – Due to the correction in how indirect is calculated, we are charging the grant for Scott & Stacy’s time spent on the grant rather than using the indirect fees we collect. Therefore, their time will not be used as match for 2013-14.”

[11:46 CST] Angela Kennecke notes that while the audit says MCEC’s payments to vendors and reimbursements from the state match up, it “doesn’t tell us if there were conflicts of interest, opportunities for embezzlement or if federal funds were being co-mingled or rules of match for the grant were being followed.” Bob Mercer says the audit shows “spending patterns that will likely come into question.” Pat Powers says nothing about GEAR UP, but reminds us that Rep. Kristi Noem is doing fine work giving local entities more flexibility in using federal education dollars.


  1. rsterling 2015-12-03 11:42

    So, for $6,905,900.13 spent on these listed “expenditures” how many Native American individuals went on to colleges or universities that would not have gone had this money not been given to the listed expenses?

  2. Mrniceguy 2015-12-03 11:54

    Korina Phelps is Stacy Phelps’ ex wife. Not sure of her education credentials.

    Deb phelps, Stacy phelps’ sister in law. Principle at wounded knée district school

    MacKenzie casey, married to Stacy phelps’ neice, Shawntae(?Sp?) Lupi. SDSU graduate

    How much did AIII Pay these individuals as well?

  3. Dana 2015-12-03 12:38

    OK, I’m confused. MCEC got the GEAR UP grant taken away because of poor accounting practices and record-keeping, yet this independent audit is “very positive”. OK, um, which is it? Or am I missing something?

  4. caheidelberger Post author | 2015-12-03 13:00

    That’s a good question, Dana. Apparently Eide Bailly wasn’t looking at the same books as the DOE.

  5. Joe 2015-12-03 13:58

    Mackenzie Casey (fmr SDSU basketball player and graduate), I believe is the head Gear Up coordinator at Red Cloud, he’s been there from the beginning and I believe also worked for the Summer program so that could explain why his name is up there.

    As for the audit results, 1st of all, I wish they would have audited the whole MCEC, second conflict of interest? I don’t even want to dig into that cuz there are so many of them. and last the overhead of this program is huge.

    As for what Gear Up is, it can do a bunch of good, its hard to track compared to other programs, but for many schools that utilize it well, you get a gear up coordinator at the school which works with students on numerous things, such as writing a college application essay, applying for college those type of things, in which many small rural schools don’t have another person to do it for.

    The other thing I’ve seen (and I’m in Arizona now, so it is probably different). Is that they use a bunch of college prep materials to gauge where students are throughout there secondary school careers in terms of college readiness.

  6. jerry 2015-12-03 14:07

    Interesting, all of the fire and deaths and now to find that there are no problems. Time for a do over. Oh, and the feller or fellers that were driving that white pickup in Platte that night, please, go about your business. I want this bookkeeper to do my taxes.

  7. mike from iowa 2015-12-03 14:14

    Doesn’t the new education money come with less gubmint oversight?

  8. laurens1 2015-12-03 14:35

    I lived in Platte. I worked with Nicole Westerhuis and knew her before MCEC.
    At that time, she was very finite and honest.
    About this audit. I knew Scott. He was scatterbrained, fragmented and controlling to the extreme.
    Then the endless building started at the their compound. It was obvious to the entire community that the escalating and lavish additions were not from salaries or trust funds. Where was this enormous amount of money coming from?
    How does the average bear acquire a 1.3 million dollar property with a 900,000.00 gym structure?

    I say, “Bulls**t.”
    Who is on the take at Eide Bailly?

  9. Joe 2015-12-03 15:13

    I’m not going to question the audit, its probably right, but it is only the Gear Up foundation and doesn’t mean that he was getting kickbacks, or wasn’t tied into things.

  10. Jenny 2015-12-03 15:29

    How can anybody read this article with a straight face? Shred those papers, ladies. The boss needs it done immediately.

  11. Roger Elgersma 2015-12-03 16:41

    They follow money that was spent right, but there seems a gaping hole by the lack of a statement that the books balance. If eighty percent of the money was spent right is not what an audit is looking for. We want to know were all the money went. Then it would be a worthwhile audit report.

  12. Dave 2015-12-03 16:47

    This audit is just a two-year snapshot. How long were the Westerhuises involved with business manager duties of Gear Up and other programs? That time has probably been reported in the media or by you, Cory, and I don’t remember. Could this mean this audit likely only scratches the surface?

  13. 90 Schilling 2015-12-03 16:47

    There are many way to express results of an audit. From my experience, it appears Eide performs them according to expectations. Damn sure not my expectations if so.

    They have been the post child for SD state gov audits. Why would we expect anything different?

  14. caheidelberger Post author | 2015-12-03 17:14

    Joe, I dig what you’re saying about GEAR UP doing a lot of good but being hard to track. But the state has been doing GEAR UP for a full decade; wouldn’t you think that over that much time they’d have managed to figure out how to do an observation that would present hard data, quantify real results, and, in the absence of clear results, make definite recommendations on how to achieve better results?

    Dave, two-year snapshot—yes. Mid-Central, Stacy Phelps, and the rest have been doing GEAR UP since 2005.

    Roger is right: we are staring into a big black hole. This audit tells us three things:

    1. MCEC paid $X to Vendor A.
    2. MCEC asked DOE to reimburse $X from the GEAR UP grant.
    3. DOE paid MCEC $X from the GEAR UP grant.

    The audit tells us over 2,000 X’s line up properly across those three points. The audit does not tell us what the vendors did to earn $X. The audit does not tell us what the vendors did with $X. The audit does not tell us what incompetent bookkeeping was taking place that Secretary Schopp saw as cause for canceling MCEC’s GEAR UP contract.

    And maybe most importantly, the audit does not tell us what scheme might have been happening that would have been brought to a halt by Secretary Schopp’s September 16 cancellation of MCEC’s GEAR UP contract and would have motivated a financially comfortable business manager to kill his wife and four children, torch his house, and kill himself.

  15. Jake Cummings 2015-12-03 19:42

    rsterling, wouldn’t an experimental, or at least quasi-experimental, methodology be most conducive to answering your question regarding possible causality?

    If so, it seems likely that local grant mismanagement would preclude U.S. Ed. or a foundation like Gates from approving funding to conduct a pilot program to assess such research questions.

  16. The King 2015-12-04 07:09

    The big winners were the Phelps’ and AIII and Oceti Consortium, the latter were run by Phelps and Westerhuis. AIII and Oceti alone claimed over $1M, that is a pretty big black hole. Big enough to build a mansion in Platte? We’ll see.

  17. caheidelberger Post author | 2015-12-04 08:26

    That’s the next place the auditors need to look. Work logs and bank statements from AIII and OSEC would be useful.

  18. mike from iowa 2015-12-04 08:52

    You got vectors,vendors and victims. Essentially,you have nothing.

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