Newport-Mesa Loss $3 Million, Prosecutors Say

SANTA ANA —  Prosecutors confirmed Tuesday that $3 million has allegedly been stolen by the Newport-Mesa Unified School District’s former chief fiscal officer in what is believed to be the largest fraud ever against a California school district.

After Stephen A. Wagner’s arrest on Nov. 24, court papers claimed that investigators had documented the loss of $1.2 million and warned that the amount could reach $2.2 million. Now, an ongoing audit of Newport-Mesa accounts going back to 1987 shows the total missing has hit $3 million.

“We are now able to document a loss of $3 million,” Deputy Dist. Atty. Carlton P. Biggs said Tuesday.

Patrick Keegan, the state Department of Education’s assistant superintendent for business services, said that figure may well rank the Newport-Mesa case as the biggest school embezzlement in state history. In 1991, a former California Community Colleges official and his wife pleaded guilty in Sacramento to charges of stealing nearly $1 million from that statewide school system.

“I’m not aware of anything that approaches that magnitude,” Keegan said of the Newport-Mesa theft.

Newport-Mesa officials on Tuesday said they were stunned by the amount of the alleged embezzlement in a district that had to lay off nearly 200 teachers and other employees this summer to erase a projected $2.7-million deficit.

“It’s shocking. It just keeps going back and going deeper,” Assistant Supt. Thomas A. Godley said. “We just keep digging.”

Godley has said a complete audit of all accounts Wagner had access to is continuing and that they will go back as far as necessary “until we don’t find any more missing.”

Wagner, a 21-year district employee who was fired Nov. 10, became chief accountant for the district in 1979, then assistant director of fiscal services in 1986. He assumed the top fiscal job on Sept. 5, 1989.

Godley added that critics of Newport-Mesa administrators who say the district should have discovered the thefts far sooner may not understand that Wagner allegedly siphoned off the $3 million in relatively small increments over a six-year period.

“You can bury $500,000 a year in a $90-million budget real easy,” Godley said.

Biggs said Wagner’s alleged scheme was consistent--namely that school funds were transferred to an employee health fund savings account that was supposed to have been closed in 1986. He then allegedly withdrew the money from that slush fund by cashier’s checks made out to himself.

Wagner, 40, pleaded not guilty Monday to charges of grand theft and misappropriation of public funds, but his attorney emphasized in court and in interviews that his client wants to make full restitution to the school district.

Investigators revised the amount of missing money to $3 million as their audit reached back to years before 1989. On Tuesday, Wells Fargo Bank, which handled the district’s health fund accounts, confirmed for law enforcement officials that suspicious checks from before 1989 had been cashed.

“We were aware of suspicious withdrawals from the account, but we hadn’t gotten the backup information from the bank. This is confirming what we already suspected,” Biggs said.

Meanwhile, Newport-Mesa officials said they have been in contact with the Internal Revenue Service to challenge the agency’s claim to Wagner’s estate. The IRS last July filed a lien against Wagner and his wife, Linda, seeking $2.4 million in back taxes the couple owed for the years 1986 through 1989.

Newport-Mesa officials claim that much of the money that the IRS seeks is school funds.

Clayton Parker, an attorney for the school district, said Tuesday that the IRS has informed him that Newport-Mesa has first claim on any restitution Wagner may make if “we can prove it’s embezzled money.”

“I talked to the lady (with) the IRS,” Parker said. “She informed me that a local agency which is the victim of an embezzlement would have priority over a tax lien.”

Although the amount of money allegedly stolen has nearly tripled since Wagner’s arrest, he does not face any additional theft charges. One count of grand theft covers any money taken in excess of $100,000, and there is no ceiling.

The Newport-Mesa embezzlement case now far exceeds that of former Newport Beach utilities director Robert Dixon, who pleaded guilty earlier this year to stealing $1.82 million in city funds to finance his expensive lifestyle.