School embezzlement left deep mark
Deirdre Newman
It was 10 years ago that signs of a million-dollar embezzlement
first appeared in the Newport-Mesa Unified School District,
eventually sending shockwaves through the administration and eroding
the public’s trust when it turned out the man entrusted with the
financial stewardship of the district was responsible.
Stephen Wagner, who was the district’s budget director, was
suspended Oct. 23, 1992 pending an investigation that eventually
turned up an embezzlement of close to $4 million.
Wagner pleaded guilty that December to embezzling more than $3.5
million -- at the time, the largest school district embezzlement in
state history. In March 1994, Wagner was sentenced to five years in
prison. He died in jail from complications of AIDS after spending
about a year and a half in a medical ward.
Since then, the district has gone to great lengths to implement a
series of checks and balances to prevent one person from wielding so
much financial power. It has been so successful that the district’s
system is now a statewide model.
While the financial loss was a devastating blow to the district,
the deeper wound was the loss of trust throughout the community
because of Wagner’s betrayal, said trustee Martha Fluor, who was in
her first year on the board when the embezzlement was discovered.
“That was the hardest part,” Fluor said. “The biggest thing all of
us felt is that an individual could do that and lie right to your
face.”
Wagner, who was 40 at the time the embezzlement was discovered,
was arrested Nov. 24 at his $1 million Dover Shores home after a
20-year career with the school district.
As far back as 1980, the district had been faulted for flawed
accounting procedures that could lead to embezzlement. But since
Wagner was the one who fixed the mistakes when auditors found these
deficiencies, he was able to hide his actions as he began siphoning
money out of various district funds, including a health fund account.
Even in September 1991, when then Asst. Supt. Tim Godley, who
oversaw the school district budget, was moved to the district’s
fiscal services office after a $1 million error was discovered, no
criminal wrongdoing on Wagner’s part was found.
In February 1992, a group of five parents, including current
trustee Dana Black, began examining school district budget documents
and found sloppy bookkeeping.
But it wasn’t until September of that year that the smoking gun
appeared. When Wagner went on vacation, a bank mailed a statement to
the district that he usually stopped by to pick up, said Jim de Boom,
who was a school board trustee at the time.
One of the clerks in the district’s accounting office got the
statement and noticed a couple hundred thousand dollars of activity
in the account, even though it was supposedly closed, said de Boom, a
Pilot columnist. The employee immediately went to the district
attorney’s office, and an investigation was launched.
“I was shocked,” Black said. “The gang of five -- we never thought
that it was embezzlement. We thought it was mismanagement. [Wagner]
was very good at what he did.”
Although Wagner admitted to embezzling $3.5 million, it was
probably more, Fluor said. The accountants doing the investigation
had to stop counting when certain bank records were not obtainable,
she said.
While the district took a big financial hit, it was “peanuts” to
what it suffered through in the county bankruptcy two years later,
Fluor said.
The district made some adjustments to compensate for the loss,
such as putting a freeze on personnel costs and putting a hold on
some instructional materials, Fluor said to the best of her
recollection. The district was able to withstand the depletion of
funds because it had a good deal of money from property taxes.
Repairing the delicate issue of trust proved more challenging,
though.
“What I noticed [when I first came to the district] is, it was a
major issue,” Supt. Robert Barbot said. “When something like that
happens in a community, credibility and relationships are hurt. You
have to work really hard to overcome that.”
Soon after the embezzlement was discovered, a citizen’s budget
advisory committee was formed to help guide the district.
“When this happened, we reached out to the community,” said
current board president Judy Franco, who was a trustee at the time.
“Actually, the community reached out to us and asked ‘what can we do
to help the district get through this to make it stronger so that
more of us are the eyes and the ears?’”
An audit committee was also developed to add another layer of
oversight, Franco said.
Everyone interviewed for this story agreed that the efforts the
district has made have been tremendously successful in repairing the
shattered trust and elevating the district to a model of financial
protection.
“I think we’re stronger now,” Fluor said. “As a result of the
embezzlement, all the districts have benefited from our horrific
situation. A majority of districts now have citizen budget advisory
committees and audit committees. In retrospect, some good has come
out of that adventure.”
* DEIRDRE NEWMAN covers education. She may be reached at (949)
574-4221 or by e-mail at deirdre.newman@latimes.com.
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