Financial Fraud At Seattle Public Schools, Criminal Investigation Underway

Crime, Law and JusticeBusinessAccounting and AuditingRentalsSmall BusinessesU.S. Department of Commerce

Where did the money go?  That's what officials at Seattle Public Schools are trying to figure out.  Approximately $1.8 million dollars was spent on contract work that was never done or didn't benefit the school district.  A criminal investigation is underway.

"You can only be outraged about something like this.  You can only believe that this is unacceptable," says Seattle School Board President Steve Sundquist.  "I and my colleagues feel this is unacceptable and our job is to make sure we have gotten to the bottom of it and take the steps needed to ensure this never happens again."

Sundquist explains this all happened with the district's free training program for minority and female owned businesses.  The Regional Small Business Development Program helped them better compete for contract bids.  The man in charge of that program, Silas Potter, is accused of fraud by creating questionable contracts with companies that were supposed to train these business owners.

“He would create a contract with them and then they would provide less service or a different service than was contracted for and then they would invoice us for the full price and that invoice was then paid," says Sundquist.

On top of that, Potter is accused of starting a private non-profit under the same program name, and funneling district money into his own account.

"As we began to unravel this and go from one to another to another we've gone from $35,000 to $1.8 million dollars," says Washington State Auditor Brian Sonntag.  "It's a big deal.  It's public money and the taxpayers should be served better."

The King County Prosecutors Office is investigating potential criminal charges.  Silas Potter hasn’t been seen since June 2009.  Some believe he has even fled the country.

The man who was supposed to be supervising him, Fred Stephens, is now working at the US Department of Commerce.  The District's own internal auditor, Kariuki Nderu, resigned in December 2010.

Sundquist says he does not expect any other fraudulent activity within the district.  As part of the audit, the district is implementing a number of new oversight measures, including a whistle blower program, a new ethics officer who will investigate complaints and a change in the contract review process.  The district has also filed a preliminary insurance claim to try and recoup its losses.

The audit shows the city of Bellevue lost more than $39,000.  Bob Derrick, the city’s economic development director says the city paid money to participate in the program.  Derrick says Potter leased space to open a classroom and paid one month’s rent, but never held any classes.

This has been an ongoing investigation for the past seven months.  A single transaction led officials to start looking into the money. 

The Seattle Times first reported the fraud.  They say the money centered around a school-district program that helped small businesses compete for contracts with the district and other government agencies. 

To read the full audit report: Seattle Times: Washington State Auditor's Report

The School Board is expected to meet next Tuesday in a private executive session. 

Copyright © 2014, Los Angeles Times