Ex-School Official Charged in Theft : Audit: The former chief of finances for Newport-Mesa Unified District is accused of siphoning nearly $1.2 million from the fiscally troubled system since 1988.

The former chief financial officer of the Newport-Mesa Unified School District was arrested Tuesday on charges that he stole nearly $1.2 million from the school system, and investigators warned that the amount could nearly double once an audit is completed.

Stephen A. Wagner, who was fired two weeks ago, was taken into custody at his million-dollar home in Newport Beach as his wife and 4-year-old son looked on. Wagner, 40, was held on $1.2-million bail after prosecutors noted that he has overseas bank accounts and poses a flight risk.

The Orange County district attorney’s office alleges that Wagner used one of the district’s inactive bank accounts to quietly siphon money from several different school funds, including cafeteria funds and those used to pay employee health care costs.

According to an affidavit filed in Harbor Municipal Court, Wagner had tellers at Wells Fargo issue him 25 cashier’s checks from Newport Mesa’s health fund savings account totaling $920,625.49. The checks were written between July 8, 1988, and May 31, 1992. Prosecutors said the checks were made payable to Wagner and deposited in his personal bank accounts.

In addition, Wagner allegedly wrote checks for $175,356 to a shoe repair company he co-owns, and wired another $90,525 to a Florida gemstone company. Investigators say Wagner bought and sold precious stones.

“He stole from the kids. That’s the bottom line,” said Newport-Mesa Assistant Supt. Thomas Godley. “But he also stole from parents and staff and the board and everybody else. We’re all victims.”

Wagner was known for his extravagances--a Rolls-Royce, two Mercedes-Benzes and a wardrobe that included a mink tuxedo and a fur-lined bathrobe. While his $78,000 school salary could not support such a lifestyle, Newport-Mesa officials said Wagner had led them to believe he had a string of business ventures that had made him a wealthy man.

Paul S. Meyer, Wagner’s attorney, declined to say how Wagner would plead to the charges of grand theft and misappropriation of public funds at his arraignment next Monday. “I don’t want to elaborate any further until the district attorney has had a chance to look at all the facts,” Meyer said.

Wagner was fired by the Newport-Mesa board of trustees Nov. 10 after they discovered the checks written to the shoe repair company, Cobbler Express Corp.

The Cobbler Express checks, wire transfer and 25 cashier’s checks total $1,186,507, but investigators said they expect to revise that total upward as they continue auditing the school district’s books. The losses may approach $2.2 million, according to the affidavit.

“We are looking back further now. . . . That is the figure we can document right now,” said Deputy Dist. Atty. Carlton P. Biggs. “There is the possibility of additional losses but we can’t document them until we get further information from the banks.”

The Times has learned that cashier’s checks made payable to Wagner and provided to investigators by Wells Fargo total about $3 million. However, investigators had not made this public Tuesday because they are still tracing what happened to the money and trying to determine whether some was returned.

A review of Newport-Mesa audits shows that school officials were aware of irregularities in the health plan accounts as far back as 1987.

The Newport Beach office of Peat Marwick Main & Co. reported in its fiscal 1987 audit that “the district accounting office did not prepare proper reconciliations of their records to the bank statements for their health plan account. The listing of outstanding checks was neither complete nor accurate.”

Peat Marwick auditors went on to say that interest income on the health plan account was never recorded on the books.

Though the district said it had installed a computer to reconcile the health plan account that year, further problems developed in fiscal 1990.

“If anyone had followed up on the audit reports, they would have found it,” said one Newport-Mesa staffer.

Wagner is portrayed in court documents as a sophisticated international investor with financial accounts stretching from Toronto and Florida to points unknown in the Caribbean.

He was arrested Tuesday--before the conclusion of the district attorney’s investigation--because officials were concerned that he might flee the country.

The alleged thefts come at a time of shrinking budgets at Newport-Mesa, which serves Newport Beach and Costa Mesa. Last spring, the district laid off about 200 employees because it faced a $2.7-million deficit.

Parents upset about teacher layoffs and overcrowded classrooms have organized a petition drive calling for the ouster of Supt. John Nicoll.

Nicoll and other school officials have argued in recent weeks that Wagner’s alleged thefts from the health fund had no effect on the classroom. They blamed the budget problems on a drop in property tax collections.

But Biggs on Tuesday said Wagner’s alleged actions may explain a recent $1-million budget shortfall that district officials had previously attributed to a “bookkeeping error.”

“This may be part of that bookkeeping error,” Biggs said.

Nicoll recently underwent heart surgery and is in guarded condition at Hoag Memorial Hospital in Newport Beach. He was not contacted for comment regarding Wagner’s arrest.

Biggs said the school district was not to blame.

“When a person is of a mind to steal, it is hard to prevent that. It’s hard to fault the school district in this, but I assume now that they will be putting into place some additional precautions,” he said.