School Officials Now Say Theft Loss Totals $3 Million : Embezzlement: The Newport-Mesa District’s former financial chief faces charges in a case believed to be the largest of its kind in the state. Auditing continues.

Prosecutors confirmed Tuesday that the total of funds allegedly stolen from the Newport-Mesa Unified School District by its former chief fiscal officer has climbed to $3 million, which is believed to be the largest amount ever stolen from a California school district.

After Stephen A. Wagner’s arrest Nov. 24, court papers said investigators had documented the loss of $1.2 million and warned that the amount could reach $2.2 million.

The latest revised figure stems from an ongoing audit of Newport-Mesa accounts dating to 1987. “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 said Tuesday that 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 that a complete audit of all accounts Wagner had access to is continuing and that auditors will go back as far as necessary “until we don’t find any more missing.”

But he added that critics who say Newport-Mesa administrators should have discovered the thefts 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 from as early as 1987--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 fund using cashier’s checks made out to himself.

Wagner, who worked for the district for 21 years until his dismissal Nov. 10, 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.

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 filed a lien in July against Wagner and his wife, Linda, seeking $2.4 million in back taxes for 1986 through 1989.

Newport-Mesa officials say that much of the money sought by the IRS 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.”