Scandal Brought Big Changes to Newport-Mesa : Reform: Stung by a $4-million theft last year, school district overhauled its financial system and hired a new superintendent.

A year after the discovery of what Stephen Wagner had done, just the mention of his name still triggers flashes of anger and expressions of pure contempt.

It was the largest embezzlement of school funds in state history, a $4-million theft by the top finance officer of the Newport-Mesa Unified School District. And teachers and parents are almost as emotional now as they were when they first heard the shocking news.

“Gosh, I get steamed up just thinking about it,” said Eileen Delaney, whose two children attend Ensign Elementary School and Newport Harbor High School. “We should move on and we are moving on, but no one here is ever going to forget that Stephen Wagner took our trust and our children’s money and left us betrayed.”

But as angry as they still are, and despite the fact that Wagner has been convicted and imprisoned, parents and teachers say the Wagner scandal serves mostly as a clarion call to administrators to address the internal problems in their beleaguered district.

“Everyone blames Stephen Wagner--I blame Stephen Wagner--but I can’t help but think that somebody in the district wasn’t watching the pocketbook,” said Donna Kelsen, a music and drama teacher at Ensign Elementary School. “He was our wake-up call, but he wasn’t the main problem.”

The consensus among parents and teachers is that the district’s problem was twofold: It had no check-and-balance system to prevent one man from having total control of the books. And those at the top were arrogant and uninterested in what parents had to say about how the schools were run.

District officials said they have fixed the first problem: They placed an internal control system in every account in the district and expanded the duties of an outside auditor to include keeping their books. The answer to the second problem came, in part, with the hiring of the district’s new superintendent, Cloyde McKinley (Mac) Bernd, whom most parents and teachers applaud for his accessibility, openness and enthusiasm.

Still, those who experienced firsthand the district’s turmoils of the past year are wary.

“Something bad was festering at the district for years and years,” said Dana Black, whose two children attend Mariners Elementary School and Newport Harbor High School. “It will take a lot of time to right those wrongs, so I guess I’ll be waiting for a while.”

For the last few years, the district, whose standards and resources once were the envy of other districts locally and nationally, suffered the problems of increasing class sizes and decreasing tax dollars that also befell other districts.

Then the Wagner scandal exploded last October.

An unidentified district employee contacted the Orange County Grand Jury about a questionable district check having only one signature--Wagner’s--instead of the required two. The district attorney’s office picked up the investigation that eventually revealed that Wagner, 41, diverted almost $4 million from the district’s accounts to his many personal accounts between 1985 and 1992.

Wagner pleaded guilty last December to theft and failure to pay taxes on the stolen income and was sentenced to six years at the state prison in Vacaville. The sentencing judge ordered Wagner to pay back the money he took, but district officials now say that would be a near impossibility.

“I’m trying to trace down some leads, but either Mr. Wagner was extremely clever and set up a false trail or--as good a thief as he was--he was a terrible investor and lost it all on some harebrained investments,” said Ted Albert, a court-appointed bankruptcy trustee handling Wagner’s accounts.

To date, Albert has collected about $320,000 from the sales of Wagner’s assets but only received about $115,000 after paying various fees. District officials have received $150,000 from their insurance company for the theft. Wagner also signed over his $75,000 retirement pension to the district.

Federal officials said they suspect that Wagner also stole federal funds by filtering some of the money from student lunch programs. FBI agents declined to discuss the continuing investigation. But district officials confirmed that investigators told them federal charges against Wagner are imminent.

A trusted employee with the district for 21 years, Wagner rose through the ranks from a bookkeeping clerk to become the district’s chief financial officer. His opulent lifestyle--including possession of seven properties, luxury cars, a fur-lined bathrobe and a collection of gems--on a $79,800 salary had raised some eyebrows in the district.

But those who knew Wagner attributed his lifestyle to his supposed wizardry with investments and numbers. They now know differently.

Many remain bitter as they talk of how the man who once handled the district’s finance “stole from the children” to finance his expensive tastes.

“Taken apart, $4 million may not seem like much when you divide it by the numbers of schools, teachers and students in this district,” said Stan Serafin, a special education teacher at Ensign Elementary. “But the ceiling in my class has been leaking for the past two years, and I can’t help but think that if it were not for (Wagner), the money would have been there to fix that for my students.”

Thomas Godley, assistant superintendent of business services, said Wagner committed “a tragedy that could never be wholly fixed.

“To this day,” he said, the embezzlement “still affects many students because that money could have gone into more teachers, better books and more supplies.”

But Godley and others also hold themselves accountable and acknowledge that the bookkeeping system had been flawed in the first place, enabling Wagner to single-handedly deplete the district’s reserve fund.

After they fired Wagner, the district immediately overhauled its financing and budgeting procedures. Duties are departmentalized and segregated; no one has complete control of funds.

The employee health and insurance funds, from which Wagner embezzled much of his money, are no longer managed by the district. An outside administrator now examines and processes all claims.

“A person who opens the mail does not lodge checks; a person who signs checks does not reconcile accounts. There are no more rubber signature stamps,” said Godley, naming the fundamental changes.

“We looked at cash receipts, revolving cash, developers’ fees, food services, health services. We looked at everything in the district and placed internal controls everywhere for safeguard measures.”

Perhaps the district’s most impressive change, parents and teachers said, was the hiring of Bernd as the new superintendent. In June, Bernd replaced John W. Nicoll who, after leading the district for 21 years, retired amid the Wagner debacle, citing ill health.

Teachers and parents alike complained that the former superintendent was unapproachable and that he ruled the district rigidly. They also blamed Nicoll for being a mentor to Wagner.

In the 50-year-old Bernd, former critics of Nicoll said, they see a man capable of mending the district and willing to listen to what they had to say. Since the start of the school year, Bernd has visited most of the 26 schools in the district and listened to the concerns of teachers and parents.

For the past five weeks, Bernd has also been holding “An Evening With Mac,” an informal discussion forum with parents, teachers and students at various schools. Officials will use what was discussed at these forums at the November Education Summit, where they plan to prioritize the district’s goals.

“We want to let people have a voice in what happens in the future. . . . We want to know the truth. . . . We want to know what you think about our school so we can get better,” Bernd told about 60 people at the final forum Wednesday held at Newport Harbor High School.

“This man is really trying to listen to all sides,” said Sue White, who teaches second- and third-graders at Mariners Elementary School. “He has been accessible (and) a listening person . . . and teachers now feel that we’re in a partnership with the district whereas we felt alone before.”

Maya Decker, president of the teachers union and currently involved in salary negotiation with the district, said there is “a feeling of a climate that is more open which hadn’t been there before . . . and I think that’s because of Mac Bernd.”

Despite the openness and what they see as “the first step in the right direction” to rebuild their trust, parents and teachers continue to reserve judgment on how well district officials, including Bernd, are performing.

“We’re still in the honeymoon stage” with Bernd, said White. “We have to see what happens when that’s over.”

For his part, Bernd sees a rosy future. “I don’t see any reason for the honeymoon to be over,” he said. “If we keep this district moving forward, we’re going to have a solid relationship and a happy family.”