Child-Care Center Director Indicted on Fraud Charges : Investigation: Woman who ran federal program for poor youngsters is accused of the ‘systematic theft’ of $500,000. Her lawyer says his client would prove her innocence.

The executive director of a private foundation that operated government-funded child-care centers for the poor in California was indicted Wednesday after a two-year federal investigation on 19 counts of bribery, fraud and filing false income tax returns.

In a late-afternoon announcement, U.S. Atty. Charles J. Stevens said the indictments charge Marilyn K. Prosser, 51, of Sacramento, director of the Foundation Center for Phenomenological Research Inc., with the “systematic theft” of more than $500,000 in government funds during a 14-month period from August, 1990, to October, 1991.

If convicted on all counts, Prosser would face up to 137 years in prison and $5.5 million in fines.

“The indictment returned today paints a picture of a woman who has repeatedly stolen taxpayer dollars for her personal use,” Stevens said. “This type of abuse of government program funds, particularly in these times of shrinking government budgets, cannot be tolerated.”

Besides charging Prosser with misappropriation or outright theft of foundation funds, the indictment accuses her of making illegal payoffs to an employee of another foundation, failing to report income to the Internal Revenue Service and making false statements in loan applications. First reports that a federal investigation of Prosser and her organization was under way were made by The Times a year ago.

Prosser’s attorney, James Mattesich of Sacramento, said he was unaware of the indictment but that his client would prove her innocence.

“In our view, Marilyn Prosser has done absolutely nothing wrong, and it’s unfortunate that the Justice Department has taken this action,” he said.

The lengthy indictment is the latest in a series of setbacks for one of the largest publicly funded child-care providers in the state. The center is paid about $8 million a year to operate child-care centers for 2,300 poor children throughout the state. Three of its centers are in Los Angeles.

A year ago, after several critical audits uncovered financial irregularities, the state Department of Education notified Prosser that it did not intend to renew the foundation’s contract for another year.

She immediately challenged the proposed action. A state administrative law judge is scheduled to begin a four-week hearing on the dispute May 15.

Allan Keown, an attorney for the Department of Education, said his agency will have to study the indictment before it decides what to do, but he acknowledged that the federal charges against Prosser “may alter the issues that are going to be heard at the administrative hearing.”

Although he declined to say what action the state might consider, state regulations make provisions for the termination of contracts when there have been criminal charges involving fraud and embezzlement.

In the past, Prosser, who has ties to several influential Democratic legislators and even named one of her centers after former Senate President Pro Tem David A. Roberti, was able to call on lawmakers to intervene with the department on her behalf.

In fact, when the department notified the foundation last year that it did not intend to renew its contract, the group persuaded state Sen. Nicholas C. Petris (D-Oakland) to put a provision in the state budget overruling that action.

The provision was eventually vetoed by Republican Gov. Pete Wilson, who said it would “circumvent current law and regulations” by placing limitations on the department’s authority to grant and renew contracts.

Since it opened in 1980, the foundation has attracted national attention for the quality of its Montessori-style child-care programs designed primarily for poor children who speak Spanish.

Even when it became known that the FBI had seized the organization’s records and was investigating its financial activities, the organization was still praised by many child-care experts for operating a program that greatly enhanced poor children’s chances of success when they reached school age.