Three Charged in Federal Education Grant Scandal

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March 16, 2016; KELO-TV (Sioux Falls, SD)

A former nonprofit executive and two local education agency staffers have been charged with multiple conspiracy and theft felonies involving the embezzlement of more than $1 million in federal grant funds intended to help Native American students prepare for college. Stacy Phelps was the Executive Director of the nonprofit American Indian Institute for Innovation (AIII), a subgrantee in South Dakota’s GEAR UP program. Daniel Guericke and Stephanie Hubers, executive director and interim business manager, respectively, of the Mid-Central Educational Cooperative (MCEC), were also charged.

Last September, as NPQ reported, Scott Westerhuis allegedly murdered his wife and four children, set his house on fire, and committed suicide the night after learning over $4 million in federal funds would be withheld by the state from the education agency he worked for as business manager. Allegations of conflicts of interest and misspent funds prompted both the funding termination and multiple investigations into Mid-Central Educational Cooperative (MCEC).

During a press conference to announce the criminal charges, South Dakota Attorney General Marty Jackley said that these are the “initial charges,” leaving open the possibility that others may be charged or that the three people already charged may face additional charges. He acknowledged that a federal investigation is continuing, but he was unable to discuss it. Also, there is an audit of SD GEAR UP funds and a separate investigation into MCEC being performed by the state’s auditor general. These reports have not been finalized, but are expected to be completed in the coming weeks.

Jackley said that Scott Westerhuis, finance director at MCEC, and his wife Nicole, assistant finance director at MCEC, stole more than $1 million in federal funds by diverting them to the nonprofit AIII, which they controlled with Phelps. The stolen funds were used to pay for an expensive home and compound, travel, and other expenses. They also used stolen funds to pay Hubers $55,000 over several years to be quiet about the manipulations of MCEC’s financial records that concealed the thefts. Guericke and Phelps were charged with creating backdated contracts in an attempt to conceal the thefts from auditors and state officials, though Hubers told investigators that Guericke was unaware that the Westerhiuis couple, who worked for him, were stealing money. She claims the Westerhuises told Guericke that the contracts had been “lost” and needed to be “recreated” for the record.

Thefts of federal grant funds can prompt federal investigations and visits by the FBI. However, as Jackley said, any theft in the state, regardless of whose money it is, is subject to criminal prosecution by the state. The state’s investigation thus far has included 65 people interviewed and seven organizations examined—MCEC, AIII and two other nonprofits, and three for-profit consulting firms tied to Scott Westerhuis as registered agent.—Michael Wyland