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Originally published February 24, 2011 at 11:07 PM | Page modified April 24, 2012 at 1:55 PM

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Documents detail financial abuse in Seattle schools program

A former Seattle Public Schools manager ran a rogue contracting operation within district offices, replete with overbilling, ethics violations and intimidation of critics, according to documents released by the state Thursday.

Seattle Times staff reporters

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A former Seattle Public Schools manager ran a rogue contracting operation within district offices, replete with overbilling, ethics violations and intimidation of critics, according to documents released by the state Thursday.

Among the contractors who benefited were the Urban League and prominent members of the community whose work allegedly provided little or no public benefit.

In a 76-page summary, state auditors detail some possibly illegal acts behind $1.8 million in questionable and sometimes useless expenses.

Disclosures about the school-district program have put Superintendent Maria Goodloe-Johnson's job at risk in what has become the most serious public corruption investigation in years.

At the center is Silas Potter Jr., who managed the district's small-business program, which started as a way to help companies learn how to bid for district construction projects, but grew into an operation that spent up to $1 million a year, offered dozens of classes, and signed partnership agreements with other government agencies such as the city of Bellevue, the Port of Seattle and Tacoma Public Schools.

The release of the documents — the most comprehensive look yet at the allegations — comes as prosecutors conduct a secret criminal investigation of the financial dealings and the School Board considers whether to force out Goodloe-Johnson, sources familiar with the matter have told The Seattle Times.

Goodloe-Johnson, who joined the district in 2007, has not been implicated in any wrongdoing. Still, board members are weighing whether she should be held responsible for a breakdown in internal oversight.

The School Board will meet in executive session Tuesday to discuss the audit, as well as a report from its own investigation, done by a private attorney, into what Goodloe-Johnson or other top administrators knew about the problem, or if they should have been aware of it.

Goodloe-Johnson, who is out of town, has issued a written statement saying she is outraged, and that the district requested the investigation by the state auditor as soon as officials knew fraudulent financial activity might have occurred. She also said that the district has taken a number of corrective measures.

Board President Steve Sundquist wouldn't confirm whether the superintendent's job is on the line, but said members will talk about how to restore public trust in Seattle Public Schools.

"We have to make changes to ensure that it never happens again," Sundquist said.

State Auditor Brian Sonntag on Thursday called it one of the most egregious cases he has seen in 18 years on the job.

"Atmosphere of fear"

Investigators have not been able to locate Potter, who some district employees viewed as a "con artist," the documents said.

Potter, 59, operated with virtually free rein for years. And when co-workers — including a district lawyer — questioned Potter's practices, they were told by higher-ups not to worry, or were met — by Potter and others — with threats and accusations of racism, auditors said.

Amid an "atmosphere of fear, intimidation and reprisal," the audit documents say, higher-ups failed to act.

Ron English, an attorney for the district, told auditors he complained to Fred Stephens, Potter's boss, and Gary Ikeda, the district's then-general counsel, about misleading and false numbers Potter gave to the School Board about the small-business program.

Stephens replied, "Yeah, but we need to make the program look good," English told auditors. And Ikeda later told English: "You told your client, that's all you can do."

Stephens is now a deputy at the U.S. Department of Commerce. Ikeda, who left the district to work for the state Attorney General's Office in November, couldn't be reached for comment.

Even the district's own watchdog, its internal auditor, engaged in what state auditors called a blatant conflict of interest: He was on the payroll of a similar small-business enterprise Potter set up on the side.

Sonntag has concluded that the district lost at least $280,000 for services it didn't receive and that provided no public benefit. The auditor's report also questioned another $1.5 million of expenditures made by the small-business program, which the district ended in September.

It also outlined how Potter diverted district funds to his side enterprise.

Some of the most serious allegations involve well-known individuals and businesses including the Urban League and Charles Rolland, a former head of the state Democratic Party who co-chaired the search for a new Seattle police chief last year.

The Urban League, for example, received $595,000 from the school district over four years to help prepare minority contractors for government work — more than any other vendor. Two school employees and a former consultant told auditors that Urban League services "did not benefit" the school district. The problem with many of the Urban League's bills was vagueness.

In a little over a year, the League billed the schools for $297,000. But the invoices consisted of a single page with little detail, auditors said. The League also charged up to $15,000 a month for "general overhead and administration."

Auditors contended the League was using this money to support one of its own departments, the Contractor Development & Competitiveness Center (CDCC).

"In our judgment," auditors wrote, the league billed the school district "excessive amounts in order to fund their own department."

When interviewed by auditors in November, Urban League officials said the schools benefited from the CDCC's "relations with communities and development of systems."

Tony Benjamin, the league's acting director, could not be reached for comment Thursday.

In another case, a district employee told auditors the district didn't receive much benefit from consulting, training and outreach work by Rolland, Tony Orange and Eddie Rye Jr., longtime leaders in Seattle's African-American community. All three had testified at School Board meetings about the lack of work awarded to minority contractors, the employee said.

When they got contracts, they stopped appearing at board meetings, the employee added.

Auditors said Rolland declined to talk to them unless they had a subpoena.

Overbilling alleged

Other allegations include:

• A pet-care company, a cosmetologist and a chiropractor took free business classes that were supposed to be for companies that would bid on district construction contracts.

• One of Potter's employees told contractors they would have to give her a loan of $5,000 if they wanted to be selected for a contract, and that they could overbill the district to recoup that money.

• When an employee complained that Potter hired a family member to work for him, Potter's boss, Stephens, told her she would be in trouble if she ever did that again, and that confronting Potter was "tantamount to racism."

• A friend of Potter's submitted invoices for $3,000 a month for several months, yet there was no apparent evidence that he taught any classes for the small-business program that he said he did.

• Elaine Ko, a former Port of Seattle official, billed the district $17,800 for consulting work that auditors concluded she knew was for Potter's private enterprise. Ko has declined to comment on the investigation.

According to the audit, some of the vendors may have knowingly participated in wrongdoing while others thought they were involved in legitimate dealings with the district.

After he read all the details, School Board Vice President Michael DeBell said his first feeling was shock followed by a deep sense of outrage.

"Honestly, we were almost incredulous," he said. "It just didn't seem that this kind of thing would happen."

The district plans to make a claim to its insurance company to cover the losses, although it doesn't know how much it might be able to recover.

The investigation started last summer, requested by district leaders after they discovered that $35,000 that was supposed to go to the district ended up in the bank account of Potter's private organization instead.

Linda Shaw: 206-464-2359 or lshaw@seattletimes.com

Steve Miletich: 206-464-3302 or smiletich@seattletimes.com

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