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Originally published Monday, September 17, 2012 at 9:30 AM

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$1.3M more possibly misspent in Seattle schools scandal

Silas Potter Jr., the man charged in Seattle Public Schools' 2011 financial scandal, may have had a hand in allowing an additional $1.3 million in questionable spending, state auditors said Monday.

Seattle Times education reporter

State auditor's report

To read the whole report, go online: http://www.sao.wa.gov

Alleged overpayments

State auditors found these and other examples of questionable payments:

• $127,981 for security equipment at several schools and a district warehouse that auditors said doesn't work or is not fully functional.

• $95,882 for demolition work at South Shore School, billed at $65 per hour, plus a 40 percent markup. Auditors said that demolition workers usually earn $35 per hour. They also said the invoices did not specify how many workers were involved, or how many hours they worked.

• $87,000 for cleaning and renovating various schools. Auditors said this vendor charged the district an hourly rate of $30-$52 for each employee, plus a 25 percent markup. Yet the vendor told them he paid his workers $18 an hour.

• $2,500 for two security cameras at Cleveland High that were not installed at the school.

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The price tag for the 2011 financial scandal that upturned the leadership of Seattle Public Schools may be $1.3 million more than previously thought, state auditors said Monday.

In a second investigation into Silas Potter Jr., the man at the center of the earlier probe, the Auditor's Office said that Potter, over a four-year period, approved a series of expenditures that appear to be double and even 10 times what they should have been.

In one instance, the auditors found, the district paid $14,505 for video-surveillance cabling and conduit that auditors estimated was worth $1,054.

Potter already faces 41 counts of theft stemming from the first investigation, which centered on a now-closed district program that was supposed to help small businesses win government contracts. He has pleaded not guilty, and his trial is set for Feb. 12.

Two vendors — David A. Johnson and Lorrie Kay Sorensen — were charged as well for allegedly conspiring with Potter to bilk the district. Sorensen has since pleaded guilty.

Shortly after the first audit was released, the Seattle School Board fired then-Superintendent Maria Goodloe-Johnson and Don Kennedy, the district's top financial official, for failing to adequately oversee the small-business program, which Potter directed from 2006 through 2010. The episode also likely played a role in the defeat of two School Board members in November.

In the earlier investigation, the Auditor's Office identified $280,000 in losses and questioned $1.5 million more in expenditures. This latest audit covers the district's small-works program, which awards public-works contracts that cost $200,000 or less. Potter oversaw that program from 2005 through 2009.

With the additional $1.3 million reported Monday, the district's loss now may total as much as $3 million. Sherry Carr, the Seattle School Board member who chairs the district's audit and finance committee, said the $1.3 million alone is equivalent to the cost of the teaching staff for a small elementary school for an entire year.

"Out of control"

While Seattle Public Schools has corrected the problems that led to the overspending, state auditors said, they occurred because district leaders failed to properly oversee district finances and allowed a culture of fear to keep employees from voicing concerns.

State Auditor Brian Sonntag said Monday that district leaders have made a lot of progress since the first investigation. "This situation got out of control because it was one person, with no oversight, responsible for too much money, and no one seemed to care," he said. "Today, I'd say they care."

In the district's response, officials agreed that the district failed in a number of ways, such as lack of employee oversight, not following normal accountability channels, or maintaining "an adequate means for employees to raise their concerns."

Now the district requires more than one person to sign off on any purchase orders or invoices, no matter the amount, said Duggan Harman, the district's assistant superintendent of business and finance. Invoices must be detailed, he said, and can no longer say "payment per agreement."

The district also has established a new ethics program, signed a contract with the city's ethics department to handle ethics complaints, beefed up board oversight of district finances, and hired two additional internal auditors.

Carr, who chairs the board's audit and finance committee, said board members have put in place the best practices for maintaining good control over district money.

"It will be our duty and our challenge from this day forward ... to be sure that we are being absolutely diligent in the area of financial controls."

Potter's attorney did not return a call for comment.

14 questionable vendors

Harman said Seattle Public Schools requested the latest audit last October when, as part of the criminal investigation of Potter, some of the alleged overpayments were uncovered. But some people involved in the building trades said they had worked for years to get the district to pay attention.

Lee Newgent, executive secretary of Seattle Building & Construction Trades Council, said he is discouraged it took so long for the district to act, although it now is going in the right direction.

Auditors said they looked at purchase orders initiated by Potter and his staff between 2005 and 2009. They investigated 26 vendors and found problems with 14 of them, such as wages paid at much higher than the prevailing rate, lack of detail about what the district was paying for, charges for hours that vendors could not document and adding what auditors considered excessive markups.

Two of the vendors were associated with Johnson and Sorensen, who at the time was Johnson's girlfriend. Most of the rest, Harman said, were small businesses that weren't part of the previous investigation. Johnson also faces 41 theft charges. Sorensen pleaded guilty to four counts and has agreed to be a witness in prosecutors' case against Potter and Johnson, according to Scott Peterson, senior deputy King County prosecutor. Peterson said his office will decide whether to file more charges after they study the new audit.

Harman said the school district may ban some or all of the 14 vendors from bidding for future district work, and none of the 14 have had contracts since 2009. The district will look at its legal options as well, he said, and already has filed an insurance claim.

None of the people with ties to the scandal still work in Seattle Public Schools. In addition to Goodloe-Johnson and Kennedy, Potter left the district before the scandal broke as did his immediate supervisor, Fred Stephens, who auditors said did not supervise Potter adequately. Stephens now works for the U.S. Department of Commerce.

This is the second time in a decade the district has had a major financial snafu. In 2003, then-Superintendent Joseph Olchefske resigned after the district had overspent by $35 million.

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

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