Deirdre Newman
As a result of the embezzlement 10 years ago of about $4 million,
the school district implemented a series of checks and controls to
prevent a greedy, powerful employee from having free rein with the
district's finances.
The embezzlement, discovered in October 1992, shattered the
Newport-Mesa Unified School District's credibility and sent the
budget director, Stephen Wagner, to jail, where he would eventually
die. Wagner had used the stolen funds to support his lavish
lifestyle, which included mink-lined tuxedos, expensive cars and
jewels.
In the aftermath of the scandal, auditors and district officials
tried to piece together the complex web of deceit that Wagner had
woven and started setting up a series of safeguards to prevent
another embezzlement. The system has since become a model for the
rest of the state.
"Ethics, clarity, proper checks and balances -- all of these
things have to be done in a very routine way," Supt. Robert Barbot
said.
Wagner pleaded guilty that December to embezzling more than $3.5
million. The embezzlement losses were in excess of $4 million, and
the district recovered only about $1 million of that, through
settlements with Wells Fargo and two accounting firms and by taking
Wagner's state retirement funds, said former Assistant Supt. Mike
Fine, who started with the district in November 1992.
Confronted with the financial morass left by Wagner, Fine -- now a
deputy superintendent for the Riverside Unified School District --
began the process of establishing some internal controls for the
district, mostly starting from scratch.
"[Wagner] clearly demolished and wiped out any system of internal
controls the district at one time had, and so we needed, piece by
piece, to put those controls back in place," Fine said. "I started
fresh because, in going back, we didn't know what was contaminated."
In the past, written financial procedures had been very informal:
For the most part, employees wrote out their responsibilities on a
piece of paper when they went on vacation, Fine said.
The next step was refining the cash collection procedures -- how
money comes into the district and how it is documented -- since
Wagner had been diverting huge checks that came into the district,
Fine said.
Accounts also had to be reconciled, since one of the accounts
Wagner stole from was used by previous auditors to reconcile the
district's balance, Fine said.
The embezzlement also led the district to address its entire bank
