Local News

Investigator: Push To Spend All Of Wake School Budget Contributed To Fraud Scheme

Posted October 13, 2005

— A day after an investigator testified that a push to spend the entire Wake County school budget helped several suspects in a multi-million-dollar fraud scheme divert money for their personal use, some are asking: Is wasteful spending a system-wide problem?

Agent D.G. Whitford, of the State Bureau of Investigation, testified Wednesday that hundreds of thousands of dollars in fraudulent spending at the end of fiscal years 2003 and 2004 was discovered to have occurred within the school system's Transportation Department.

Although orders for fake parts were found throughout those years, the end of the fiscal year, in June, provided a unique opportunity for the co-conspirators to divert funds for personal use, Whitford said. He said $3.8 million in orders for fake parts were processed in a matter of hours over a couple of days each year.

On Wednesday, three people pleaded guilty in the multi-million-dollar fraud scheme. They included Vern Hatley, the former director of the Transportation Department. Investigators said the people involved submitted orders for fake parts to supplier Barnes Motor & Parts. Former employees at Barnes said they set up an account for the school system employees involved in the scheme. While some of the money may have been spent on school supplies, investigators said much of it went to personal purchases and items such as gift cards, vehicles, boats, camper homes and golf carts.

"Wake County had a lot of money that they had to spend. If they did not spend it, they would lose it, or it would probably be cut from their budgets the succeeding year," Whitford said. "So there was a mad rush to spend money."

Wake County Commissioner Tony Gurley said he was "extremely concerned with that kind of attitude."

He said Whitford's conclusion means that wasteful spending, in general, may exist throughout the school system.

"I think commissioners are very concerned that the school system be accountable and responsible for the monies allocated to them," he said.

Officials with the school system declined to talk on camera about the investigator's comments because, they said, they have answered questions on the subject several times before.

Michael Evans, a spokesman for the Wake County Public School System, did say that there was no system-wide rush to spend in June. He added that large orders for bus parts were common in June for summer repairs. The spending was not considered unusual; and although the fraud scheme was not immediately detected, he said questions were raised.

"Use it or lose -- it is a dynamic in state government, local government, the federal government and even the private sector," said John Hood, of the John Locke Foundation.

Hood said organizations should give managers incentives to not spend.

"To actually give managers an incentive to not spend to zero, you really need that," he said.

Gurley added that the Wake County Board of Education's decision to hire an outside auditor was a step in the right direction.

"I think they're doing exactly what they need to do to re-establish that credibility," he said.

The outside auditor should be named during next week's school board meeting. The firm that gets the job will look over the three pages of accounting changes made by the school system since the fraud surfaced last year. The auditors will also look for other examples of fraud in the last three years.


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