Seattle Public School agency under criminal investigation for fraud, exec is missing

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A small-business program administered within the Seattle public school district is under investigation for fraud and its chief executive has gone missing, even though independent consultants warned school officials of potential misconduct over two years ago.

The agency at the center of an investigation by county prosecutors, the Regional Small Business Development Program, was formerly run by Silas Potter Jr., who resigned in June, but has since disappeared. The program was intended to award smaller-value construction and service contracts to minority and women-owned companies that had under $1 million in annual revenues.

The outside consultant, The Suttor Group, warned the Seattle School Board in Jan. 2009 that program officials did not follow proper procedures, gave favored treatment to some contractors, and that its files were “incomplete and unorganized.” Sources said that some of the construction firms that received contracts weren’t licensed by the state, and didn’t do background checks on employees, including some that worked near children.

Potter was reprimanded in April 2009 by his then-supervisor, Fred Stephens, who stripped Potter of his authority to award construction contracts, while allowing him to continue to award other types of contracts.

The consultants also criticized Stephens for not properly supervising Potter. Stephens left the district in July to take a job with U.S. Commerce Secretary Gary Locke, a former Washington governor.

Last summer, an audit was ordered by school district officials after they discovered that Potter was soliciting work from nearby communities, using a company he owned, but with a name that made it appear to be part of the school district’s program.  A $35,000 check sent to the district by the Tacoma Public Schools tipped officials of the bogus billing scheme.

After a report was filed with the Seattle Police Department, the money was returned by Potter.

The subsequent audit revealed that the district spent $280,000 for work that wasn’t done or was not for the district’s benefit, and flagged another $1.5 million for questionable services, including consultants and lobbyists who did little or nothing to earn the fees paid them.

Most of the monies were paid to the Urban League of Metropolitan Seattle, local non-profit organizations and firms owned by a former Democratic state chairman and prominent leaders in Seattle’s minority communities.

In December, district officials called in King County prosecutors to take over the investigation. Seattle police and county prosecutors are conducting the investigation under a secretive process by which records and witnessed will be subpoenaed.

The Seattle School Board is also looking into allegations that Superintendent Marie Goodloe-Johnson and other top officials may have been aware, or should have been aware of the fraudulent transactions.

Some evidence suggests that district employees expressed concern of irregularities within the program, but school officials didn’t follow through on them. Other employees who had concerns remained silent, citing their fear of reprisal, according to the audit.

In the meantime, school officials have shut down the small business program until it can be more professionally managed with proper oversight.

Information from: The Seattle Times

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