Seattle Schools Releases New Report on Financial Scandal, Finds Ikeda “Exercised Control” Over Information

Seattle Public Schools today released a second report (.pdf) on the Seattle School Board’s independent investigation into a financial scandal involving a small business contractual program which resulted in former Superintendent Maria Goodloe-Johnson getting fired last month.

This report, issued by Patty Eakes and Cristin Kent of Yarmuth Wilson Calfo, is the final report expected on the Regional Small Business Development Program, which was disbanded in 2010. The only outstanding issue is a pending criminal investigation by the King County Prosecutor’s Office, the district said.

The Seattle school district notified the State Auditor’s Office of a suspected fraud in the small business program and requested a special investigation last year. The auditor’s office released a report on Feb. 23 which showed that the district had wasted nearly $1.8 million on bogus contracts awarded by former district employee Silas Potter.

Eakes’ independent investigation was aimed at providing a review of what role top management played to help answer remaining questions around oversight and accountability.

The report details investigators discussions with former SPS chief counsel Gary Ikeda, who refused to be interviewed for the first report, but agreed to cooperate after it was published. Ikeda, a former deputy attorney general, currently leads the Attorney General’s University of Washington Division.

The report also includes interviews with district attorney Ron English. It concludes the neither Ikeda nor English had any idea of the problems of the program until much later.

However, the report finds that Ikeda exercised a significant amount of control over what information went to the board, essentially preventing English from alerting the board about the program’s claimed successes. The report finds it concerning that Ikeda was perceived by school district employees as having a closed door policy, thereby preventing them from bringing their concerns about the program to him.

Ikeda left SPS in August 2010, just after the auditor’s office started investigating the fraud. Ikeda told investigators that he had little or no knowledge of the RSBDP’s daily operations and that he was not involved in any decisions to hire Silas Potter to manage the program.

However, ikeda did acknowledge that the RSBDP came to his attention several times when he served as general counsel, beginning with the time the risk manager brought concerns about the program to him. Ikeda’s “memory of the problems were poor,” the report found.

Ikeda also admitted that district attorney Ron English had warned him about alleged inaccuracies in a report about the program Potter had made to the board. Ikeda told English that he should report this to Fred Stephens, Potter’s manager and the district’s then director of facilities. Ikeda could not recall English telling him that Stephens had acknowledged that the report was inaccurate but had stressed that the program needed to “look good.”

He admitted that he had taken no further action—either by following up with English or reviewing the report himself—on the inaccurate report.

Ikeda stated that neither he nor English had no obligation to inform the board about the inaccurate information—rather he feels that Stephens was in the best position to decide whether the board report should have been corrected. Fred Stephens is currently a deputy in U.S. Commerce Secretary Gary Locke’s office.

Ikeda vaguely recalled an investigation by the Sutor Group which found flaws in the way Potter was conducting another small district program. He said he did not know anything about Potter’s plans to transition the RSBDP into his own private non-profit.

The report found that English had acted in the right way when he learned of the problems in Potter’s programs. An anonymous complaint that English was intimidating employees to keep them from speaking out about Potter’s program did not turn out to be true, the report found.