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February 28, 2017 06:00 PM

SD Legislator's Accounting Firm Named In GEAR UP Lawsuit

Lake Andes, SD

$5 million: That's how much Mid Central Education Cooperative in Platte now says in court papers, was either missing or stolen in GEAR UP funds, under its watch.   

The Co-op, which is now defunct, is pointing fingers at its accounting firm which performed yearly audits for more than a decade.

It's the accounting firm of a current lawmaker, Kyle Schoenfish. Schoenfish is a Republican representative from Scotland, SD.

KELOLAND News has been investigating the GEAR UP scandal in South Dakota for 18 months.

​EXPLORE: KELOLAND Investigates GEAR UP coverage

Essentially, Mid Central is saying it's not at fault for the more than or up to $5 million in GEAR UP money that's missing, but rather its accounting firm is. It says Schoenfish & Company should have caught the discrepancy and is accusing the firm of accounting malpractice. 

Attorney General Marty Jackley says Scott and Nicole Westerhuis stole up to $2 million in grant money. 

So the question remains: What happened to the other $3 million?

This is all happening in court because of the lawsuit filed by two Native American students whom we've introduced you to before--Alyssa Black Bear and Kelsey Walking Eagle-Espinosa. 

The two young women have filed a class action lawsuit on behalf of all the reservation students who were supposed to be served by GEAR UP.

Their lawsuit has now also expanded to name many others involved in the administration of the grant. 

It's a familiar cast of characters and they're all now named in the civil suit filed by the two young Native American Women.

They've expanded the lawsuit to include all of Mid Central's board members, as well as the board of directors of the American Indian Institute for Innovation, which got the grant money to run the GEAR UP program. 

The women have named astronaut John Herrington and Washington D.C. Stem Educator, Carlos Rodriguez in the suit, as well as Native American film producer and director, Chris Eyre. 

Now criminally charged with altering documents in the GEAR UP case, former AIII head Stacy Phelps and Mid Central Director Dan Guericke are also named in the civil suit, along with the estates of both Scott and Nicole Westerhuis. 

Black Bear’s and Waling Eagle-Espinosa's suit alleges that the South Dakota Department of Education and Mid Central didn't establish a proper accounting system or safeguards to prohibit employees form using their positions for personal gain.


It also says that Mid Central failed to prevent real and apparent conflicts of interest and points to Rick Melmer, the former Secretary of Education, who received a lucrative GEAR UP consulting contract.

The suit also uses Brinda Kuhn, the GEAR UP evaluator who was paid more than $1 million through Mid Central for her work and Kelly Duncan whom we tried to interview about taking paychecks from Mid Central while being on the State Board of Education and the so-called 'independent team,' that prepared the GEAR UP program evaluation. 

Meanwhile, as we've reported, discrepancies in Mid Central's monthly financial reports between June of 2011 and March of 2014 add up to $3.4 million.


Through a public records request, KELOLAND News obtained Mid Central minutes from when South Dakota got the first GEAR UP grant from 2005 to 2010 and found that $569,000 was missing and that nearly a year's worth of monthly balance numbers simply weren't reported.

Because the two young women are suing Mid Central, Mid Central, in turn, has named its accounting firm, Schoenfish & Co., as a third party defendant.  Mid Central says if it is found to be at fault, its fault is "slight in comparison to the fault of Schoenfish & Company."  Mid Central says the accounting firm should have caught any missing money.


We looked at Schoenfish’s audit report on Mid Central from July of 2013 to 2014, right before the South Dakota Legislative audit found problems with GEAR UP.

Schoenfish said, "We identified certain deficiencies in internal control that we consider to be material weaknesses."  It did find that over an eight year period, "errors and omissions were noted in the annual finance statements prepared by cooperative officials."  Mid Central promised to be more "accurate and complete" when preparing financial statements.  

KELOLAND News tried to reach Kyle Schoenfish Tuesday for comment.  We'll let you know when we hear back from him.

This isn't the first time the accounting firm of Schoenfish & Company has been under scrutiny over not catching the misuse of GEAR UP funds. 

An independent group of citizens has prepared a list of ten questions it would like lawmaker Kyle Schoenfish to answer and has submitted them to the South Dakota Auditor General.

1.How long has Schoenfish and Company conducted audits of Mid-Central Educational Cooperative?

2.How many years were you Kyle Schoenfish personally involved with doing the audits and what years where they?

3. What was your response Kyle as an auditor to the discrepancies in the monthly balances shown in Mid-Central's financial reports from June 2011 through March 2014?

4.What other irregularities did your audits find in Mid-Central's finances that might be related to the improper use of funds that has led to criminal charges for Mid-Central personnel?

5. When did you first become aware or suspect in your audits of businesses associated with the  Westerhuis's of what SD Attorney General has described as misappropriating "at least" $1.2 Million from the state and federally funded GEAR UP program?

6.
When, to whom, and how did you report these $1.2 misappropriations?

7.
When did you first become aware or suspect what SD Attorney General describes as 17 illegal secret contracts let by Dan Guericke, worth $3.8 million, that were not lawfully approved? 

8.When, to whom, and how did you report these $3.8 million worth of illegal contracts?

9.
When did you first become aware or suspect what SD Attorney General reports was evidence in the Gear Up  financial records of over $300,000 of "...misuse, or misapplication of monies designated for Native Americans and their education." By Stacy Phelps, Dan Guericke, and Stephanie Hubers? 

10.
When, to whom, and how did you report $300,000 of "...misuse, or misapplication of monies designated for Native Americans and their education?"


They specifically ask about discrepancies in Mid Central's balances and if Schoenfish ever reported them to anyone outside of Mid Central. We've posted those ten questions online on this story if you'd like to read them. 

KELOLAND News spoke with Randy Schoenfish, Kyle's father who told me he cannot answer those questions due to client confidentiality.  

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