State’s Special Inquiry Into AIII Revealed Westerhuis’ Payroll Scheme

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The GEAR UP trial involving former head of the American Indian Institute for Innovation, Stacy Phelps, resumed Tuesday with testimony from a state auditor. 

While a state auditor admitted in court that South Dakota’s Auditor General had the authority to look into the AIII’s finances at any time it was receiving state money, the non-profit was never audited. Tim Flannery of the Department of Legislative Audit told jurors until the Westerhuis’ death in Platte, the state wouldn’t have had reason and that no one at DLA was reprimanded for not discovering that Scott Westerhuis had embezzled $1.3 million. 

According to the state’s report, Westerhuis had been involved in a payroll scheme for eight years, starting in 2007. Westerhuis took money out of Mid Central Educational Cooperative’s bank account for the payroll of several non-profit organizations he was also heavily involved in. 

Nearly $800,000 in Mid Central funds were misappropriated to AIII. Flannery said, “An audit of AIII would have revealed Scott Westerhuis’ embezzlement.” The Department of Legislative Audit discovered that embezzlement in a special report into AIII finances after Westerhuis’ death. Details of that special report were not made public. 

Flannery also testified that DLA looked into two new contracts that were uploaded by Nicole Westerhuis to the state after auditors began inquiring whether AIII should be audited as a sub-recipient of the GEAR UP grant. Phelps is accused of fraud for back dating and signing those contracts. Those contracts never received approval from Mid Central’s board as required. 

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