ORANGE COUNTY PERSPECTIVE : Newport: And Now the Schools

It’s getting hard to follow the money in the Newport-Mesa Unified School District. Auditors two years ago found that money from the cafeteria account ended up in a fund intended to pay employee health care benefits. And now the business manager has been fired after at least $175,000 from that health care account was allegedly diverted to his moonlighting enterprise, a shoe repair business.

The district is reeling and holding its breath as the district attorney combs other accounts that the dismissed administrator, Stephen A. Wagner, had access to.

Some residents now clamor for the superintendent to go too. Until things get sorted out, the firing of Wagner was the right thing to do to clear the air. But what a mess.

How could it happen? How, after an independent auditing company sniffed something amiss back in 1990 when it cited the district for bookkeeping “errors”?

The district says it acknowledged that “proper controls were not maintained” regarding the earlier problems in the cafeteria account and that corrective measures were taken. But guess who was put in charge of taking remedial action to repair the revolving health care fund? The district says it was Wagner.

As the district begins reckoning with this disaster, there are lessons to contemplate. It is obviously not enough to have an auditing firm detect irregularities in an employees revolving health care fund. Nor is it enough even for the district to acknowledge them and to make some sort of commitment to remedial action.

The district ought to have a mechanism whereby somebody other than the business manager double-checks on agreed reforms. Maybe that wouldn’t have been enough to prevent the alleged $175,000 diversion. But a yellow light was flashing: “unusual transfers,” said the Long Beach firm Lemke & McDade.

Newport and other school districts should take note. How remedial action is taken and who carries it out are important in the follow-up.

It turns out that the fund is one of the few in the Newport-Mesa district that do not fall under the oversight of the county Department of Education, which funnels federal, state, and local property tax funds to local school districts. In hindsight, review such as that provided by the county looks like one good way to help a school district guard against someone, say, being tempted to make out district checks to a shoe repair company owned by a school administrator.