By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
So far the feds have caught minimum-wage janitors fudging on their overtime, roofing supervisors taking kickbacks, and a former superintendent stealing money to buy bad Chinese furniture.
That may be all we ever see. If it is, the reasons are simple, according to a variety of people inside and outside the school district. The FBI, depending on whom you talk to, is either not smart enough to catch anybody, or they're smart enough but they're not all that interested, or they're just too busy.
Meanwhile, KPMG Peat Marwick, the accounting firm doing the hands-on auditing, appears to be devoting more of its energy to keeping bad news out of the media than to catching anybody.
This very depressing portrait of the effort to clean up 3700 Ross comes from people who have tried to feed information and tips into the investigation as well as from people who have done some of the investigating.
The issues in the fraud audit are not new, and they certainly don't involve anything that has happened yet on the watch of the new superintendent, Waldemar Rojas. Most of them, especially the allegations of high-level financial fraud, stretch back several regimes.
But these investigations, nonetheless, were supposed to give us the big answer: Is the ongoing financial mess at DISD the product of stupidity? Or is it the work of clever criminals?
What is not generally known is that in the last year both KPMG and the FBI have been shown evidence of what could be staggering amounts of fraud and theft carried out at high levels in the district over many years.
Look, for example, at what the investigators have been handed by one man: Russell Fish, an unpaid volunteer computer geek who heads up a citizens group called the Open Records Project. Fish says the FBI asked his group to run a bookkeeping operation on its computers that neither the FBI nor KPMG had the wherewithal to do themselves. Taking raw data on tape from the district, Fish and an army of volunteer computer experts wrote powerful software that allowed them to array the district's general ledger against its checking account.
Fish found 5,000 checks unaccounted for. He gave his results to the FBI more than a year ago, along with evidence that Bank of America, DISD's bank, had examined its records and found a substantial number of "paid-no-issues" -- checks the bank said it had paid but that DISD later said it had not issued.
Fish says the combination of missing checks with the bookkeeping problems at the bank and other sloppy practices means it is possible someone has been or is still "stealing checks and using them as currency."
"It's a key to the bank," he says.
Fish says he has also uncovered at least 100 "phantom vendors" -- businesses to whom DISD regularly sends checks for which the addresses are P.O. boxes. When Fish tried to track down who owned the P.O. boxes, the trail just led to other P.O. boxes. And those P.O. boxes led to other P.O. boxes.
"The P.O. boxes just go off the edge," he says. "One P.O. box leads to someone else at a P.O. box, and you just go and go and go, and you never find anybody."
In other words, some DISD employee could be sending the checks to himself/herself and/or cousins.
In a normal operation, one still might be able to get vendor information off the purchase orders. But Fish found $407 million in expenditures that were made in a period of only a few years without any purchase orders at all. The authorizations to issue the checks, he says, don't even have signatures.
Fish and the Open Records Project got their hands on all of DISD's financial records two years ago through a Texas Open Records Act demand. Fish is taken seriously by the players in the DISD fraud investigation. U.S. Attorney Paul Coggins conceded that members of his staff had met with Fish. "We'll take help anywhere we can," Coggins said.
Bill Hanley of KPMG Peat Marwick, the major accounting firm hired by the school board to carry out a criminal audit of the district, says, "I like Russell, and what he's trying to do is tremendous. He's got more capabilities than a lot of people."
But some of the people who take Fish seriously obviously are uncomfortable that he takes his findings public. One of the spookier things Fish says he has uncovered is a kind of stealth invasion of bank records by which certain records at Bank of America may have been destroyed. Fish thinks someone at DISD was sending so-called "maintenance tapes" -- computer records on magnetic recording tape -- over to BOA for BOA to run in its own computers, in order to "update" the district's records. He says the tapes from DISD were "going in and removing records of some checks, including some which had been issued and had already cleared the bank.
"The address the tapes were coming from at DISD," Fish says, "is a room that doesn't exist."
Linda Houllahan, the BOA account executive who handled the DISD account during that period, first heatedly told the Dallas Observer that no such tapes had ever existed. "That's not a true statement," Houllahan said on the phone. "We don't receive tapes from DISD, and we never have."
But a while later in the same very animated conversation, Houllahan said, "They send us a tape of what their [check] issues are."
That tape runs in the bank's computer, she said.
When the Observer pointed out she had said just a few minutes earlier that there were absolutely no tapes going back and forth, Houllahan said she had meant there were no tapes capable of altering old transactions. Later in the same conversation, she conceded that the tapes can cancel old transactions, but she insisted they can't erase them.
Fish, a former Silicon Valley CEO, says the Open Records Project attacks investigative issues differently than either the FBI or KPMG. "We do large database manipulation. They do sampling. We suck up the entire financial database and look for trends."
Fish says the FBI in particular is not able to "attack 10 gigabyte databases the way we do. Our computers are a factor of 100 times better than the FBI's. When we try to give them information, we have to save it as text files [the most primitive form of computer data], because their computers can't handle it otherwise."
FBI spokeswoman Marjorie Poche balked at the suggestion that Fish and his crew are running computers superior to anything the FBI owns. But she conceded his machines may be better than the equipment available to the agents doing the DISD investigation.
"He's probably right if he's talking about the case agents working on DISD," she said.
U.S. Attorney Coggins also scoffs at the notion that the FBI does not possess a computer capable of solving complex crimes. "Some of the best FBI computer cases in the world have been made here," he says.
He says the Dallas FBI bureau has a huge amount of work on its plate besides DISD, including several complex national and international cases, to say nothing of a massive amount of information to sift in the DISD case itself. "They have talent, but it is fair to say that their talent is spread thin."
Coggins said his staff has been meeting with the FBI about DISD in order to "focus the investigation." He pointed out that the FBI is being assisted in the DISD probe by the IRS.
Other people who have talked to the FBI say it's not just a question of computers. Philip Timmons, an electrical engineer whose company tried to do some construction work for DISD, thinks the sophistication of the fraud artists at DISD is way ahead of the sophistication of the FBI agents chasing them.
"I spent hours explaining our deal to an agent downtown," Timmons says. "This stuff is very complex. When I was done, she said, 'You know, we just had our house remodeled, and the contractor got a 25 percent down payment from us. Maybe if you did that you wouldn't have these problems.'
"Everything I said just went right over her head."
Timmons' solution was to put his entire complaint, including all of the evidence he presented to the FBI, on the Web. His page is www.dallas.crooks.com, if you feel like checking it out.
Maybe Timmons is right, and the FBI just doesn't get it. So what's KPMG's problem?
According to its contract with DISD, KPMG was supposed to pass on any promising criminal leads to a private criminal investigator hired by the board, Dave Gillis. But Gillis, a former FBI agent experienced in education fraud, did not renew his contract with the district when it expired this year.
Gillis would only tell the Observer that, "It was not working in the way that it was envisioned at the time that I was employed." He declined to comment in any detail on his reasons for bailing.
But people who have dealt with Gillis say he walked away from the investigation because KPMG was not passing on any information at all, as required in its contract, and in fact KPMG was making wholesale decisions not to pursue hundreds of criminal leads without consulting anyone outside its own staff.
Mike Wilson, KPMG's head forensic auditor in Houston, said it would be "an inaccurate statement" to say KPMG had passed on no information to Gillis. "We passed on lots of information to him," he said, but client confidentiality rules prohibit him from going into detail.
Fish says KPMG approached him about cooperating with them on a formal basis. But he says the first thing KPMG asked him to do was sign what he calls a "gag order," promising not to make any of his findings public. Fish wouldn't do it.
Hanley of KPMG says such a confidentiality agreement is standard operating procedure and accounting practice. But Fish says the agreement KPMG wanted him to sign would have taken all the DISD data his group had fought to make public and turn it back into secret information.
One thing the school board wants to do is get the fraud audit over quicker. Earlier this year, they voted to spend the rest of the budget for the audit, $1 million, in one year instead of two as previously planned. Maybe that will enable them to move from the janitors and the Chinese office furniture to a serious FBI crackdown on truancy.
Then again, some of those agents are kind of up in years, and some of those kids are pretty quick. Let's not expect too much out of this.
Editor's Note: The Bank of America employee quoted in the article was not Linda M. Houllahan, who maintains that she resided in New York City at the time the article was published and has never been employed by the Bank of America in Dallas.