Shut Up, Fido

This is such a strange town. You could never explain this place to a Martian, or a person from St. Paul, or somewhere like that. The Dallas Morning News is supposed to be the voice of the local conservative business establishment. But for some months, the editorial page staff has been promoting the idea that the FBI needs to wrap up its corruption probe of the Dallas school system pronto and forget about any big new revelations.

The "thinking" is that the school board needs to borrow one or two billion dollars in the bond market soon, and it would help the district's creditworthiness to have this whole corruption-probe business called off.

At one point, the News said, "...with [U.S. Attorney Paul] Coggins planning to step down when the Clinton administration leaves office, the Dallas schools investigation is expected to wind down without any more major charges."

Not true.

And anyway, is the idea here that the G-men should shut down a 2-year-old corruption probe because the target of their investigation needs to borrow money? I worry that even describing this notion in print may disturb the eternal slumber of Elliot Ness.

Op-Ed columnist Hank Tatum wrote a piece last month ("Federal prosecutor shouldn't leave schools in limbo") saying Coggins needed to get the DISD probe wrapped up before leaving office because, "Until the probe concludes, the public will always have doubts."

Now, Henry. Do you honestly think shutting down the FBI investigation will improve the district's credit rating? The last estimate of the bond issue the school system needs to get passed by the voters was $1.6 billion. Let's role-play this thing. Let's pretend you and I, Hank, are sitting in front of the banker's desk trying to borrow a couple bil'. And we tell him, "Look, we talked to some people we know, and we got that big federal fraud probe of us closed down. As far as any results, it was inconclusive. So, uh, when do we get our check?"

The only person I can think of who could get away with a speech like that is Al Pacino.

Coggins sounded miffed when I talked to him. He pointed out that he did send former Superintendent Yvonne Gonzalez to the Big House for fraud.

Coggins said: "It strikes me as ludicrous to suggest that, after sending a superintendent off to prison, anything else we could do short of dynamiting the whole place could shake up the system any more than we already have."

Yeah, but see, he keeps thinking in terms of justice. The Morning News thinks the traditional Dallas way, in terms of smoothing everything over so you can get the cash flow going again.

After all, we have a lot of big dogs--banks, construction companies, land flippers, and so on--who depend on that big cash flow at DISD.

Fortunately for the rest of us, the FBI does have significant leads. According to the people I talked to, one of whom was Coggins, the FBI is working on five or six pretty good criminal cases involving the district. One source, who spoke to me on background, said an additional case just came in over the transom within the last few weeks and looks strong.

Lori Bailey, the spokeswoman for the Dallas office of the FBI, declined to discuss any particulars about the school probe, but she did say that Danny Defenbaugh, the special agent in charge, is not at all inclined to hurry things up or cut his investigation short "for political reasons."

Bailey's description of the probe jibed with what Coggins and others said: The FBI hasn't added any new agents to the investigation recently, but it certainly hasn't pulled anybody off. The DISD probe is a going concern, and it's going to take awhile.

This is unlike the "internal investigations" and so-called outside audits that DISD itself has conducted or paid for in the past few years. The main one, carried out by KPMG, one of the world's largest accounting firms, took more than a year to complete, cost the district $1.5 million, and resulted in a slender 24-page report.

I have been assured by DISD, after making a legal demand for the full audit report, that this slim pamphlet is the entire work product. I used to do free-lance writing for a major accounting firm. This audit report is slimmer than the sales pitches we used to write trying to get small Oklahoma banks to hire us to do audits.

The report contains all kinds of promising innuendo, such as the following description of all the other inside investigations DISD has done: "KPMG has received numerous allegations regarding reported cover-ups of in-house investigations of alleged wrongdoing at DISD. The perceived appearance of a lack of independence by the individuals in internal audit, security, and employee relations assigned to investigate such matters only helps to add to a culture of politics, suspicion, and distrust."

But whenever you think you're about to get down to the good stuff, the KPMG report says things like this: "It was determined that further review of 95 of the allegations was cost-prohibitive."

There was no mention whatsoever of the one deal I always thought was the single most intriguing allegation--that a major Dallas bank had been regularly paying out millions of dollars on checks for which DISD had no record and that when auditors began asking questions about those checks, historical bank records of DISD's accounts were retroactively altered to make the problem go away.

Let me explain this one a little. Three years ago, it was learned that the bank in question had paid out millions of dollars on DISD checks for which DISD itself had no records. These are called "paid-no-issues." A check comes to the bank; the bank pays on it; but DISD has no record of ever having issued it.

You think, well, they would catch that when they reconciled their accounts. Yeah, they would. Now. Because now they reconcile their accounts. Three years ago, they didn't--they paid the bank to do it. Isn't that great? Here's my billion-dollar account: Don't bother me with the details.

But at a certain point, after the details came to light, DISD sent over to the bank what were called "maintenance tapes"--computer tapes that were supposed to be used to give the bank the information it needed to reconcile the accounts, kind of like sending in your checkbook register for them to consult. But these particular tapes, according to the people I have talked to, did something very different. These tapes went back and altered old transactions, erasing most or perhaps all of the "paid-no-issue" transactions.

So how do I even know these transactions exist? Because a bank employee who smelled a rat kept hard copies of the original register, before the "maintenance tapes" had a chance to go back in and erase the evidence. And I have that hard copy on my desk.

All of this was presented to KPMG. Not a syllable of any of this is included in KPMG's final report to the district. I called Mike Wilson, KPMG's managing director of forensic and litigation services in Houston, to ask him why. He referred me to DISD's public relations office.

The PR people set me up to meet Ray Zies, the district's new chief financial officer. I would describe his reaction to my stack of printouts as very wide-eyed, and he did copy down a few check numbers to see what he could find.

But Zies just got here. He doesn't know about any of this stuff. Why would he? None of this happened on his watch. And the people who would know are either long gone or hiding in the woodwork.

Did I mention that, in the same period when these paid-no-issue transactions were going through the bank, DISD also had about 5,000 checks that were physically missing? Gone. Can't find 'em.

Picture it: This was a place with a $1 billion-plus annual budget. Whole boxes of checks went missing. The district signed many checks by rubber-stamp. The bank paid on checks--it paid out millions of dollars--even though DISD had no record of having written the checks. DISD didn't even reconcile its own books. Nobody missed nothin'. When someone did catch up with all of this, the records at the bank were erased. All of this was given to KPMG.

Not a mention.

Here's a caveat: It's important not to blame this stuff on the people holding the purse strings at DISD now. For example, Becky Oliver at Channel 4 did a really bad sucker-punch interview with Zies a couple weeks ago in which she acted as if he were personally responsible for a bunch of portable classroom buildings that are missing. Like there was going to be covert footage of Zies in a thong, lounging in front of the Caribbean castle he built entirely of stolen portable classrooms. The guy wasn't even here when the classrooms went missing! Give us a break.

As soon as Dr. Mike Moses got to town to take over as our new superintendent, he met with Defenbaugh. I have heard from both sides of that meeting that Moses told Defenbaugh to do whatever had to be done.

So this whole effort to get the FBI to call off its dogs comes from outside school headquarters, from the Morning News, and maybe the business community. And we have a right to be very suspicious. I can't help wondering who it is the News wants to protect.

Strange city, eh? If this were radio, I'd fade to the theme from The Twilight Zone.

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Jim Schutze has been the city columnist for the Dallas Observer since 1998. He has been a recipient of the Association of Alternative Newsweeklies’ national award for best commentary and Lincoln University’s national Unity Award for writing on civil rights and racial issues. In 2011 he was admitted to the Texas Institute of Letters.
Contact: Jim Schutze