One school's president directed nearly $3 million to his own company, state investigators say.
Minnesota's alternative education schools need tough new rules and training programs to protect against conflicts of interest and other financial improprieties, State Auditor Rebecca Otto said Monday.
The auditor's report details allegations that the former president of an alternative learning center that had multimillion-dollar contracts with Minneapolis and Richfield public schools used his position to funnel almost $3 million to his own management firm. Otto said the board of directors for the Center for Training and Careers Inc. exercised inadequate oversight.
As a result, investigators found, Louis D. Gonzales shifted the money to his company, Little Feathers Group, between April 2003 and September 2007.
"Things went wrong here," Otto said. "We believe there's a need for training. One dollar is one dollar too many. This may have been avoided."
Reached Monday, Gonzales denied knowledge of any misappropriated funds, saying that he retired before the schools shut down in January 2009. "There's been some kind of error," the 69-year-old Wayzata resident said. "I don't understand what this is."
The Hennepin County Attorney's Office is aware of Otto's investigation, but has not filed charges in the case, a spokesman said.
Otto's report arrives amid rising skepticism of management and financial practices at a range of nontraditional education providers, from charter schools to schools for dropouts.
Despite serving almost 150,000 full- or part-time students, the state's 300-plus taxpayer-funded alternative programs operate with little monitoring, and their finances face much less scrutiny than those of school districts and charter schools, she said. Alternative learning centers operate outside the conventional school system, and are designed to serve students who have been expelled or otherwise have trouble succeeding in conventional classrooms.
When the Legislature convenes in January, Otto said, she plans to recommend that lawmakers consider requiring school districts to oversee alternative education programs' finances, file management agreements and audited financial statements with the state Department of Education, and require conflict-of-interest rules and property lease restrictions.
From May 2001 through June 2008, the Minneapolis public schools paid more than $13.5 million to Gonzales and the Center for Training and Careers to educate expelled students.
A review of canceled checks found that Gonzales paid himself about $2.8 million between April 2003 and September 2007 and paid more than $100,000 to a nonprofit group he operated. Auditors also charged that Gonzales concealed financial reports and under-reported payments to Little Feathers Group.
Instead of reviewing expenses, the board of directors for the Center for Training and Careers appointed Gonzales as treasurer and sole signatory for all business transactions, the report said.
It also found that board members may have turned over financial scrutiny in exchange for favors and contracts that benefited family members or their employers. Directors who worked as medical insurance brokers, real estate agents, telecommunication employees and the owner and publisher of a news outlet all received payment from the Center for Training and Careers during their time on the board, auditors found. Gonzales rented E. Lake Street property for one of the schools from a relative of another board member, auditors found. The report did not identify the board members.
When Minneapolis school officials requested a meeting in May 2008 to review the company's financial records, Gonzales declined by letter and described the accounting practices as "impeccable," Otto's report found. A month later, the district's staff decided not to renew his contract.
The district has not tried to recoup funds from Gonzales or the Center for Training and Careers, a Minneapolis schools spokeswoman said Monday.
Gonzales, a former violence prevention specialist with the state Department of Education, also has licenses to work as a superintendent and secondary school principal in Minnesota. He also served on Gov. Tim Pawlenty's Council on the Affairs of Chicano/Latino People.
Beginning in May 2004, Gonzales' group had a similar contract with Richfield public schools that paid him more than $4.5 million over four years.
In Richfield, the Center for Training and Careers worked with the worst cases of the district's troubled students, youths who wouldn't fit in at alternative high schools, said school district business manager Michael Schwartz.
Students took day or evening classes and worked when they weren't in class, Schwartz said.
Their methods seemed to work. Even after Gonzales' contract expired, the district kept the structure, changing the name of the initiative to the Richfield Career Education Program, or R-CEP for short.
An audit of the Center for Training and Careers conducted by the Minnesota Department of Education in spring 2007 identified three areas in need of improvement. None of the concerns was related to the company's finances.
Schwartz said the Richfield schools accepted internal audits from Gonzales and didn't probe financial reports.
Acting on a tip in 2008, state Department of Education officials began to investigate payments made to Gonzales' private for-profit company.
"It seemed to us, from a distance, they were following proper protocol," Schwartz said. "It appeared everything was proper."
State auditors completed the report in March, but delayed its release at the request of the Hennepin County attorney's office. A county attorney's office spokesman did not know why the request was made.
Gonzales' personal website indicates he has written several books, including "Godfather Knows Best: 50 Mobstyle Rules for Young Professionals." A website that sells his book bills Gonzales as a "streetwise manager and CEO" who "puts readers within steps of the ... Godfathers and Tony Sopranos of today's corporate America."
The Center for Training and Careers sites closed in January 2009.
On Monday, Gonzales said he retired in late 2008 or early 2009.
"It was a great school," he said. "I retired and I understand the school closed."
Corey Mitchell • 612-673-4491