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Prosecutors play part of 2015 interview at Phelps trial

October 5, 2018

SIOUX FALLS, S.D. (AP) — A former nonprofit official accused of trying to avoid a potential state audit in South Dakota told authorities in 2015 that he didn’t notice changes to contracts he signed and backdated that year, according to part of an interview that prosecutors played Friday at his trial.

Prosecutors allege Stacy Phelps, the former CEO of the nonprofit American Indian Institute for Innovation, backdated contracts with an educational cooperative to conceal his own alleged inappropriate spending and avoid an audit. Phelps told authorities in the December 2015 interview that he didn’t catch alterations in the contracts that his colleague Scott Westerhuis asked him to backdate, the Argus Leader reported .

Westerhuis was embezzling money before he shot his wife, his four children and then himself in September 2015. The deaths spurred a financial investigation that led to charges in 2016 against Phelps and two others who worked with Westerhuis at the Institute or Mid-Central Educational Cooperative.

Phelps and Westerhuis worked for both organizations. The Institute helped Mid-Central administer a college-readiness grant program called Gear Up.

The contract changes would have shifted the nonprofit Institute into a role that likely wouldn’t have required an audit, according to the interview.

During opening statements in Phelps’ trial Thursday, Attorney General Marty Jackley said the case was about a “cover up” of the financial dealings of the nonprofit and Phelps’ conduct.

But defense attorney Dana Hanna said Phelps didn’t intend to deceive anyone when he backdated the contracts. Hanna said Phelps got played by Westerhuis, whom he called a “criminal” and a “con man.”

“Stacy Phelps did not know that man was stealing money until that man slaughtered his family,” Hanna said Thursday, noting that Phelps isn’t accused of theft or helping Westerhuis embezzle.

Authorities have said they believe Westerhuis and his wife stole more than $1 million before their deaths.

Phelps, 45, has pleaded not guilty to two counts of falsifying evidence and two counts of conspiring to offer forged or fraudulent evidence. He faces a maximum sentence of two years in prison and a $4,000 fine per count.

Phelps is the second and final defendant to head to trial in what prosecutors have dubbed the Gear Up case. Mid-Central’s former director, Dan Guericke, was to stand trial with Phelps, but instead took a plea deal last week.

Jurors on Friday also heard from John Herrington, an Institute board member, who said Phelps wasn’t forthcoming with information about the nonprofit’s spending. Herrington said the board fired Phelps after realizing he had made unapproved purchases with the Institute’s money.

Herrington said he assumed Phelps should be open about how he spent the Institute’s money even though the nonprofit lacked rules requiring board approval for the organization’s spending.

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Information from: Argus Leader, http://www.argusleader.com

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