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Phelps denies fearing audit at contract backdating trial

October 10, 2018

FILE - In this March 22, 2016, file photo, Stacy Phelps leaves his initial appearance at the Charles Mix County Courthouse in Lake Andes, S.D. Phelps, the former CEO of the nonprofit American Indian Institute for Innovation, accused of trying to avoid a potential state audit said Wednesday, Oct. 10, 2018,. that he didn't intend to cheat or deceive anyone when he backdated contracts in 2015. Phelps said he backdated the documents in August 2015 because his colleague, Scott Westerhuis, said he couldn't find the originals. (AP Photo/James Nord, File)

SIOUX FALLS, S.D. (AP) — A former South Dakota nonprofit executive accused of trying to avoid a potential state audit said Wednesday that he didn’t intend to cheat or deceive anyone when he backdated contracts in 2015.

Stacy Phelps, the former CEO of the nonprofit American Indian Institute for Innovation, testified for a second day at his trial, saying he backdated the documents in August 2015 because his colleague, Scott Westerhuis, said he couldn’t find the originals. Prosecutors allege Phelps backdated the contracts between the nonprofit and an educational cooperative to avoid an audit.

But Phelps denied fearing an audit of the nonprofit and said he believed the contracts were genuine. Phelps said he had never discussed dodging an audit with Westerhuis and trusted him up until the day he died.

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.

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

Phelps said Mid-Central’s former director, Dan Guericke, had already signed the contracts when they were emailed to him. Phelps said he viewed backdating the contracts as a “routine act that Mid-Central asked me to do.”

Westerhuis also told him the contracts had to be amended to include language requiring that the Institute get permission from Mid-Central to spend money for a Gear Up summer program, Phelps testified.

But Attorney General Marty Jackley said during his opening statement that the case was about a “cover up” of the financial dealings of the nonprofit and Phelps’ conduct. Prosecutor Paul Swedlund questioned Phelps Wednesday about a series of phone calls and text messages between Phelps and Westerhuis leading up to Phelps emailing the backdated contracts.

Phelps said he could only remember talking to Westerhuis about the contracts once. Swedlund also asked questions highlighting “different explanations” Phelps provided to investigators during a December 2015 interview and at trial about why the contracts were changed.

Phelps later testified that an agent that interviewed him in 2015 was speaking quickly and talking over him.

“It was very confusing to me,” Phelps said.

Closing arguments are set for Thursday in the trial. 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 go to trial in what prosecutors dubbed the Gear Up case. Guericke was to stand trial with Phelps, but instead took a plea deal in September.

Guericke and Phelps were accused of backdating two contracts between Mid-Central and the Institute in August 2015 before they were made available to the state Department of Legislative Audit.

A jury in June cleared onetime Mid-Central assistant business manager Stephanie Hubers, who had been accused of receiving about $55,000 to keep quiet about Westerhuis and his wife’s alleged stealing. Hubers was found not guilty of grand theft, grand theft by deception and alternative receiving stolen property charges.

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