Gregory A. Schroeder

WARSAW — Indiana Attorney General Greg Zoeller’s office has filed a lawsuit against a maintenance product company and a former school maintenance director demanding repayment of nearly $1 million for their illegal bribery and kickbacks scheme that defrauded the Warsaw Community Schools, an audit found.

Named as defendants in the state’s lawsuit are Continental Maintenance Specialties Inc. of Lawrenceburg, Ky., and Gregory A. Schroeder of Milford, the former director of maintenance for Warsaw Community Schools. The lawsuit filed in Kosciusko County Circuit Court today seeks $988,917.57.

A special audit by the State Board of Accounts determined that Schroeder used school funds to purchase far larger quantities of cleaning chemical supplies — including kitchen drain cleaner and weed killer — from Continental Maintenance Specialties than the Warsaw schools ever needed. In exchange, CMS and its owner, Brian K. Stowers, paid kickbacks to Schroeder for arranging the excessive purchases.

The State Board of Accounts referred the audit report to the Attorney General’s Office, which filed the lawsuit today against Schroeder and CMS seeking repayment of $828,161.07 in excessive and unreasonable costs, recovery of $115,620.87 in kickback payments Schroeder received in the scheme and reimbursement of the State’s $45,135.63 in investigative expenses, along with treble damages.

Brian Keith Stowers

“This is among the most egregious public corruption situations we have seen of a vendor fraudulently billing the taxpayers and a government employee gaming the system in order to enrich themselves. This misuse of school resources illustrates how financial abuses can occur through a lack of internal accounting controls, something our Public Integrity Coalition has attempted to address proactively through training. My office will do our utmost to claw back the funds the defendants misappropriated and return them to the school corporation so they can be put to their proper operational use,” Zoeller said.

According to the State Board of Accounts’ special investigation report issued July 21, Schroeder, the former maintenance director of Warsaw schools, admitted to Warsaw police that he received improper incentives payments — kickbacks — from CMS and its owner, Stowers, in exchange for overpurchasing CMS’s cleaning chemical supplies using school funds, between 2005 and 2014.

As part of the investigation, SBoA examiners compared the volume of cleaning chemicals Schroeder purchased for Warsaw schools to the amounts the school facilities actually needed, consulting with maintenance personnel from other schools using similar products to determine usage. Schroeder spent $790,298.33 on 16,869 gallons of kitchen drain maintenance products when the maximum reasonable cost should have been $40,291, or 860 gallons. Schroeder made similar over purchases from CMS of weed killer and cleaning products for automated cleaning machines for restrooms and shower rooms, resulting in excessive, unreasonable costs billed to Warsaw schools totaling $828,161.07 for the various chemicals, the audit said.

SBoA examiners also reviewed Schroeder’s finances and found 90 instances during the same time frame where Stowers or CMS had paid Schroeder a total $115,620.87, in exchange for over purchases. The kickbacks by Stowers and CMS included checks and money orders written to Schroeder and payments on a Harley-Davidson motorcycle made on his behalf.

The pattern of kickbacks payments to Schroeder closely corresponded to the timing of his excessive purchases from CMS, the audit found. Any payments Schroeder received directly for purchasing chemicals should have been turned over to the Warsaw schools and were not, the audit said, so the State’s lawsuit seeks payment from Schroeder of the entire amount in kickbacks he received.

Citing insufficient internal controls over purchasing and procurement at the time, the SBoA special audit report noted that the school corporation should have solicited multiple quotes for purchases of drain maintenance chemicals, herbicide, liquid ice melt and weed killer, but did not.

When the State Board of Accounts discovers public funds have been misappropriated, it refers the matter to the Attorney General’s Office. As the state’s collection agent, the AG’s Office seeks to recover public funds and return them to the public treasury, often through filing civil lawsuits against the defendants responsible. If the courts enter civil judgments, then the Attorney General’s Office can use the same collection methods any creditor can use against a debtor to collect on a debt, such as placing liens on the defendants’ real estate and personal property and garnishing wages and bank accounts. If the judgments are paid, then the school corporation would recover its losses and the State Board of Accounts would be reimbursed for its audit costs.

The Attorney General’s jurisdiction is civil only. Criminal charges, if any, are solely the jurisdiction of the county prosecutors in each county or U.S. Attorney’s Office.

In the Warsaw schools scheme, the Kosciusko County Prosecutor recently filed criminal charges against Schroeder, the ex-maintenance director, and Stowers, the CMS company owner. Both are criminally charged with corrupt business influence and bribery, both class C felonies, and theft, a class D felony. In addition, Schroeder is charged with official misconduct and Stowers is charged with aiding or inducing official misconduct, both Class D felonies. Both defendants are out of jail on $5,000 bond awaiting trial on their criminal charges.

Stowers, the CMS owner who has a Frankfort, Ky. address, has filed for bankruptcy. The Attorney General’s Office plans to pursue recovery against Stowers’ bankruptcy case so that Stowers can be held civilly liable for any civil judgment in the State of Indiana’s audit lawsuit.

In light of the volume of State Board of Accounts audits of local units that discovered misappropriation — approximately 250 between 2009 and 2014 — Zoeller last year created the Public Integrity Coalition to study the misuse of public funds and recommend ways to prevent and deter it. The coalition’s members include associations for officials serving in county and municipal governments, townships and schools, as well as a state legislator, federal prosecutor, the state examiner and the Attorney General.

The Public Integrity Coalition has held a series of training sessions for public officials and local government employees around the state on proper internal accounting controls and ethical practices. The coalition also recommended a package of legislation that the Indiana General Assembly considered and passed during its 2015 session. Among other things, the newly-passed laws give legal protections to whistleblowers who report their suspicions about misappropriation of public funds by their colleagues or supervisors. More information about the Public Integrity Coalition is at this link: http://in.gov/attorneygeneral/3058.htm. More information about the coalition’s legislation is at this link: http://bit.ly/1CfnYZ5.

NOTE: The State Board of Accounts audit report B45250 of the Warsaw Community Schools is at this link. The complaint the Attorney General’s office filed in Kosciusko County Circuit Court can be found here..