THE STATE

SUMTER 17 - INSIDE JOB
HOW A SCHOOL DISTRICT'S TOP FINANCIAL OFFICER STOLE MILLIONS AND HID THE SCAM IN PLAIN SIGHT

Published on: 01/16/2000
Section: FRONT
Edition: FINAL
Page: A1
By RICK BRUNDETT, CHRIS ROBERTS AND
EILEEN WADDELL, The State


Illustration: DIAGRAM: COLOR, PHOTO: COLOR

Caption: 1.Joseph Klein Jr.

2.Also convicted: From left, James B. Adams Jr., George Kurzenberger and James A. Perry Jr.

3.Sumter 17: The Inside Job Timeline

4.More key names in the Sumter 17 embezzlement case ROB BARGE/THE STATE

5.Joe Klein's 1993 travel calendar ROB BARGE/THE STATE

6.One final fling you paid for ROB BARGE/THE STATE

Once a month for 20 years inside the dark-paneled chamber of the Sumter 17 school board, Joe Klein stood with everyone else to recite the Lord's Prayer.

"Lead us not into temptation," they said, as board meetings began, "but deliver us from evil."

Joe Klein did neither.

In his two decades as the district's assistant superintendent of finance, Klein lived a double life that has melted faith in the jewel of the state's eighth-largest city, a school system with a national reputation for sports and arts.

While building a statewide reputation as a master of school budgets, Klein masterminded a blizzard of paperwork and secrets that became the largest public embezzlement case in state history.

While speaking publicly of financial accountability, he and friends systematically diverted at least $3.5 million from the school system that educated his children.

While making co-workers think he worked long hours and weekends, he blew $1 million on jaw-dropping vacations for himself and favorites that included family, lovers, principals and prostitutes, investigators say.

Klein didn't sin alone.

By the time he drew a 10-year prison sentence in June, three other men - including a former mayor of Wake Forest, N.C. -also pleaded guilty in the scheme.

The State Grand Jury has been through two rounds of indictments since Klein went to prison, including new indictments last week. Eight more pillars of the community - including two ex-principals, an ex-cop and three Sumter High School coaches - await felony trials. Five school employees - three of whom have been indicted - are suspended from their jobs.

And more people may fall.

The grand jury's investigation isn't over. When its work is finished, courts and Sumter 17 officials will decide who else should have known they were taking vacations at taxpayer expense.

The State Law Enforcement Division's investigation lists more than 400 people who traveled from 1988 to 1997 using school money controlled by Klein. Although being in the list of travelers doesn't necessarily imply guilt, the list's names include ringleaders, their families, school employees and people who may have never entered Sumter's city limits.

Those trials and hearings will keep the case alive for years. Some people will need that time to rebuild trust in the school system.

Others say they want to know how district officials gave absolute financial power to a man who became absolutely corrupted.

"The community just doesn't seem to be in an uproar," said Joe Henderson, who owns the Odds & Ends thrift shop on Liberty Street. "Maybe . . . they don't know the extent of what went wrong."

'King Klein.'

Adolph Joseph Klein Jr. was 30 when he came to Sumter, after years as a math teacher and accountant in the school system of his Greenville hometown.

A few months before earning his master's in business administration at Tulane University in New Orleans, he applied for the job as Sumter 17's assistant superintendent for finances.

On his application he wrote that, "the demand by the public for better accountability" was one reason he wanted the job.

Klein started work in August 1977 and quickly became Sumter 17's go-to guy, the only one who fully understood its budgets. "He did have this nickname of 'King Klein,' " said attorney Ken Young, whose clients include Klein's wife, one indicted man and one woman the district wants to fire. "When it came to financial matters, he was the man in charge."

Everyone understands now that Klein had too much power and too little oversight. "We have all learned a bitter lesson," said former superintendent Andrena Ray, who was Klein's third and final boss. "He'd built a real power base. And he did have the reputation of being one of the top business officials in the state.

"It's a tragedy worthy of Sophocles or Shakespeare: A man with a tragic flaw who does himself in."

But Klein had help. The standard rules of public accounting - keeping records open and checked by several people - somehow didn't apply to him. His bosses knew generalities, but Klein kept the nuts and bolts of the school's finances to himself. The school board received reports indicating no problems from the same outside auditor for nine years. It only learned the truth two years after a new auditor went to work.

Barry Reynolds, a school board member from 1991-96 now living in Georgia, said he and fellow trustees knew the district needed better checks and balances on its money.

One year, an early version of a district budget had money in it for an accounting manager or a payroll supervisor, Reynolds said. "But we didn't have enough money."

In 1994, after hearing concerns from community members, the trustees asked outside auditor Philip Davis of Sumter to investigate the travel records of "three or four people," Reynolds said. "He didn't find anything."

At some point - only Klein knows, and he later destroyed the records and declined to comment for this story - he fell to the temptation to steal. No paper trail exists before 1986, but records since then show nearly $2.5 million in stolen money and another $1 million spent on unofficial travel.

To steal money, Klein submitted fake invoices to pay real and fake companies that he and his co-conspirators controlled. To take the trips, prosecutors claim, he invented fake excursions for school groups through a Sumter travel agency, canceled those trips and kept the money for his own travel.

"I don't think anybody knows at this point" how much was stolen, said current Superintendent William Cason. He was hired days after Klein went to jail in June 1999 and has spent much of his time cleaning up the mess. "Each time you find one piece of information," he said, "there is something else there with money attached."

Help from friends.

Klein needed partners in crime. His first known accomplice was James Benjamin Adams Jr., an industrial lubricants salesman and old friend whose wife taught with Klein's wife in Greenville.

The men met again in Sumter in 1986 when "Benjy" Adams made a sales call on Klein to peddle oil for buses. A few months later, Klein and Adams created Trend World Enterprises, a business designed to do nothing but receive stolen school money.

Adams printed fake, fill-in-the-blank invoices. Klein filled them out - often on a typewriter in the district office. He submitted them to the accounts payable department - often after forging signatures of other district employees.

For years, records show, the school paid $1,400 to $10,000 each month to Trend World. Klein and Adams split the money. The stealing expanded. During the next decade, Klein and Adams used at least 12 more companies, some legitimate and others bogus, to embezzle more than $2.5 million from the district. Prosecutors say Adams took at least $1 million.

"Break down this process just for a minute and you see that there were thousands of decisions to make," Jon Ozmint, chief prosecutor for the State Grand Jury, said during sentencing. "Each one of those instances is fraud."

Klein didn't flout his ill-gotten gain. He and his wife, Carolyn, separated in December 1990 - her court papers later blamed his adultery. Klein moved out and gave Carolyn Klein his entire paycheck to pay the mortgage and to support their son and daughter.

Klein lived on what he stole. In court papers, his wife said she thought his money came from investments, including a restaurant and bar in Louisiana. But records show no liquor or business license for Klein in Louisiana.

His lifestyle in Sumter never appeared flashy. Longtime friend Shirley Beemer of Greenville said she thought Klein lived plainly and cared deeply about people.

"Joe would give you the shirt off his back, and if he couldn't do it, he'd go find someone to give it to you - if you had a real problem," she said.

Investigators say Klein put some of the money in a North Carolina cement company, an educational materials company and a fishing company in Costa Rica. None of the investments paid big returns.

Bad business investments also lured two other now-convicted men into the scheme.

In 1996, James A. Perry Jr. and Adams formed companies to handle painting and construction for the school district. Perry was a developer and former mayor of Wake Forest, N.C.

Another of their companies, Global Contractors Inc., ran into cash-flow problems while developing apartments in Myrtle Beach. So they pumped money stolen from Sumter 17 into the company. Perry, who was Wake Forest's "Man of the Year in 1983, received $100,000 in stolen school money. After Adams started sharing it, he said, he learned it was stolen.

Another bad partnership with Adams put a fourth man in trouble. With Adams, George Kurzenberger of Sumter formed a debt-collection company called Claims Management. That legitimate business foundered, but Kurzenberger pleaded guilty to taking $2,700 embezzled from Sumter 17.

Road trips.

When they think about it, some Sumter 17 employees say they remember Klein as always being at work.

"My perception was that he was here all the time," said Debbie Elmore, a longtime district employee and its spokswoman. "The few times I would come to the district office on Saturday, he would be here. Other people will tell you the same thing, that he was here a lot."

But Klein was gone a lot, too, using a scam that paid in travel. By inventing travel for school groups and then voiding those vouchers, prosecutors say Klein squirreled away $1 million in accounts with Sumter-based Follin Travel Services Inc. from 1986 through 1997. Dale Follin, head of the travel agency, now faces charges that include conspiracy and obstruction of justice.

Klein controlled the money, withdrawing what he wanted whenever he wanted it.

SLED records say Klein rang up $622,000 in trips under his name. He sometimes traveled alone. More often, he traveled with his children or girlfriend. Another frequent traveler was Tom Lewis, then Sumter High's winning football coach.

Their destinations would be atop most lists of top-flight travel spots: Las Vegas, Atlantic City, New Orleans, New York, Colorado, the Caribbean.

Klein also lived up to his nickname of "King Klein." Through 1994 - before airlines began requiring passengers to show picture identification - he traveled 30 times under the alias of "King." Those trips under assumed names cost taxpayers another $68,000.

Klein seemed to enjoy sharing his wealth with groups.

Klein took 21 others with him to New Orleans in 1993, at a cost of $22,000. He carried 15 others on a $42,000 Caribbean cruise in 1997.

Klein's co-travelers enjoyed the wide seats and the hot towels of first-class flights. They slept in some of the world's best hotels and ate at the finest restaurants.

Dozens of Klein's trips cost from $7,000 to $12,000; many were long weekends costing less than $1,000.

Gambling meccas were favorite destinations, although Shirley Beemer said Klein wasn't much of a gambler.

"Joe's big thing was to go to Mardi Gras," she recalled. "He just liked to party . . . walk the streets, ride the buggies . . . throw the beads."

Beemer said she and her late husband went on four group trips Klein mostly paid for. She said she didn't know he stole the money.

"I never questioned his finances," said Beemer, who said she assumed other travelers paid their own way. "I just thought Joe was a super-good businessman."

Coaches tour guide.

Klein also played travel host to Sumter High football coaches, whose teams played in six state championships from 1985 to 1995.

When the Gamecocks won titles in 1987 and 1990, Klein took the coaches on two trips to Las Vegas.

"Everybody knew that Mr. Klein wanted to do something for the coaching staff . . . as a reward for a job well done," Paul Sorrells, who was promoted to interim head coach after Lewis was suspended, said in a deposition.

Cason said Sorrells, who coached the team to a 9-3 record last year, has been cleared. Last week, he was named a finalist for the head football coaching job.

But prosecutors claim three coaches knew they were taking what didn't belong to them -Lewis, defensive coordinator Johnny Martin and offensive coordinator Mark Clifford. Indictments claim Lewis was the biggest traveler besides Klein, taking at least 60 trips that cost more than $92,000. He also spent about $100,000 in expenses, "including the company of female escorts and other adult entertainment," according to indictments.

Lewis allegedly received other illegal perks, including a car and two pickup trucks, as well as up to $9,500 for a brick wall and fence at his Sumter home.

Martin was charged with taking 43 trips that cost $50,000 and taking another $43,000 for himself.

Clifford was charged with taking 21 trips worth $28,000, sometimes with female escorts.

Others who were indicted are alleged to have taken at least 22 trips each over the years.

While the thieves had their way with taxpayer money, Sumter 17's finances were occasionally shaky. The district posted a $152,000 deficit during the 1989-90 school year and cut costs the next year.

Klein advised his bosses to reduce spending.

"The district must continue implementing cost-cutting procedures and carefully review all staff positions," he said in a 1990 board meeting. "A frugal effort on everybody's part to stay at a positive balance is needed."

While the district cut costs in 1989, court records show $34,000 in travel under Klein's name that year, including March and Christmas ski trips to Breckenridge, Colo.

Clean audits.

Klein occasionally stole from payroll and student activity funds, and once from federal funds. His usual target, however, was building budgets. Money continually flow through building accounts, coming in from bond issues and going out to pay contractors. Building funds are hard to follow and harder to audit.

Cason, who has a background in school finances, called it a difficult scheme to track.

"What they (auditors) look at is pieces of paper, and Joe was good at having pieces of paper," Cason said. "He was also good at manufacturing pieces of paper."

The district also had the same outside auditor during most of the looting. Davis audited the 1987 and 1988 books with another auditor. He went solo with the district's books through 1995.

He gave the district a "clean" audit all nine years. -a tenure atypical of many public bodies, which change auditors every few years.

"You at least put it out for bids every two or three years, if for no other reason than to see if you can get a better price," Cason said.

Ray said school officials now understand that they should have changed outside auditors more frequently. "But Mr. Klein recommended we continue with Mr. Davis," she said.

In 1993 and 1994 letters to the school board, Davis noted the district's small financial staff put "a strain" on its ability to watch its money. He said the board should hire more people "in order to effectively segregate functions and enhance internal control."

Klein's official response agreed with Davis, but Klein told the board it had no money for new hires.

The school district sued Davis in December 1999, claiming he should have caught the wrongdoing. He declined comment for this story, referring questions to attorney Jack Swerling. "He had nothing but good things to say about Klein and doesn't know anything about what Klein pleaded guilty to," Swerling said. "He found nothing wrong, and that was verified by subsequent auditors."

State auditors also found nothing wrong. State law requires the Department of Education to check each school board audit.

Henry Sweatman, director of the Office of School District Auditing, said his office reviews 103 school audits. His office sees if reporting procedures are followed, not for financial impropriety. One person reviews all 103 audits.

"You can have perfect standards, and you can put in all the controls in the world," he said. "But if you have a crooked man . . ."

That man was Joe Klein. And he was in position to steer the financial controls and evade detection.

To catch a thief.

The stealing continued through late 1997, growing each year. "He'd gotten progressively bolder," said Ray, superintendent from 1992-1999.

Ozmint said Klein would have kept stealing until he retired.

"It was never enough," Ozmint said in court.". . .He never had any intention of stopping."

The scheme ran full-steam ahead in 1995, the year the school board replaced Davis with Georgetown accountant Robin Poston.

It took another two years before the scandal broke - further proof, some say, of Klein's skills.

Ray said several people came to her in 1997 with concerns about finances. One was Sumter High principal Kay Raffield, now president of Central Carolina Technical College. Raffield wouldn't comment for this story.

Ray - whom Klein once publicly praised as having a "noble sense of right and wrong" - quietly started looking at the books.

That quiet inquiry "alarmed me even more," she said. "I knew I needed a professional auditor."

She called in Poston, pointed her in the direction of travel and building budgets, and submerged her in Klein's paperwork. Poston saw invoices from the same vendors for similar projects at different schools. She saw lots of orders for new doors. "Normally, things don't break at the same time, so it just seemed suspicious," Poston said.

She called phone numbers listed on some invoices. Beepers answered instead of secretaries.

She drove to Myrtle Beach to find the home of Educational Materials & Consultants. No such business existed.

Poston told Ray what she found. Trustees agreed with Ray's request to expand Poston's audit - and to keep Klein out of the loop.

Poston soon found dozens of invoices for construction or chemical companies that didn't exist. She looked at travel records for trips by student groups. She asked faculty advisers about the trips; they didn't know what she was talking about.

Klein had initialied each invoice.

"When you started looking at all of the invoices side by side, you started to get a sick feeling in your stomach because you realized just how big this is," Poston said.

Early on Oct. 30, 1997, auditors and school officials confronted Klein with what they had found.

"He was relatively calm, cool and collected," said Bob Harper, an accountant who works with Poston. "I really do think he thought at that point he would slide out of it."

Afterward, Ray said, "We escorted him out of the door."

Later that day, auditors presented their findings to trustees, who suspended Klein with pay.

Enter the law.

Sumter 17 officials knew this was a job for police, so SLED went to work. Agent Pete Logan and his team used Poston's help to begin their investigation, but she had just three years of invoices. Another seven years of records sat in Sumter 17 warehouses, and SLED agents hauled cartloads of paper to Columbia.

The targets of the investigation knew they were in trouble.

Days after being suspended, Klein worked to make sure he could quit before he was fired. He went on a spending spree to ensure his future at taxpayer expense.

He spent $45,100 in stolen money to buy 28 months of credit in the S.C. Retirement System - enough to reach the 30 years needed for full retirement benefits.

His November 1997 request to buy time was marked "rush." Klein retired Dec. 1 and began receiving monthly, pre-tax retirement benefits of $3,800. His wife receives his benefits, prosecutors said.

In all, he had bought nine years' credit in the retirement system.

Klein, now 52, "would not have been eligible to retire without the purchase of all service credits," testified SLED agent Robert H.W. Cathey.

Weeks after retiring, Klein gave his soon-to-be-ex-wife his half of their home for "$5 and affection."

Prosecutors say he also moved $50,000 back to the travel agency, hoping to refill the district's travel account before deficits were found.

Klein moved to New Orleans, where he drove a cab until going to prison.

Lewis also tried to leave Sumter 17. Frank Baker, the superintendent at nearby Sumter District 2, said Lewis called him less than a hour after the head football coach's job became open at Crestwood High School. Baker wondered why a coach would want to leave a program as successful as Sumter's to join one just getting off the ground.

The State Grand Jury began hearing the case in spring 1998. The inside man and three associates - Klein, Adams, Perry and Kurzenberger - were indicted on June 2, 1998.

Judgment day.

Exactly 364 days later, all four pleaded guilty before Circuit Court Judge R. Markley Dennis in Sumter. Adams drew a 10-year sentence, suspended to three years in prison and five years of probation.

Adams filed for bankruptcy in November 1998. He'll pay restitution during probation, but Department of Probation, Parole and Pardon spokesman Peter O'Boyle said the amount has not yet been set.

"My willpower, not to walk away from Klein, was wrong," Adams wrote the judge.

Adams now works on a parks crew and lives at the minimum-security Livesay Pre-Release Center in Spartanburg.

Prosecutors say Perry lied in February 1998 when he told investigators he had no role in the scheme. They also say Kurzenberger lied to the grand jury.

Neither Adams or Perry received jail time - for lying or anything else.

Perry - Wake Forest's "Citizen of the Year" in 1983 - pleaded guilty to receiving stolen goods and conspiracy to commit embezzlement. He received five years' probation and was ordered to pay $100,000 in restitution.

Kurzenberger pleaded guilty to receiving stolen goods. He received five years' probation and was told to pay $2,700 to the district.

Perry and Kurzenberger have repaid the money, the district said.

Adams, Perry and Kurzenberger stood at the hearing with family members who pleaded for mercy. Klein stood alone with attorney Dick Harpootlian, asking that no one else speak on his behalf.

Klein pleaded guilty to 10 counts of embezzling public money and one count of conspiracy to commit embezzlement - crimes that could bring up to 105 years in prison.

Prosecutor Ozmint wanted Klein to receive the maximum penalty.

"He prepared all his life (for) service - public education - and when he's given the opportunity here in Sumter, he made the decision to steal," Ozmint said.

Then-superintendent Ray told the judge that Klein's "grossly corrupt conduct merits society's strongest condemnation."

"He heartlessly betrayed the trust placed in him," she said, later calling Klein's betrayal "the worst experience of my life."

Klein's only public words were a three-sentence apology to his family, the district and its students.

Defense attorney Harpootlian noted that while Klein accepted responsibility for his crimes, there was lots of blame to spread around.

"If no one in the district knew what was going on, then they were blind, and they were willfully blind," Harpootlian said. "Dozens and dozens and dozens of people in the school district took these free trips."

Harpootlian pushed for a minimum sentence.

"He stands at the bottom of the pit looking up," he said. "All we'd ask you to do is give him a sentence that gives him hope."

Moments before pronouncing sentence, Judge Dennis said he struggled with what to do. "He can go to jail, or he can try to pay the restitution, but he needs to pay something back," Dennis said.

The judge gave Klein four consecutive 10-year sentences. He suspended three sentences to five years' probation, and he made the other sentences concurrent to the remaining 10-year sentence. He also must pay $3,000 a month from his pension during probation.

Translation: The mastermind of a $3.5 million theft could be out of prison in as little as five years.

The restitution adds up to only 5 percent of the embezzled $3.5 million. Dennis said his hands were tied by state laws that say restitution can only be required during probation. And probation for any crime must end after five years.

Not over yet.

Klein now lives at the medium-security Manning Correctional Institution in Columbia, where he works in the kitchen. That keeps him close to Columbia-based prosecutors, who say he has cooperated with them.

Department of Corrections records show that Klein made at least five court trips since going to prison.

Football coaches Lewis and Martin topped the list during October's second round of indictments, but other high-level district employees also were charged:

* Ellison Lawson Jr., who retired as a Sumter middle school principal three months before he was indicted, is charged with taking 24 trips and spent $34,000.

* Eddie Myers, who retired in July 1995 as principal of Wilder Elementary School, is charged with taking 33 trips and $10,000.

* James Hicks, a former Sumter police officer who went to work as a district security officer, is accused of taking 22 trips worth $35,000 and another $7,500 for himself. He retired less than two weeks before he was indicted, records show.

Two persons who were not Sumter 17 employees also were indicted - Follin, the head of the travel agency, and New Jersey businessman George Crain. Crain is alleged to have taken 38 trips worth $50,000 and another $50,000 for travel and expenses.

The third round of indictments, issued last week, added charges against Follin and added Clifford to the scorecard of indicted coaches.

Grand jury officials say the investigation continues.

The grand jury inquest is just one part of the legal battles still swirling in Sumter 17.

Cason wants to fire some of the people who brought fame to the district in sports and the arts - including coaches Lewis, Martin and Clifford, and choral director Sonja Sepulveda. Also suspended is W. Marvin Haley, the district's director of buildings and grounds.

The school district has filed two civil lawsuits against Klein and his ex-wife. With those suits pending, board members won't speak publicly about the theft that took place under their watch.

The 1998 lawsuit against Klein seeks the money he stole from the school system.

Carolyn Klein's divorce was final in May 1999.

Two months later, she quit her nearly $38,000-a-year teaching job after 12 years with the district and moved to York.

She sold the house last summer, earning $95,000. The school district wants that money, claiming she benefited from her ex-husband's wrongdoing. The money is in a court-controlled account, awaiting settlement of the suit.

Carolyn Klein filed $300,000 counterclaims, saying she didn't know her husband was a thief and that the lawsuit cost her the chance to buy another home.

She wouldn't comment for this story.

The district also is taking Lewis to civil court. The former athletic director and winning coach is now an assistant manager at the Shoney's restaurant in Fernandina Beach, Fla.

Cason said more action is likely, even after criminal indictments end. Five employees were suspended, but many more took trips.

Some people who took trips "had no way of knowing" they were enjoying stolen money, he said. No more suspensions are likely, Cason said, but some employees may be asked to pay for trips they took.

Cason said district officials eventually must decide which travelers should be held accountable.

But where will they draw that line? Four trips? Five? More? Less?

"That line has to be drawn," Cason said.

The final cost.

During the sentencing of Klein, defense attorney Harpootlian said Sumter 17's students "could not have significantly been harmed" by his client's crimes.

"While this is a significant crime, it's not taking bread out of the mouths of starving children," Harpootlian told Judge Dennis.

Cason bristles at that notion.

"Every bit of that money came from funds that should have gone directly to instruction and the school district or to improve buildings," he said.

"There were no discretionary funds in there at all."

What does $3.5 million mean to Sumter 17?

It adds up to this year's salaries for high-school teachers, or nearly a year's budget for special education programs. It would pay for the district's library and media services for three years.

The missing $3.5 million, however, doesn't account for the lost trust between the district and the city it serves. Nearly 27 months since the district locked Klein's office behind him, Ray said, Sumter still can't shake what's happening.

The school district is "going on with the business of educating children," said Ray, who retired last year. "But we can't seem to bring this thing to closure because of the ongoing investigation, the community grapevine, the press coverage. But I was very, very proud of everyone in the district, that they did hold their heads up high and go on about the business of educating children in the middle of this betrayal and tragedy."

The man who inherited the mess said it'll take time to regain the community's trust.

"I hear comments all the time like, 'That person was in my church' or 'That person taught a Sunday school class,' " Cason said.

"The emotional scars are going to be with this community for a while."

Sumter 17: Inside Job

Inside

* White-collar felons often steal more money, spend much less time in prison than street criminals in South Carolina. Page A12

* Much of the Sumter 17 school scandal still is clouded in official secrecy. Page A10

* School system tightens oversight over its finances. Page A10

* Joe Klein's 1993 travel calendar. Page A10

* Others facing charges in the investigation. Pages A10-11

* Timeline. Pages A10-11



All content THE STATE and may not be republished without permission.


All archives are stored on a SAVE™ newspaper library system from NewsBank, inc.