MUSKOGEE – Two former finance officials for Hulbert Public School District have admitted stealing federal program funds, and were released from custody pending their sentencing in federal district court here.
Rebecca Deanne Morehead, 53, of Locust Grove, and Leslie Shannon Mack, 54, of Hulbert, each pleaded guilty to one count of theft or bribery concerning programs receiving federal funds.
Their indictments alleged that between June 2019 and October 26, 2021, the two stole more than $5,000 from the Hulbert Public School District. At that time Mack was the school district’s treasurer and Morehead was the encumbrance clerk.
The embezzlement actually reached into the six- and seven- figure range, court records indicate.
During her plea hearing, Mack admitted that she issued excess payroll payments to herself and to her co-conspirator, Morehead, “above and beyond” their authorized salaries, and that she allowed another individual access to the financial accounting system. Mack acknowledged that “the amount of loss resulting from” her actions “is more than $550,000 but less than $1.5 million.”
The charges were triggered by an audit performed by Broken Arrow Certified Public Accountants Bledsoe, Hewett & Gullekson of the school district’s financial records for school year 2020-21. The audit also prompted a probe by the Oklahoma State Bureau of Investigation and the U.S. Department of Education – Office of Inspector General.
Hulbert school district is in Cherokee County and recorded an average daily attendance of 501 students in school year 2023-24.
In their audit report dated June 30, 2021, the CPAs wrote that, based on interviews and software accounting reports, “it appears that the treasurer, Leslie Mack, and the encumbrance clerk, Becky Morehead, may have committed fraud by misappropriation of assets.”
The embezzlement “appears to have been accomplished by issuing additional payroll payments in excess of their approved employment contracts.” The extra payments were “in most cases paid by direct deposit into their personal bank accounts…” In addition, two other district employees, Charles York and Luke Morehead, “may have benefited from this payroll scheme,” the auditors reported.
In total, “there were approximately 75 payroll payments made to Leslie Mack and 52 payments to Becky Morehead” during Fiscal Year 202021, the auditors found.
Mack’s contract provided for
Turn to HULBERT, p3 a salary of $45,850 that year, but she paid herself $227,264. Similarly, Morehead’s contract salary that year was $39,650 but she received $117,702.
Furthermore, “it is important to note that the paid amounts … are the net amounts paid to each employee,” the CPAs emphasized. “These figures do not include the total payroll cost to the district for each employee,” such as Oklahoma Teachers Retirement System contributions, the district’s share of FICA and Medicare withholding, and other benefits.
In addition, “Software reports for the 2020-21 fiscal year show additional District matching costs of approximately $100,000 for Leslie Mack and Becky Morehead.”
The auditors reported they could not find an employment contract for Luke Morehead, although the school superintendent “informed us he was a substitute teacher and should not have been on payroll after November 2020.”
Nevertheless, “We observed 25 different payroll payments totaling $7,303.87 (net) made to Luke Morehead from Oct. 2, 2020, through June 30, 2021.”
The CPAs also found 52 payroll payments to Charles York, totaling $82,367.53 (net).” Those payments were made “out of both the general fund and the building fund,” the auditors wrote. York had a base salary of $19,200 plus $5,600 for an extra-duty assignment as a bus driver, school records showed.
The payroll payments for Luke Morehead and Charles York “were often initiated on the same extra payroll runs that were made for Leslie Mack and Becky Morehead,” the auditors found.
No federal or state criminal charges have been filed against Charles York or Luke Morehead.
“[W]e estimate a possible misappropriation of District funds in excess of $500,000” from July 1, 2019, through Oct. 31, 2021, the CPAs calculated. “We reported this payroll scheme to the superintendent immediately upon discovery, and both employees [Mack and Morehead]” resigned “effective immediately.”
As a direct consequence of the “misappropriation,” three of Hulbert school district’s fund balances “became negative” during the 2020-21 school year. Those were: General Fund, negative $19,885; Building Fund, negative $142,186; and Child Nutrition Fund, negative $41,740. Those totaled $203,811.
Since there was “a deficit fund balance,” future fiscal year revenues will “have to pay for the previous year’s obligations,” the CPAs noted.
School officials were aware of “the limitations resulting from a small number of employees performing almost all of the accounting functions,” and hired a third person “for this very reason: providing segregation of duties.”
New procedures However, Superintendent Jolyn Choate also said the district would implement myriad new procedures. For example:
• Payroll and treasury “will be outsourced to prevent collusion between employees, allowing the payroll registers to be reviewed by an outside independent source.
• All purchase orders must be encumbered “prior to the obligation being incurred.”
• The face of a purchase order must “reflect the total amount actually paid.”
• All purchase orders must have either original invoices or non-commercial vendor invoices “attached as proof of indebtedness.” The auditors reported finding “a large amount of purchases where we were unable to locate any supporting documentation or could locate only partial documentation.”
• Monthly treasurer reports and activity fund reports, along with a year-to-date payroll encumbrances report, are to be reviewed at each school board meeting before approval.
• The board will approve check numbers monthly, “comparing them to the checks being signed.”
• Signature stamps, if used, “will remain in the possession” of school board members.
•The appropriations ledger will be reconciled quarterly with expenditure reports “to ensure that expenditures do not exceed appropriations at any time, in any fund, during the year, and to ensure that the fund balances do not end the year with a deficit.”
Eastern Oklahoma District U.S. Magistrate Judge Gerald L. Jackson ordered presentence investigation reports on both Mack and Morehead, and released them on personal recognizance bonds pending sentencing.
Federal law decrees that restitution is mandatory “without regard to the defendant’s ability to pay.” Mack’s plea agreement stipulates that the school district’s losses total at least $372,808.