Friday, April 16, 2010

Rio Grande District Still Withholds Borrego Checks

Over 500 Jemez Mountain School District checks totalling almost $3.4 million were deposited into the personal bank accounts of former business manager Kathy Borrego, despite the fact that one in five of those checks was not made out to Borrego, according to an inspection of the checks by the Rio Grande SUN.

But whether that was all the money Borrego and her co-conspirators embezzled is not clear because the District has failed to fully comply with a court order and with a separate SUN request for documents.
State District Court Judge Sheri Raphaelson had ordered the School District March 23 to comply with two 2009 requests from the SUN to provide for inspection of all check payments to Borrego since 1999, as well as any checks made out to her husband Jerry Archuleta, her daughter Rosana Lopez, Lopez’s ex-boyfriend Andrew Duran or the Abiquiú Land Grant dating back to 2001.
In response to Raphaelson’s ruling, Superintendent Adan Delgado provided the 538 checks he said were involved in the State Auditor’s investigation of Borrego. That batch of documents included what Delgado said were all District checks made out to Borrego since 2002, as well as checks made out to four other parties.
Delgado said the District failed to comply with the entire request because he was unable to get copies of the checks that cleared its accounts at Valley National Bank prior to 2002.
But Valley National President Al Hernandez said Delgado never tried to get the checks.
“I don’t think they requested them that far back, but I believe we probably do have it,” Hernandez said. “If we get a request by them, we always provide what they ask for through the legal means necessary.”
In addition, the District has failed to fulfill or respond in writing to a separate February request from the SUN to inspect check payments to 20 other individuals, some of which may have shown up in documents redacted by Delgado.
In total, the released checks’ $3.4 million total matches the dollar amount State Auditor Hector Balderas accused Borrego of embezzling in an August 2009 report.
Borrego is the only person to face criminal charges in the case so far. She pleaded guilty in February to 11 felony charges: six for embezzlement, four for tax evasion and one for committing an official act for personal financial gain. She awaits a sentencing hearing this month with Judge Stephen Pfeffer.
All but a handful of the checks provided landed in one of two private accounts: a Del Norte Credit Union account, which Borrego and Archuleta controlled, or a Zia Credit Union account, which Borrego and Lopez controlled, according to a search warrant for both accounts. A scattering of other checks bearing Borrego’s signature ended up in a different Del Norte account or a Valley National Bank account.
The only other checks provided that did not end up in one of those accounts are one to Archuleta for $28,676 dated Oct. 25, 2007; one to Duran for $6,866 dated Sept. 14, 2007; and one to the “Abiquiu Grant Association” for $27,509 dated Jan. 26, 2005.
A check for exactly that last amount was deposited into the Abiquiú Land Grant’s bank account Jan. 27, 2005, bank records show. The Land Grant had investigated Archuleta, its former treasurer, and former president Delvin Garcia in connection with tens of thousands of dollars that went missing from Land Grant coffers. However, neither Garcia nor Archuleta has faced criminal charges in connection with either alleged embezzlement.
Delgado said all of the checks in question avoided internal detection because Borrego destroyed or falsified District bank records that could have shown her unauthorized checks clearing the District’s bank accounts. The fraudulent checks evaded the notice of former superintendents Pancho Guardiola and Robert Archuleta before Delgado, in his third year as superintendent, began to suspect foul play last spring and requested copies of those checks from Valley National Bank, he said.
While Borrego avoided discovery within the District for nearly a decade, one of her banks also failed to raise questions of its own.
Borrego apparently deposited 117 checks totalling $701,597 that were made out to “Cooperative Education Services” into a personal bank account at Del Norte between 2002 and 2009. Though no such agency exists, it appears likely Borrego was approximating the state Cooperative Educational Services, a common payee on school district checks, Rio Arriba County Sheriff’s Detective Adam Archuleta said. That group is a statewide collective of school districts, charter schools and higher education institutions aimed, ironically, at saving schools money by pooling together to create economies of scale to get lower bids on common supplies.
“Apparently the bank never questioned it,” Adam Archuleta said. “She established a pattern as time progressed, and no one ever raised the red flag.”
All of those 117 checks — not made out to Borrego and lacking her endorsement — ended up in the same Del Norte account used to deposit scores of other District checks fraudulently made out to her. Where Borrego’s signature should be are the words “For Deposit” or “For Deposit Only” and an account number.
The 117 checks that were deposited into Borrego’s account despite not being made out to her also raise questions about why Delgado and District staff redacted all payee information on all checks provided other than the ones Delgado said were directly involved in Balderas’ investigation.
Delgado said the redactions were to protect vendors from being associated with the Borrego case and verbally agreed Tuesday to provide unredacted copies of all District checks in his possession for inspection by Friday.
Cooperative Educational Services Assistant Director Llew Perry denied any connection between his organization and Borrego.
“It’s clearly a fraud,” Perry said. “If she issued (the checks) to us without appropriate authorization or backup, and they were put into personal accounts, my question would be why did the bank receive them. Why would they let somebody else (other than the payee) endorse them?”
Indeed, Balderas said the endorsement issue was a major concern in his investigation.
“We referred the full report to federal authorities to evaluate if the bank had a duty to give some kind of due care or due diligence,” Balderas said. “I think that’s one of the things the (District’s) civil suit (against Borrego) will decide is if the bank has some liability, too.”
The District and the state Public Schools Insurance Authority filed a civil lawsuit in January against Borrego, Archuleta, Duran, Lopez and several unnamed John Does to recover the embezzled money. Lawyers for the District have said bank personnel may be named in the future as those John Does, but none have been formally included in the lawsuit yet.
Adam Archuleta said Del Norte officials had been questioned about Borrego but he did not know of any pending criminal charges.
But William Verant, director of the financial institutions division of the state Regulation and Licensing Department, which oversees state-charted credit unions like Del Norte, said the bank itself should be the first line of defense against fraud.
“If that endorsement has been forged, altered or is incomplete, the institution that accepts the check is responsible for guaranteeing that endorsement,” Verant said. “The question here is it looks like there was a long-standing pattern of criminal activity that implicated more than one financial institution, so it seems peculiar to me it was not chased down by law enforcement or the school district.”
Del Norte President Chuck Valenti refused to comment on how he thought Borrego was able to deposit checks not made out to her into a personal account or to describe the credit union’s standard procedure for depositing checks.
As a point of contrast, Hernandez said the scheme Borrego apparently carried out at Del Norte could not happen under ordinary circumstances at his bank because tellers would require what’s known as a “chain of endorsements” signing the check over from the payee, in this case Cooperative Education Services, to the depositor, in this case Borrego.
Still, he concocted a scenario in which tellers at Del Norte perhaps thought Borrego was the owner of Cooperative Education Services. Banks were not required to document such relationships before 2003, he said.
“It’s a small town,” Hernandez said. “Sometimes you know customers forever, and most of the time we always have those documents. But anything’s possible, and it’s hard for banks, especially when you don’t know someone is perpetrating fraud.”

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