Pattern of money woes in Coventry hit school district, too

Cynthia Diaz

Cynthia Diaz, the Coventry town clerk, treasurer and delinquent tax collector. Photo by John Lazenby

VTDigger has obtained documents that show the Coventry school had as much trouble with Cynthia Diaz’s bookkeeping as the town did.

An estimated $20,000 went missing from the school by the time the board fired Diaz in 2011. More than a year earlier, the IRS froze nearly $80,000 in a school bank account because Diaz had either not made employee Social Security payments or made them incorrectly.

The records are more evidence of the bewildering failure by state authorities and local leaders to protect taxpayers from a municipal official who was suspected of embezzlement for more than a decade.

Diaz became the Coventry town clerk, treasurer and delinquent tax collector in 2004 and also began handling the bookkeeping for the Coventry school that year.

Four different entities, including the school, the town, the Vermont Department of Motor Vehicles and a local employer, began questioning Diaz’s financial dealings starting in 2005.

But it wasn’t until earlier this year that allegations of embezzlement came to light. Diaz has been accused of stealing more than $1 million from the town of Coventry.

Even though there were many red flags along the way, local prosecutors and the attorney general’s office, under Bill Sorrell’s leadership, never accused Diaz of embezzlement. The Vermont attorney general’s office opened an investigation into Diaz in 2008, charging her with more than 10 felony counts of tax evasion in 2011. Diaz was convicted later that year on two misdemeanor counts of tax evasion. The FBI began investigating in the summer of 2011.

The Coventry Selectboard struggled for a decade to remove the town clerk from power and finally succeeded last month in ousting her.

Diaz says she’s done nothing wrong. Efforts to reach her for this story were unsuccessful.

The latest information about missing money in Coventry comes from records released late last month by Vermont Attorney General TJ Donovan. The attorney general’s office stalled VTDigger’s public records request for six months. Other documents detailing Diaz’s financial dealings and the state’s probe continue to be withheld by Donovan, even though the AG’s investigation was closed in 2011.

The school’s problems with Diaz mounted slowly, according to Frank Carbonneau, the chair of the board. The town of Coventry began offering Diaz’s bookkeeping services at no cost to the school in July 2004 and although auditors warned the board in 2005 and every subsequent year that the books had been mishandled, the situation didn’t come to a head until 2010 when the teachers union issued formal complaints to the school board, the supervisory district, and several state agencies.

Besaw and Associates, an accounting firm in Newport, issued an adverse opinion in fiscal year 2006 for the district’s financial statements because management did not present adequate financial statements.

The accountants found that the school’s books did not conform to generally accepted accounting principles and that there were significant deficiencies in the internal controls, i.e. procedures that ensure taxpayer money is protected.

The auditor said the board had no direct oversight of Diaz as she managed the district’s money and wouldn’t be able to catch a bookkeeping error because of poor internal controls. That same determination was repeated year after year. These are the same problems auditors found with the Diaz’s bookkeeping for the Town of Coventry over the same period.

In 2006, a new auditor was hired. Corrette and Associates based in St. Johnsbury came to the same conclusions Besaw did, with the additional assessment that the “accounting system does not accurately collect and report balance sheet and income activity.”

In fiscal year 2008, audits show the IRS imposed a $72,343 penalty on the school and in fiscal year 2010, the feds froze assets for the school worth $77,961. Officials won’t say and documents don’t show the relationship between the penalty and levy from the IRS and what, if anything, the school paid.

The tipping point was in the fall of 2010, when payroll was issued late, according to Glenn Hankinson, the director of business and finance for the North Country Supervisory Union.

At about the same time, an auditor told the board that more than $20,000 appeared to be missing, according to supervisory union officials.

At that point, Hankinson suggested that the Coventry school board hire a forensic accountant.

When the school board learned that a forensic account would cost as much as the amount that was allegedly missing, they decided not to pursue it, according to Carbonneau, the school board chair.

Meanwhile, officials with the local chapter of the Vermont National Education Association were demanding action.

Documents show the teachers union asked the Vermont attorney general in December 2010 to prohibit Diaz from keeping the Coventry Village School’s books.

In a letter to the Vermont attorney general – parts of which are blacked out by Donovan’s office – Joyce Foster, who represented teachers in the school for the union, accuses Diaz of late payments on a number of school bills.

Foster outlined “a short list of the questionable errors,” listed in part below:

  • “Frequent errors in the amount of (redacted) paychecks with significant fluctuations in pay from one payroll period to the next. Ms. Diaz was either unwilling or unable to adequately address the reasons for the fluctuation.”
  • “Social Security payments were not made on behalf of (redacted).”
  • “When asked by (redacted) to correct the mistakes with the Office of Social Security, Ms. Diaz responded, ‘If you (redacted) were as concerned with teaching our students as you are with your paychecks.’ This statement was made at a public meeting.”
  • “Ms. Diaz has had her young son elementary school son deliver to (redacted) paychecks thus jeopardizing security and confidentially.”
  • “Late payments resulting in fines or potential harm to the Town of Coventry School and therefore (redacted):”
  • “Many late payments to Fair Point Communications.”
  • “Several payments not made in a timely manner to Toshiba Financial Services resulting in fines to the school district.”
  • Redacted “subscriptions were not timely paid and (redacted) received multiple notices.”
  • “Disconnect notices from Vermont Electric Cooperative, Inc., for non-payment of debt.”
  • “Two notices, August and May from the Coventry Fire District #2 for non-payment of water account debt.”
  • “Non-payments to Turning Points in the amount of $1,647.50 for psychological services were not timely paid.”
  • “Deer Creek Psychological services were not paid in a timely manner.”
  • “4/12/2010 Speech and Language services were not paid in a timely manner: amount $10,973.50.”
  • “At least one bill for $2,966 was paid to the vendor twice resulting in the request for the return of the check.”
  • “The Board of School Directors report reflects that they do not always receive a financial statement from Ms. Diaz as requested and per general audit practice.”
  • “Special Education expenditures and paperwork are routinely in error.”

Foster asked the Vermont attorney general’s office, which soon would settle its criminal case against Diaz for two counts of misdemeanor tax evasion, to set Diaz’s conditions of release to prevent her from keeping the district’s books. Diaz had access to Social Security and bank account numbers, Foster said.

But Assistant Attorney General Ultan Doyle said conditions of release are imposed for two reasons: to assure a defendant will show in court and, sometimes, to protect the public. Foster’s request is unrelated to the first, he said, and the crimes with which his office charged Diaz – tax evasion, not embezzlement – didn’t endanger the public.

“Unfortunately,” Doyle wrote, “our office is unable to comply with your request.”

Foster, now retired, couldn’t be reached for comment.

The Vermont National Education Association also wrote to the state labor department requesting an investigation.

In a separate letter to the supervisory union, Foster said the board was enabling Diaz.

Teachers faced IRS fines because Diaz batched Social Security and other payments to the federal government, Foster alleged.

Foster wrote that when teachers confronted the school board about the fines, Viola Poirier, then board chairwoman, said it was their problem.

Reached by phone Thursday, Poirier wouldn’t say much about Diaz, other than her work wasn’t up to par and that she didn’t want to be quoted. But before the call ended, she said Diaz is a friend.

“I like her. I think she’s had a lot of problems, but until proven guilty,” Poirier said, pausing, “that’s it.”

Carbonneau described Foster’s accusations as “posturing.” He discredited the relationship between Poirier and Diaz as “collegial, at best.” Carbonneau said Poirier had no conflict of interest and the two do not spend time together. He said he’s friendly with Diaz, too, because Coventry is a small town.

“Our relationship is the same way,” he said. “I’ve coached her son” on the local baseball team. “She’s coached my son.”

Hankinson, the finance director for the supervisory union, said the board wanted to work with Diaz.

“What they were thinking is that she was a member of their community and the elected town clerk, and you do what you can,” Hankinson said.

But looking back, Hankinson said, it’s clear what the board should have done.

The ultimate responsibility to protect taxpayer money rests with a school board.

Coventry’s school board didn’t fire Diaz until February 2011, even as the North Country Supervisory Union expressed concern, year after year, about the audits, telling the board it had other options for bookkeeping and finally demanding that the board do something after the union complained in late 2010.

School board chair Carbonneau defends Diaz and says she is innocent until proven guilty. No money went missing, “ever,” he said, when she kept the books. The problem was that Diaz was sloppy, he said.

“It was just one of those things when you got somebody working for you and you wished they did a little bit better job,” Carbonneau said. “You can deal with it, but you can’t deal with it forever.”

Dan Schwartz

Dan Schwartz has worked as a staff reporter at daily newspapers in Alaska, the Four Corners area and Santa Fe, New Mexico, for half his 20s. He has received numerous awards for his investigative reporting on corruption. Read more

Email: daniel.james.schwartz@gmail.com

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  • Steve Baker

    I hate to drop the hammer on the people of Coventry but how many times can something like this happen before a light goes off?

  • John Freitag

    “The attorney general’s office stalled VTDiggers public records request for six months. Other documents detailing the Diaz’s financial dealings and the state’s probe continue to be withheld by Donovan, even though the AG’s investigation was closed in 2011”
    Come on T.J. , many of us voted for you in 2014 in your primary against Bill Sorrel and
    supported you in 2016 because we felt that you would bring much needed fresh air and light into the Attorney General’s office. Our Secretary of State Jim Condos is constantly promoting open government and transparency . Please consider it for your office.

  • Nachman Avruch

    Has this lady been diverting some of the stolen money to states attorneys and the Vermont State Police? How is it at all possible that she isn’t in prison, with all of the clear evidence of theft and misappropriation?

  • Edward Letourneau

    I know its an elected position, But we also have many people in state and town governments who are incompetent and they are hired.

    • Jamie Carter

      Your post stated

      “and apparently there was no way to get rid of her.”

      I only indicated there was in fact a way to get rid of her. THAT is the problem in this state…we do NOT remove incumbents from office no matter how poorly they perform.

      As for competence at a local level… well this is a small town, how many people are there that are actually qualified for the postion? Of those 3-4 people how many actually want to be a public servant? Apparently not many…

  • Susanna Rodani

    It seems Vermont is quickly building a reputation as the land of opportunity for embezzlers.
    Business as usual?

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