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Ariz. Probes Alleged Misuse of Thousands in School Funds

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Arizona law-enforcement and state-government agencies are conducting a far-reaching investigation into allegations that officials at the state and local levels stole hundreds of thousands of dollars in education funds over a more than eight-year period.

A former local school superintendent already has been charged with theft and fraud in connection with the misuse of almost half a million dollars, as the result of a criminal investigation by the state attorney general's office.

Attorney General Robert K. Corbin has characterized the alleged abuse as "one of the biggest cases of fraud involving public moneys" in Arizona history.

Earlier, the first glimpses of the extent of official interest in possible corruption in education had come to light when the state auditor's office indicated that an audit of 1988 education funds had revealed questionable and possibly fraudulent spending by education officials.

Many of the allegations raised by both the attorney general and Auditor General Douglas R. Norton appear to revolve around James Hartgraves, a former deputy superintendent in the state education department.

Mr. Hartgraves, who resigned his post in 1988 after 14 years with the department, reportedly is ill and unavailable for comment. A spokesman for the attorney general's office, while making clear that the investigation is continuing, said that no charges had been filed against Mr. Hartgraves.

State officials said that the charges filed against the former local superintendent, which were filed late last month, are only part of a much broader inquiry, previously secret, that has been undertaken over the past year by a state grand jury into misuse of education funds for personal profit.

While investigators are closed-mouthed about what direction the criminal investigation may take, officials in the auditor's office said that they have cast a wider net in their probe.

"We're still working on it," Deputy Auditor General Linda J. Blessing said.

A 10-count criminal complaint filed by Mr. Corbin alleges that Daryle E. Cue, while superintendent of the Gila Bend school district, stole state education funds at the direction of Mr. Hartgraves.

Mr. Cue has been charged with four counts of theft and six counts of bribery for his alleged involvement in the fraudulent schemes.

The complaint alleges that Mr. Cue fraudulently cashed checks and laundered money at the behest of Mr. Hartgraves.

Mr. Corbin contends, for example, that between 1979 and 1985 Mr. Cue illegally cashed six checks, for a total of $22,050, from various institutions of higher learning for allegedly fictitious consulting services. Mr. Corbin then allegedly returned "90 percent" of the money to Mr. Hartgraves "to be used for certain political purposes."

The complaint also charges that, by allegedly giving Mr. Hartgraves the money, Mr. Corbin committed bribery because he did so with "the intent to obtain future business advantage because of his relationship" with the state official.

Mr. Cue also received a total of $15,000 from Pinewood Press, a local publishing house operated by a former professor at Northern Arizona University, "as part of a scheme between Pinewood Press and Hartgraves," the document alleges.

State officials said the former professor has relocated and left no forwarding address.

Perhaps the most serious counts in the complaint allege that Mr. Cue received a total of $411,218 in public money from Mr. Hartgraves on eight occasions during 1986 and 1987 for "fictitious" book sales.

The attorney general alleges that a portion of the money enabled Mr. Cue to proceed with his plans to purchase a restaurant in Chandler, Ariz., from Mr. Hartgraves, although the transaction apparently never took place.

Mr. Corbin also charged that between 1985 and 1986, Mr. Cue received money on eight occasions, totaling $26,865, also for "fictitious consulting services."

Mr. Cue has yet to be arraigned on the charges and has entered no plea in the case.

The state auditor's report released last month specifically mentioned alleged misuse of $57,000 in federal funds for a project in Gila County.

According to the report, investigators determined that "several projects were used to circumvent state and local bidding and procurement procedures, a practice which ultimately allowed fraudulent expenditures to be made."

The report identified one local project, called "Study Skills in the Classroom," that was "significantly influenced" by department officals who8chose the vendors for the project and decided how the money was spent.

Although officials claimed to have spent $57,139 in publishing costs for the project, investigators "determined that no goods or services were received, and therefore, the expenditure was fraudulent."

The report also argued that fiscal management at the state department under a previous administration was lax.

At a press conference last month, Superintendent of Public Instruction C. Diane Bishop said that a lack of accounting and management controls in effect before she took office in January 1987 was largely responsible for any mismanagement of funds.

She contended that "safeguards are now in place" to prevent a recurrence.

Ms. Blessing said the auditor's office continues to probe mismanagement at the department.

"It's in drafting stages now," she said. "We're having to issue reports on a piecemeal basis because the investigation is continuing."

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