District Attorney's investigators, OIG and FBI agents investigate a storage area near the SSU tennis courts on Thursday, February 18, 2010.

FBI raids SSU administrative offices

NATHAN HALVERSON AND JEREMY HAY
THE PRESS DEMOCRAT

The FBI and other investigators descended on Sonoma State University Thursday morning, serving search warrants and seizing materials in a raid led by the Sonoma County District Attorney's Office.

Federal agents examined computers in the university's administrative and finance offices, which were closed during the probe, and carted away dozens of boxes from a university warehouse behind the school's tennis courts.

The investigation focuses on potential misappropriation of federal grant money through a defunct SSU department, the California Institute for Human Services, said Sonoma County District Attorney Stephan Passalacqua. The institute was closed in 2007 amid a cloud of questions about its finances. Two top administrators were let go.

Allegations made then included that hundreds of thousands of dollars had been spent on unapproved labor costs, that administrators received improper payments through nonprofit-agencies they ran and that expenses were improperly billed.

Thursday's raid was the latest development in a series of controversies that have dogged SSU during the tenure of President Ruben Armina?. The institute, and the notoriety of its closure, has been just one bone of contention for SSU faculty members who allege a pattern of unwise university financial practices under the leadership of Armina?, who assumed the campus' top spot in 1992.

"It's about time," environmental studies professor Steve Orlick said Thursday about the raid. "They no doubt will run across other things."

Orlick is one of a group of faculty members who have criticized Armina? and his administration on issues ranging from cost overruns at the ambitious and still incomplete Green Music Center to allegations of financial mismanagement at the school's academic foundation.

Passalacqua said the raid Thursday "involves a wide host of federal grants ranging from Head Start programs to adoption services and domestic violence programs in the region - the administration of those grants and the disbursement of those funds."

Federal Department of Health and Human Services investigators were also at the university on Thursday, he said.

"Tens of millions of federal funds are involved here and it will take a long time to unravel the voluminous number of documents involved," Passalacqua said.

More than 20 grants are being examined, he said.

Through a spokeswoman, CSU Chancellor Charles Reed said he "welcomes the investigation but wishes they had done it a long time ago."

CSU spokeswoman Clara Potes-Fellow said: "The chancellor said he was trying to get the investigative agencies to do this search for three years."

Passalacqua said that "any time there's a large amount of taxpayer money involved it's a serious matter and very meticulously and thoroughly investigated this. What transpired today was taking the investigation to a different level."

Passalacqua and Armina? said the investigation was prompted by an internal university audit of the institute's finances that was given to the federal Department of Health and Human Services two years ago.

Another investigation, by the campus police department, was given to the DA's Office, Armina? said.

"We are fully cooperating and we welcome it," Armina? said of the investigation, which he said "shows we had no collusion or involvement."

He also said he did not know of the raid before it happened. Passalacqua said that campus search was a mutual decision of the agencies involved.

"These types of operations, to make sure that they're done efficiently and in safe manner, there's a joint task force involved in it, and it was decided that this was the prudent way to proceed," he said.

Jeff Mason, an SSU junior who works in the administration and finance office, said he was told not to come to work. Later, he said, the raid became the chief topic of discussion in a class.

"You never like to see the FBI on campus," he said, "that means something serious is going down."

Other students expressed dismay at the latest in a series of campus dramas that have ranged from system-wide budget cuts to financial woes at the school's academic foundation.

"This is the last straw," said Matthew Day, a senior. "It's kind of like, &‘What's next?'"

Employees were asked to log on to their computers and leave the second-floor administrative and finance offices at Salazar Hall shortly after 9 a.m. Other parts of the building - which includes admissions, records and counseling - remained open to employees but students were turned away.

For much of the morning, the university's top financial officer, Larry Furukawa-Schlereth, could be seen talking on the telephone near the administrative offices' reception desk, an FBI agent at his side.

In an interview, Furukawa-Schlereth said the investigation had to do with grant-related charges that were mishandled. "The money has already been returned, or the ones we are aware of anyway," he said.

University spokeswoman Susan Kashack said that amount was "about $900,000 so far." In 2007, she had warned that total reimbursements could reach $3.6 million.

The refunds, which have been in the form of actual reimbursements and by not billing grant costs to the federal government, have come from SSU accounts unrelated to the institute, she said.

The institute, which had 125 employees at its peak, obtained federal and state grants for SSU - $22 million a year by 2006 - and provided training and education for regional social service agencies. Its top administrators were escorted off campus as the institute's affairs unraveled in early 2007.

One of those officials, Tony Apolloni, remains a professor teaching a course on campus, Armina? said. He also works as an administrator in the Napa County schools system, Armina? said.

Neither Apolloni nor the institute's senior director, George Triest, who also was dismissed, returned calls seeking comment on Thursday.

A 2007 state audit said the institute, which Apolloni founded in 1979, piled up more than $2 million in questionable expenses, including payments to ex-employees, non-billable charges and unapproved labor costs. Neither Apolloni nor Triest cooperated with the audit.

When the institute was closed, Armina? said "People we trust violated that trust."

But history professor Robert Karlsrud, dean emeritus of the school of social sciences - to which the institute administrators reported for many years - said that if funds were misappropriated at the institute, Armina?'s administration shared responsibility.

"They created the problem, they created the situation that basically led to moving money (improperly)," Karlsrud said, noting that the administrative and finance department helped oversee the institute's finances.

He said that starting in 2005, the university began withholding millions of dollars issued to the institute for costs indirectly related to the grants it procured. That put financial pressure on the institute management that may have contributed to improper dealings, he said.

In April 2006, in a paper distributed to campus administrators, Apolloni said the change in fiscal policy was impeding the institute's ability to manage its grants and "could place the university at risk of non-compliance" with grant terms.

On Thursday, Karlsrud said "The responsibility of all of what happened has to be shared.

"There is no way that Sonoma State University chief financial officer and associate vice president of administration and finance were not somehow responsible - they were delegated authority."

The institute's downfall meant the campus lost millions of dollars a year in grant and administrative funds that the institute brought into the university, Karlsrud said. "The loss was huge for the campus." he said. "Whose fault was it?"

Armina? said "absolutely not," when asked if the investigation indicated financial mismanagement by the university. "This has nothing to do with anything but CIHS," he said.

Passalacqua said the investigation is limited to the institute. "That's the scope of it," he said.

Separately, the state Attorney General is auditing the school's academic foundation, which has come under fire for making more than $20 million in private real estate loans.

Seven loans totaling $9 million went to former foundation board member Clem Carinalli, whose real estate empire collapsed last year.

The attorney general's audit of the academic foundation is not complete, Armina? said Thursday.

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