A payroll officer working for the South Whidbey School District will likely be charged for embezzling thousands of dollars by manipulating the districts payroll system.

This week, the Washington State Auditor’s Fraud Division released a report on the theft, showing $9,229.40 was misappropriated from the district during the past year. The matter was referred to the Island County Sheriff’s Office on Wednesday.

The auditor’s report, which was officially released Friday, shows public funds were misappropriated and accounting records were falsified at the payroll office by the district’s former payroll officer.

The payroll officer — who has since been terminated by the school district — admitted the theft to district administrators and a representative of the auditor’s office in May.

Auditors found the theft occurred between June 1, 2002, and April 30, 2003. In its report, the agency noted that “the payroll officer processed irregular payroll transactions that caused unauthorized pay raises.”

The former payroll officer used four methods to divert funds for her personal use. According to the audit report, she manipulated the payroll account to pay $5,150 in personal debts and obligations; manipulated the district’s accounting system to increase her net pay by a total of $462.28 from November 2002 through January 2003; arranged for the return of $1,708.84 in unused medical premiums; and manipulated the system to pay $1,909.42 in employee medical insurance premiums out of district funds.

District administrators first discovered the theft in early May, when Superintendent Martin Laster noticed some anomalies in the payroll budget.

Dan Blanton, the district’s assistant superintendent, said Laster asked him and former district business manager Mike Moore for assistance in tracking those irregularities.

On May 8, Moore notified the auditor’s office of the loss of funds.

When confronted on May 14 by administrators and a state fraud manager, the payroll officer confessed to taking money from the payroll budget. The employee was immediately placed on administrative leave.

Upon receipt of the auditor’s report Thursday, Laster and Blanton met with sheriff’s detectives Russ Lindner and Mark Plumberg, Sheriff Mike Hawley and county deputy prosecutor Steve Selby.

According to Lindner, no charges have yet been filed.

“But we are giving this case a high priority, and expect to file soon,” he said.

But before this happens, the sheriff’s office has some work to do.

“The auditor’s summary report is just a stepping stone for us,” Lindner said. “We’ll need copies of the paper trail from the auditor’s office to complete our investigation. Everything has to be lined up before we can turn it over to the prosecutor’s office.”

According to Mindy Chambers, spokesperson for the auditor’s office, the state urged the school district to hold off on filing criminal charges until the auditors’ work was finished.

“We encouraged the district not to contact law enforcement until the audit was finished,” she said.

Washington state law requires public funded entities to notify the state auditor’s office of losses. Thefts like this one are not uncommon.

“We receive about 60 cases a year, of those 30 are less than $5,000,” Chambers said.

The district’s risk management insurance policy will cover all but $1,000 of the loss. The cost of the special audit, which is not paid by insurance, is $5,320.07. The district will seek to recover this and related costs, according to Blanton.

To ensure this doesn’t happen again, the district has brought in a financial consultant to review the payroll system, and recommend checks in all areas of the district’s money management system. The review will have a specific focus on payroll.

District officials notified the South Whidbey Board of Education of the missing money in May in a confidential e-mail. But public rumors of the theft began spreading during the first week in August. Blanton said he asked the board to keep the information confidential, as requested by the prosecutor and auditor’s office. However, it was mentioned by several members of the public during an Aug. 11 board workshop.

School districts are audited annually. In the five audits prior to 2002, the auditor’s office has found nothing irregular in the school district’s money management system. The current year’s audit, ending August 2002, resulted in two findings regarding compliance with federal grant reporting requirements.