Legislators take another step in cooperation with governor trying to end state corruption

PIERRE--The Daugaard administration's proposal to deter corruption in state government and throughout South Dakota's public education system won unanimous approval Wednesday from the state Senate.

PIERRE-The Daugaard administration's proposal to deter corruption in state government and throughout South Dakota's public education system won unanimous approval Wednesday from the state Senate.

The 35-0 vote to create a new state Board of Internal Control sends SB 162 to the House of Representatives.

The House has already approved 67-0 a separate measure to regulate conflicts of interest involving members of state boards, commissions and authorities.

That legislation, HB 1214, came from Rep. G. Mark Mickelson, R-Sioux Falls, and Sen. Deb Peters, R-Hartford. A Senate committee will hold a hearing on their measure on Monday.

The internal-control legislation approved Wednesday is the product of Lt. Gov. Matt Michels, who led the project at the request of Gov. Dennis Daugaard. The Senate's two partisan leaders praised the results.


"What's occurred in this bill is pretty thoughtful," Senate Republican leader Corey Brown, of Gettysburg, said.

The board would develop a system of control, a code of conduct and a conflict of interest policy that would apply to all state agencies and to all recipients of state funding for education, no matter where in a chain of recipients they receive state money.

All grants and agreements would be publicly posted on state government's websites, while responses to audit findings would be checked and followed. The board would work with the Legislature's Government Operations and Audit Committee.

"I think this is a terrific first step to try and shore up, and be consistent, across state government," Brown said.

Senate Democratic leader Billie Sutton, of Burke, said part of the plan's importance is it reaches to recipients, sub-recipients and sub-sub-recipients.

"It takes some very bold steps, I think," Sutton said.

Daugaard's request that Michels work on a proposal came in the wake of the EB-5 immigrant investor scandal that came to light in 2013 and the Mid-Central Educational Cooperative scandal that arose in 2015.

One former state employee allegedly killed himself over the EB-5 matter and the Mid-Central business manager allegedly shot to death his wife and their four children, set their house afire and then killed himself. The wife was the assistant business manager.


All seven deaths happened in Charles Mix County.

SDRC Inc., of Aberdeen, operated the EB-5 program starting under then-Gov. Mike Rounds' administration, under a contract with the Governor's Office of Economic Development.

Federal authorities issued notice last year that South Dakota would be dropped from the program. State government, in turn, filed a lawsuit against SDRC Inc.

Mid-Central, based in Platte, received millions of dollars annually from the federal government through the state Department of Education for GEAR UP. The program is intended to encourage American Indian high school students to pursue higher education after graduation.

The Mid-Central deaths came less than 24 hours after the cooperative's executive director received notice in September from state Education Secretary Melody Schopp that she was withdrawing the contract. The state Board of Regents now oversees the program.

State auditors and law enforcement continue to investigate the finances of Mid-Central and its contractors and subcontractors.

The GEAR UP director, Stacy Phelps, of Rapid City, served on the state Board of Education. He resigned both positions after the Platte tragedy. Mid-Central's executive director, Dan Guericke, recently announced he would resign this summer.

Another state Board of Education member, Kelly Duncan, held various contracts through Mid-Central. She remains on the board and currently is dean of education at Northern State University in Aberdeen.


Schopp had established an Indian education oversight panel at Mid-Central. Its state-paid members included a former state Indian education director, Keith Moore, and a former state secretary of education, Rick Melmer, who ran the state department during the Rounds administration.

That arrangement, which came to light through a 2014 review by the state Department of Legislative Audit, isn't in place any longer. The auditors' work triggered further investigation into GEAR UP's operations that led to Schopp ending Mid-Central's contract.

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