By Associated Press - Thursday, October 4, 2018

SIOUX FALLS, S.D. (AP) - A former nonprofit official accused of trying to avoid a potential state audit in South Dakota didn’t commit any crimes and plans to testify in his own defense, his attorney told jurors Thursday in a case that began after the nonprofit’s financial officer died in a 2015 murder-suicide.

Prosecutors allege Stacy Phelps, the former CEO of the American Indian Institute for Innovation, altered contracts to conceal his alleged inappropriate spending and avoid an audit. Phelps’ attorney said Phelps didn’t know that the group’s chief financial officer, Scott Westerhuis, was embezzling money before he shot his wife, his four children and then himself in September 2015.

The deaths spurred a financial investigation that led to charges in 2016 against Phelps and two others who worked with Westerhuis at the Institute or Mid-Central Educational Cooperative. The nonprofit Institute helped Mid-Central administer a college-readiness grant program called Gear Up.

During opening statements in Phelps trial Thursday, defense attorney Dana Hanna said Phelps didn’t intend to deceive anyone when he backdated contracts between the nonprofit and Mid-Central in 2015. Hanna said Phelps got played by Westerhuis, whom he called a “criminal” and a “con man.”

Authorities have said they believe Westerhuis and his wife, who were also business employees at Mid-Central, stole more than $1 million before their deaths.

“Stacy Phelps did not know that man was stealing money until that man slaughtered his family,” said Hanna, noting that Phelps isn’t accused of theft or helping Westerhuis embezzle.

Attorney General Marty Jackley said the case was about a “cover up” of the financial dealings of the nonprofit and Phelps’ conduct. Jackley said the contracts were altered, signed and backdated.

Prosecutors contend Phelps wanted to deflect scrutiny from the nonprofit because he’d misused the organization’s funds for meals at steakhouses, on electronics and for other personal expenses.

Judge Bruce Anderson has excluded records of Phelps’ alleged misspending from being used at trial, but said he might decide to allow it if the state provides “substantial evidence” the funds were inappropriately used.

Phelps, 45, has pleaded not guilty to two counts of falsifying evidence and two counts of conspiring to offer forged or fraudulent evidence. He faces a maximum sentence of two years in prison and a $4,000 fine per count.

Phelps is the second and final defendant to head to trial in what prosecutors have dubbed the Gear Up case. A jury in June cleared onetime Mid-Central assistant business manager Stephanie Hubers, who had been accused of receiving about $55,000 to keep quiet about Westerhuis and his wife’s alleged stealing. Hubers was found not guilty of grand theft, grand theft by deception and alternative receiving stolen property charges.

Mid-Central’s former director, Dan Guericke, was to stand trial with Phelps, but instead took a plea deal last week. Guericke testified Thursday in Phelps’ trial, saying he signed and backdated the contracts at Westerhuis’ request in August 2015 because he was having trouble locating the originals for an audit.

The jury also heard from a state Division of Criminal Investigation agent and an auditor for the Department of Legislative Audit. Testimony in the trial was set to continue on Friday.

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