By J.B. Smith

© 2006 Waco Tribune-Herald

Former executive director Margaret Mills is the sole focus of a complex investigation into an alleged misappropriation of funds from Downtown Waco Inc., the agency’s board president confirmed Friday.

The inquiry has evolved into a criminal investigation, but it is not known whether Waco police consider Mills the sole suspect.

Mills is responsible for a $70,000 check paid to the agency Sept. 26 in restitution for missing funds, and she may owe more, Downtown Waco board president Scott Felton said.

Mills had previously acknowledged using agency debit cards and checks for tens of thousands of dollars in cash and personal purchases of hotel rooms, high-end clothing and airline tickets, according to a June 26 letter to Felton.

And canceled checks show that $3,000 in dues from one Downtown Waco Inc. member — the Tribune-Herald — was deposited straight into Mills’ personal checking account.

Felton acknowledged Mills as the target after the Tribune-Herald received internal memos, correspondence and canceled checks Friday from Downtown Waco Inc. under the Texas Public Information Act.

“I think it’s pretty obvious,” Felton said. “There’s no other possible conclusion that I can come up with. I have seen nothing that indicates any board member or any other employee being implicated in this.”

Mills did not respond to a message left on her home answering machine Friday afternoon, and her husband, attorney Coke Mills, declined an interview request at his law office.

Margaret Mills, who led Downtown Waco Inc. for 18 years and was widely credited with helping to resurrect downtown, retired with two weeks’ notice in July and was replaced by interim director Toni Herbert, who is now aiding the internal investigation.

The Waco Police Department began investigating the books last week.

The documents released Friday are public record under state law because Downtown Waco Inc. receives public funds. The city of Waco and McLennan County normally supply about three-quarters of Downtown Waco’s budget, which was $473,825 this year, but both entities allowed their contracts to expire at the end of September because of reported financial irregularities.

The internal documents show that top leaders of Downtown Waco have been seeking answers from Mills since April, when they ordered her to stop spending agency money.

The documents show that as of Sept. 22, Downtown Waco Inc. was foundering under $103,000 of unpaid bills — debt Felton said no board members knew about previously.

Some of the debt was paid off Sept. 26 with the $70,000 check, signed by attorney John Cullar, who Felton said was Mills’ attorney at the time.

Cullar, a law partner with Coke Mills, said he is not currently Margaret Mills’ attorney, and he said he signed the check from a trust account on behalf of a “client” he declined to name.

Dormant account used

Other documents paint a picture of a tangled web of transactions in which Mills funneled thousands of dollars from her personal bank account into the account of RiverCity Corp., a nonprofit spinoff of Downtown Waco Inc. that board members thought was inactive.

According to her own list she provided to the board in late June, she wrote checks on the RiverCity account for $32,729 in cash and mostly personal expenses between October 2004 and September 2005.

She lists another $12,065 in Downtown Waco Inc. debit card expenses between Nov. 14, 2003, and April 2004, with most expenses listed as personal. Those expenses include $1,558 in expenditures at Fendi, a luxury clothing and accessories retailer; $4,298 at Perfectly Suited, a men’s suit store; $919 at Dillard’s department store; $852 for “AM Airlines”; and $893 for landscaping materials at a Dallas store.

“I deeply regret the liberties taken with these account (sic) and would like to discuss methods of reimbursing the amounts due,” Mills wrote to Felton and Downtown Waco treasurer Mark Boyd on June 26. “In many instances, inadequate record-keeping on my part, personally, has eliminated my ability to reconstruct the purposes for the checks written; Therefore my responsibility to reimburse.”

In the same letter, Mills provided photocopies of five personal checks totaling $7,100 that she wrote to RiverCity Corp. between February and June 2005. She referred to them as “reimbursement checks.”

In an interview Friday, Felton said the board is still seeking answers as to how much of the spending was inappropriate, but some things were clear.

“The question is, did Downtown Waco Inc. benefit from the transactions?” Felton said. “If we don’t see the apparent benefit, we’re trying to see who or what did benefit. I’m not aware of any expenditure at Dillard’s that benefited Downtown Waco Inc.”

He said Downtown Waco’s checks did, in theory, require two signatures — one from Mills and one from a board member. But Felton said Mills wrote many one-signature checks that the board never knew about. The bank accepted them because it does not require two signatures, he said.

Felton said Mills was not authorized to withdraw funds from RiverCity Corp., a nonprofit group Downtown Waco Inc. formed in 2002 as a fund-raising arm. The group has its own charter and directors, drawn from Downtown Waco’s board, but has not been active. Felton said Downtown Waco Inc. board members believed that RiverCity’s account at Wells Fargo Bank was “practically dormant,” and that it had a balance of $1,500.

‘We weren’t watching’

“We weren’t watching that one,” said Felton, who is also president of Wells Fargo. “Not once did we ask for a financial statement on that. We thought there was nothing going on. . . . There was activity in that account, unbeknownst to us.

“You can call it blind trust, but the last thing we ever thought of was that there was a problem,” he said.

The documents raise an obvious question to which there is no obvious answer: Why was Mills writing checks from her own account and depositing them into the RiverCity account? Her explanation was reimbursement, but she was still withdrawing funds from RiverCity even after her deposits.

A possible answer is suggested by the fate of a $3,000 dues check the Tribune-Herald wrote to Downtown Waco Inc. on Dec. 27, 2004. The canceled check is stamped by First National Bank of Central Texas, a bank with which Downtown Waco Inc. did not have an account.

In the endorsement space on the back of the check is written “DTW Inc,” followed by an account number and the name “M. Mills.” The account number is for Mills’ personal checking account, as confirmed by the checks Mills made available to her board.

Felton said the board is investigating whether other members’ dues were intercepted and routed to Mills’ personal bank account.

“There are some entities we called for membership dues and they said they had already sent them to us, and they sent a copy of the check,” he said. “That’s part of what’s being investigated.”

The internal documents released Friday also shed light on why Waco police were brought into the investigation only last week.

In an e-mail message to board members on the morning of Sept. 29, Felton said Police Chief Alberto Melis had called City Manager Larry Groth the prior evening, saying he had heard about problems at Downtown Waco from the Tribune-Herald.

“Larry assured the chief that an ongoing internal investigation was going on and all options that DTW Inc. has are on the table,” Felton wrote.

“I am thinking I need to go see the DA about this sooner rather than later for a preliminary discussion. . . . If the DA does not know about the situation now, he will very soon. . . . I think the DA will let us finish our efforts to get full restitution before he does anything (but I don’t know for sure). This action may prevent someone mistakenly thinking that we are trying to cover this up (I don’t think any of us want any part of that).”

At 12:33 p.m. that same day, Felton wrote board members again, saying he had met with District Attorney John Segrest.

“J.S. was totally shocked about our situation and primarily due to who caused it,” Felton wrote. “He literally could hardly talk because he was so shocked (as we were when we got an understanding of what has happened).”

Felton continued that Mills and her attorney, Cullar, said she intended to repay all the money. He said Segrest recommended that the board consider taking its findings to Melis.

“He felt that this action is an indication that the board is resolved to have full disclosure with the authorities and does not intend to re-direct any of the consequences of crime for the benefit of MM,” Felton reported.

Felton added he wanted to make sure that the criminal investigation did not interfere with Downtown Waco Inc.’s efforts to get restitution.

“I believe the beneficiaries of the efforts of DTW Inc. in the past and in the future should expect no less,” he wrote. “What happens to MM hereafter is a result of her actions and not the board’s.”

‘Full disclosure’

In an interview, Felton emphasized that the Downtown Waco Inc. board doesn’t want to hide anything.

“We do not hesitate to provide information to the proper authorities upon request,” he said. “We want to get this behind us. From day one, the board to a person has said this is going to require full disclosure.”

That disclosure has been a while in coming. Even Toni Herbert, a longtime board member, said she didn’t know when she took the interim executive director position in late July that the executive committee had been questioning Mills’ financial ethics for months. In fact, she was planning a retirement party for Mills late this summer, a party that was abruptly canceled in late August.

On April 10, Felton had written Mills about possible irregularities with agency checks, and on behalf of the board ordered her to stop using paper checks, debit or credit cards or any other forms of payment pending an outside financial review.

“We believe this review and report is of the highest priority,” Felton wrote.

On May 9, the executive committee demanded detailed explanations for a series of checks that were in question, a request that took Mills nearly two months to fulfill, with the partial accounting she provided on June 26. But it appears her fate was already sealed.

In a confidential June 10 memo, the five-member executive committee advised Mills to leave quietly.

“Considering the circumstances of your retirement, we would ask that you not accept or encourage any sort of recognition event for yourself or Downtown Waco, Inc.,” the memo stated, adding: “We feel this could be an embarrassment for you as well as the executive committee members.”

jbsmith@wacotrib.com

757-5752