By J.B. Smith

Tribune-Herald staff writer

After Margaret Mills stepped down as executive director of Downtown Waco Inc. on July 31, 2006, she continued to haunt the agency’s headquarters on Washington Avenue.

Several times a day in early August, she would call or drop by to dispense advice to her successor, Toni Herbert — sometimes more advice than the new interim director wanted. Herbert recalls that Mills, then 65, would talk with enthusiasm about the opportunities Herbert needed to pursue, about the developers she must meet with right away. She even asked Herbert, a longtime ally and admirer, about helping her run for mayor.

Herbert, who considered Mills “the only natural economic development professional I’ve known,” was busy learning the ropes while planning a big block party to celebrate Mills’ 18 years as the hard-charging, high-profile director of the downtown development agency.

So when she began discovering financial inconsistencies in Downtown Waco Inc.’s books, the last explanation she wanted to consider was the one that Waco police would ultimately allege: that Herbert’s role model was on the take.

“It was just so far-fetched,” Herbert said.

Mills was booked this week at the McLennan County Jail on charges of theft of over $200,000, and detectives who have analyzed Downtown Waco Inc.’s records for the past six months say the amount could reach up to $500,000. The charges come one year after Downtown Waco Inc. executive board members began questioning Mills about irregularities in the agency’s books.

The past year has been a lesson in the perils of blind trust, especially in organizations that are driven by a single charismatic personality, Downtown Waco Inc. vice president Mark Boyd said. Because it trusted Mills, the board didn’t require an audit of the books. Neither did the city of Waco, which gave the organization up to $386,000 a year until the scandal broke last fall.

“It appears you had an executive director who ruled that office with an iron fist and did everything herself,” Boyd said. “Even the people who worked there were unaware of what was going on. It was a very careful deception.

“Nobody would have suspected her. We were all proud of the successes of Downtown Waco. Everybody trusted her, internally and externally. When you have trust, you don’t have suspicions.”

Unfaltering trust

Toni Herbert trusted Mills, too. Herbert, now 58, was working in the city of Waco’s economic development office in the early 1990s when she came to know and admire Mills. The West Texas native also worked with Mills as a councilwoman in the late 1990s and early 2000s and in her current role as executive director of the Business Resource Center.

“Whatever else you can say about what has happened at this organization, there was one driving individual who did think about downtown and the river night and day,” Herbert said in an interview last October.

Herbert was serving on the Downtown Waco Inc. board in July when she was tapped to replace Mills as interim executive director. At the time, she and most of the board didn’t know that the executive committee of the board had begun questioning Mills about suspicious checks in April or that Mills had admitted to taking “liberties” with the checks and had agreed on June 10 to step down.

Herbert would have to find out the hard way, little by little, that her trusted friend and mentor wasn’t all she seemed.

A couple of weeks into the job, Herbert said she discovered that such contractors as the Freese & Nichols engineering firm and Lawns Ltd. were pressing for payment of invoices dating back as far as 2005.

“I called Margaret Mills and said, ‘Margaret, we’ve got these unpaid bills, and there’s clearly not money in the budget to pay them,’ ” Herbert said.

“She said, ‘No, no. That’s not right.’ ”

Herbert said Mills volunteered to go to the agency’s accounting firm, Jaynes Reitmeier Boyd & Therrell, and “go through the files.”

“I said, ‘They’re not going to let you go through the files,’ ” Herbert recalled. “She said, ‘Oh, I think they will.’ ”

Herbert said the accounting firm denied Mills’ request.

Meanwhile, a secretary at Downtown Waco Inc. began sending out notices to certain members of the organization that they were late on their dues. Downtown Waco Inc. members who had been notified they were behind on their dues began sending in check records proving they were paid up.

Among these was the Waco Independent School District, which had records to prove it had written and mailed a $2,031 payment to Downtown Waco Inc. for dues and other expenses. The check was dated July 28 — just three days before Mills stepped down.

Herbert and other staff members could find no trace of the check in their own records.

“I assumed there must be some explanation,” Herbert recalled.

Finally, on the advice of an attorney she knew, she went to see board treasurer Pat Millar, a Wells Fargo banker, on Aug. 30. She described the discrepancies and Millar listened patiently, she said.

“At the end of the meeting, he said, ‘I know this seems really bad and you may not know what to do. But just know you’re not by yourself in this.’ I was thinking, ‘What does that mean?’ ” Herbert said.

The executive committee — Boyd, Millar, president Scott Felton, Tejas Logistics owner Gaylan Beavers and Baylor Professor Tom Kelly — had been working on the problem since March 2006.

It began when the Jaynes Reitmeier accounting firm called Mark Boyd to look at some questionable checks from a 17-month period, Boyd said.

Boyd said the firm was hired only to do basic accounting services, not to police or audit the books.

But the checks seemed suspicious enough that it sent the executive committee members searching through bank statements for more information. Herbert said Felton, who is president of Wells Fargo Bank, pulled up the account Downtown Waco Inc. had there and found charges to Dillard’s and a men’s suit store.

On April 10, the committee sent Mills a letter saying it was doing a review of problems with the agency’s checks. In the meantime, the committee ordered Mills to stop using any checks or credit cards and to stop using any Downtown Waco Inc. funds.

Incomplete explanations

Over the next two and a half months, the committee waited for Mills to provide an explanation for the questionable checks. In the meantime, committee members discovered Mills had been using an account with the agency’s nonprofit fundraising arm, RiverCity Corp., that they thought was inactive.

Mills provided a partial accounting of her expenses on June 28, acknowledging taking “liberties” with Downtown Waco Inc. accounts.

Boyd said around that time, the scope of the problem began to dawn on him and other executive committee members.

“From the time Margaret Mills gave us the memo that liberties had been taken, there was no doubt in my mind it was going to be a referral item to the police,” Boyd said. “I knew then it was going to become very public and very nasty.”

Mills was asked to leave quietly and decline any celebrations intended for her departure.

“We feel this could be an embarrassment for you as well as the executive committee members,” the committee wrote in a June 10 memo to Mills.

Toni Herbert and other admirers of Mills never got the message. They continued raising money for a Sept. 27 party for Mills and for the 50th anniversary of Downtown Waco Inc. The tables were to be adorned with fancy masks and fliers with photos of Mills, reading: “Thanks, Margaret, and Happy 50th Birthday, Downtown Waco Inc.”

On Friday, Sept. 1, Herbert e-mailed everyone involved in the project and announced the party had been called off because of a “major glitch.”

The glitch was of the serious variety.

Herbert had met Aug. 31 with the executive committee and saw some of the evidence against Mills.

“Even at that point, I had no idea of the scope of it,” Herbert said. “It didn’t occur to me. We thought it was something controllable.”

On Sept. 5, Herbert returned to meet with the entire board as they were briefed on the unfolding scandal. By that point, she had already thought about whether she would stay to clean up the mess. She had joined as interim director, but she ended up liking the job, and board members liked the job she was doing.

“It was a battle in my mind,” she said. “A huge chunk of my mind was saying, who better to figure this out? I had loyalty to Margaret Mills and to (Mills’ husband) Coke. I also had loyalty to the organization. Because I knew the organization well, I could understand its functioning.”

At the board meeting, Herbert agreed to stay, but on certain conditions.

“I told them one of my conditions was, ‘Don’t not tell me things anymore,’ ” she recalled. “I said, ‘You need to ask the worst questions.’ . . . I told them it was going to be highly political.”

The board asked Herbert to do an in-depth review of the agency’s finances over the past few years, a review that would uncover up to $500,000 in questionable expenses.

On Sept. 6, Felton, the board president, met with City Manager Larry Groth about the situation.

Groth was no friend of Mills. In the last few years, the two clashed over two separate proposals to build a four-star riverfront hotel on the Brazos River on the city’s dime — proposals Groth and the majority of the council rejected. Groth had cut her out of two major downtown development deals — a $60 million redevelopment of the old Waco square and the renovation of the Waco Hilton. Last summer, he recommended reducing funding slightly to Downtown Waco Inc.

“It’s probably not a secret that Margaret and I didn’t see eye to eye,” Groth said. “I started seeing that if there was activity with developers that didn’t meet her particular ideas, she didn’t always follow up.”

Still, he never questioned Mills’ financial integrity until Felton broke the news to him.

Groth moved later that month to cut off funding to the organization until an audit and several other demands could be met. However, by that point, Downtown Waco Inc. was staggering under unpaid bills and could not afford an audit, Felton said. The loss of city funding led the agency to close its doors last fall.

Herbert said cutting off funds was an unnecessary step and essentially killed an organization that could have rebounded under new leadership.

Groth said he was just trying to protect the public’s money, and he had no desire to kill Downtown Waco Inc.

“I still believe Downtown Waco performed a vital function for the community,” he said.

It was late September before the board took the case to District Attorney John Segrest, then to Police Chief Alberto Melis.

Segrest was “totally shocked about our situation and primarily due to who caused it,” Felton wrote in an e-mail to the Downtown Waco board Sept. 29. “He literally could hardly talk because he was so shocked (as we were when we got an understanding of what has happened.)”

Felton wrote that the board had moved slowly in turning the case over to law enforcement out of a concern for getting some restitution first, but it was time to do it.

“This action may prevent someone (from) mistakenly believing that we are trying to cover this up (I don’t think any of us want any part of that),” Felton wrote.

Cover-up denied

Boyd says he has heard questions about why it took six months for the Downtown Waco Inc. board to take the case to the authorities.

Even after Mills acknowledged taking liberties with the checks, she was allowed to stay on for a month and a half, though stripped of her financial privileges. Still, she was apparently able to intercept at least one check, the WISD check, and route it into her own bank account, WISD records show.

Boyd says the executive committee worked hard through the summer to unearth irregularities, but no one understood the seriousness of the case until Herbert’s review began in September.

“Every time we turned over another rock, we found another copperhead under it,” he said.

Boyd says the board didn’t suspect Mills would continue to take money from Downtown Waco Inc. after she had been caught and denied financial privileges.

“Never in our wildest dreams did we think that,” he said. “Who could be so creative in finding a way to do more harm after all that? It’s unfathomable.”

Boyd says that in hindsight, the board should have required a yearly audit that might have prevented financial improprieties. Many nonprofit groups in Waco are now seeking annual audits in the wake of the scandal, he says.

“That’s the only good that comes out of this,” he said. “There’s been a lot of soul-searching.”

With the closure of Downtown Waco Inc.’s offices, Herbert continues her work as executive director at the Business Resource Center. She says she doesn’t condone Mills’ actions but is sad to see her subjected to what she calls a “Roman circus” of public humiliation.

Herbert says she believes Mills was sincere about making Waco a better place and was successful at transforming downtown. She suspects Mills identified so thoroughly with the institution she fashioned in her image that she failed to distinguish its needs from hers. Perhaps she believed what was good for Margaret Mills was good for Downtown Waco Inc., Herbert says.

“It’s a contradiction,” Herbert said. “But we all have contradictions.”

jbsmith@wacotrib.com

757-5752