Controversy is brewing at Seattle Public Schools ever since investigations revealed that $1.8 million dollars was spent but it wasn't going to the district.

In a statement released by Seattle School Board President Steve Sundquist Friday, it says, "I'm angry and enourmously disappointed, like every other parent and taxpayer in Seattle."

In 2010, Silas Potter won an award from Seattle's Small Business Partners for Prosperity.    Now he's at the center of a scandal for defrauding Seattle public schools out of nearly two million dollars.

In a video on YouTube, he actually talks about the non-profit company he is accused of setting up to steal district funds.

“I think the direction the program is going as a 501 (c) (3) will allow us to grow into a nationwide process of helping small businesses to grow.  What people don't know is we're going in that direction," says Potter.

People didn't know a lot of things about Potter.  According to a school board report released Friday, he should never have been hired in the first place.  He wasn't qualified for the job and had no experience negotiating contracts.  He also had mountains of personal debt, owed back taxes and unpaid child support.

"To learn that those facts were available to managers in the organization and that this was all in his personnel file yet still he ended up in a position where he was able to use public money with these contracts without adequate supervision is enormously troubling and disappointing," says Seattle School Board President Steve Sundquist.

The question now is whether the fraud scandal could cost Superintendent Maria Goodloe-Johnson her job. 

Patty Eakes handled the investigation and interviewed Goodloe-Johnson about the case 

"She characterized Mr. Potter as a rogue employee.  She felt very much offended by the fact he had abused the public trust,” says Eakes.

Rogue employee or not, the School Board President acknowledged the Superintendent's job could be on the line.

"We absolutely need to restore public confidence and so we're going to talk about all of the options available to us,” says Sundquist.

The school board meets on Tuesday in a closed door session to discuss what if any disciplinary action should be taken against Goodloe-Johnson.

The report also says Fred Stephens, Potter's former boss, should have better supervised him and identified what was going on a long time ago.  Stephens now works at the Department of Commerce in Washington, D.C.  We contacted Stephens but not gotten a response back yet.

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Sundquist explains it all started with the district's free training program for minority and female owned businesses.  The Regional Small Business Development Program helped them better compete for contract bids.  The man in charge of that program, Silas Potter, is accused of fraud by creating questionable contracts with companies that were supposed to train business owners.

“He would create a contract with them and then they would provide less service or a different service than was contracted for and then they would invoice us for the full price and that invoice was then paid," says Sundquist.

Potter is accused of starting a private non-profit under the same program name, and funneling district money into his own account.

"As we began to unravel this and go from one to another to another we've gone from $35,000 to $1.8 million dollars," says Washington State Auditor Brian Sonntag.  "It's a big deal.  It's public money and the taxpayers should be served better."

The King County Prosecutors Office is investigating potential criminal charges.  Silas Potter hasn’t been seen since June 2009.  Some believe he has even fled the country.

The man who was supposed to be supervising him, Fred Stephens, is now working at the US Department of Commerce.  The District's own internal auditor, Kariuki Nderu, resigned in December 2010.

Sundquist says he does not expect any other fraudulent activity within the district.  As part of the audit, the district is implementing a number of new oversight measures, including a whistle blower program, a new ethics officer who will investigate complaints and a change in the contract review process.  The district has also filed a preliminary insurance claim to try and recoup its losses.

The audit shows the city of Bellevue lost more than $39,000.  Bob Derrick, the city’s economic development director says the city paid money to participate in the program.  Derrick says Potter leased space to open a classroom and paid one month’s rent, but never held any classes.

This has been an ongoing investigation for the past seven months.  A single transaction led officials to start looking into the money.

To read the full audit report: Seattle Times: Washington State Auditor's Report