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Press Release

Former Blackfeet Po’Ka Project Officials Sentenced For Massive Grant Fraud HHS Inspector General Claims $4.6 Million In Potential Fraud

For Immediate Release
U.S. Attorney's Office, District of Montana

GREAT FALLS -- The United States Attorney's Office announced today that former officials of the Blackfeet Tribe's Po'Ka Project, a multi-million dollar federally funded effort to address the needs of troubled youth on the reservation, were sentenced in federal court in Great Falls by U.S. District Court Judge Brian M. Morris.

FRANCIS KAY ONSTAD, 61, of Valier, the former Director of the Po'Ka Program, was sentenced to 38 months imprisonment, 3 years supervised release and $1,000,000 in restitution. Onstad had previously entered guilty pleas to Conspiracy to defraud the United States, Conspiracy to File False Claims against the United States, Theft from an Indian Tribal Government Receiving Federal Funding, and Tax Evasion.

DELYLE SHANNY AUGARE, 58, of Browning, the former Assistant Director of the Po'Ka Program, was sentenced to 44 months imprisonment, 3 years supervised release and $1,000,000 in restitution. Augare had previously entered guilty pleas to Conspiracy to defraud the United States, Conspiracy to File False Claims against the United States, Theft from an Indian Tribal Government Receiving Federal Funding, and Tax Evasion.

KATHERYN ELIZABETH SHERMAN, 67, of Browning, a former Po'Ka staffer who handled the In-Kind invoicing for the program starting in late 2010, was sentenced to 12 months imprisonment, 3 years supervised release, and $250,000 in restitution. Sherman had entered a guilty plea to a charge of Conspiracy to Submit False Claims against the United States.

DOROTHY MAY STILL SMOKING, 64, of Browning, was sentenced to 30 months' probation and $100,000 in restitution. Still Smoking had entered a guilty plea to a charge of Conspiracy to Submit False Claims against the United States.

Codefendant Charlotte New Breast entered a guilty plea and was sentenced in 2013. Dr. Gary Conti, formerly of Sand Springs, Oklahoma and a professor at Oklahoma State University, and now residing in Three Forks, was tried and convicted of bankruptcy fraud in March of 2014. That jury was unable to reach a unanimous verdict on 27 other counts and a mistrial was declared. In May of 2014, Conti was retried on the mistried counts and found guilty of 26 of 27 counts of corruption related offenses, including conspiracy, wire fraud, embezzlement and money laundering.

The Blackfeet Po'Ka Project was developed to help troubled Native American youth. Po'Ka was funded by a federal grant from 2005 through 2011 by the Substance Abuse and Mental Health Services Administration (SAMHSA) of the Department of Health and Human Services. Beginning in 2005 with a $1,000,000 federal disbursement, the grant ultimately became a $9.3 million program over a six year period (2005-2011). The Po'Ka Project was designed to become a self-sufficient program - entirely supported by the Tribe - by the end of the grant period. To achieve the goal of final self-sufficiency, the Tribe was required to provide in-kind or matching contributions to continue to secure federal payments with the idea that as federal participation declined tribal participation and investment would rise to fill the funding void left by the absence of federal dollars. It was the intent of the parties and SAMHSA that the Po'Ka Project would survive on its own once federal funding was no longer forthcoming.

An in-kind contribution is a non-cash contribution provided by non-federal third parties in support of the project funded by the grant, and its objectives. Third party in-kind contributions may be in the form of real property, equipment, supplies and other expendable property, and the value of goods and services directly benefitting and specifically identifiable to the project or program.

Only if Po'Ka met the in-kind contribution targets could they receive the maximum amount of federal money from the grant. Consistent with the sustainability objective of the grant, the Tribe's in-kind contribution requirement was the highest in the later years of the grant. The Blackfeet Tribe was required to provide $7.0 million of in-kind contributions from FYs 2009 through 2011. That created an environment where the appearance of substantial in-kind contributions became paramount if the maximum flow of federal money from the grant was going to continue.

However, the in-kind commitment could never be honestly met, so the conspirators began making up facts and documents to try and satisfy SAMHSA and the auditors that the in-kind contributions represented on their reports to SAMHSA were legitimate. They did so by inflating the figures related to in-kind contributions, assigning values to non-existent and illegitimate "contributions," and manufacturing fraudulent invoices and records to support fictional or inflated contributions. The misrepresentations as to in-kind amounts were made in monthly reports to SAMHSA and the documents were generated to placate auditors conducting a required annual audit of the Tribe's operations. These annual audits are required of tribe's accepting federal grant funds to insure that the grant funds are being used for their intended purpose and that the requirements of the contract agreement are being met. If auditors make negative findings, those findings can result in action by the federal agency to rescind the contract, demand repayment, or make an offset, where the government deducts money from future payments.

Several witnesses, whose names were used as in-kind contributors, denied preparing or signing the invoice and denied contributing time or goods to the Po'Ka Project, at least in the amount claimed.

Based on email evidence and the statements of cooperating witnesses, Onstad, Augare, and Still Smoking, along with others, conspired to make the false representations as to the in-kind contributions made to the Po'Ka Project, and then actively managed the creation of false documentation to cover the representations so that the auditors would not question the contributions and the federal money would continue flowing unabated. The false representations were in effect false claims that resulted in the expenditure of federal grant money

An audit report from the Department of Health and Human Services, Office of Inspector General, determined that $4.6 million in claims for grant payments paid to the Tribe on the basis of Po'Ka' s in-kind contribution are unsupported, inflated, or completely falsified.

Onstad and Augare embezzled from the program in a myriad of relatively minor ways - travel fraud, misuse of Po'Ka credit cards, exorbitant claims of overtime, etc. - but the most significant embezzlement came in the agreement they appeared to reach with the grant's national evaluator. Certain federal grants require the participation of a national evaluator; an outside observer whose job is to monitor the progress of the project. Onstad and Augare reached an agreement with the national evaluator whereby they would approve significant payments to the evaluator who would in turn kick back a sizable portion of what was provided to him. Between August 2008 and August 2011, Onstad and Augare approved over $475,000 in Po'Ka grant monies for the national evaluator, then doing business under an alias business name. In turn, between August 2008, and September 2011, the national evaluator transferred $231,550 to the Child Family Advocacy Center (commonly referred to as the Child Family Advocacy Fund or CFAF) bank accounts at the Wells Fargo Bank in Cut Bank, Montana.

Between September 2008 and September 2011, Onstad and Augare withdrew $225,482 from the CFAF accounts. Much of that money went into their personal accounts at Stockman Bank and from those accounts much was spent on gambling and travel.

In 2009, Onstad and Augare both filed federal income tax returns for the calendar year 2008 in which they claimed a certain amount of taxable income based on their salaries from the Po'Ka Program. However, they had also taken significant sums from the CFAF accounts, all of which constituted unreported income. By concealing that income from the Internal Revenue Service, Onstad and Augare paid approximately half of what was owed to the IRS.

The case was pursued by the Federal Bureau of Investigation and the Department of Health and Human Services' Office of Inspector General. The FBI and the IG also received substantial assistance from the Internal Revenue Service's Criminal Investigation Division.

U.S. Attorney Mike Cotter lauded the work of the FBI and the Inspector General's Office in the Po'Ka case as well as the myriad other cases investigated and prosecuted since the Guardians Project was made public in 2013. He commented when guilty pleas were entered that:

Rarely does government produce such an effective anti-corruption team as has been created by the agents of the Guardians Project. Abandoning the traditional model of "You work your case and I'll work mine", these agencies have committed themselves to mutual cooperation. Working closely together-providing each other with time, resources, and expertise-has made these investigators the champions of Indian Country communities eager to rid themselves of corruption and the abuses of trust and power."

Updated January 14, 2015