A state Inspector General's investigation into allegations of a money laundering, embezzlement, and income tax fraud scheme supposedly occurring at the Wareham Free Library between 1995 and 2005 has found no evidence that such a conspiracy ever occurred.

The investigation "did not reveal any evidence to substantiate or corroborate the allegations," Massachusetts Inspector General Gregory W. Sullivan wrote in a report released Thursday, September 29.

The Office of the Inspector General launched an investigation in December 2009 after the alleged scheme was detailed in a November 2009 article appearing in the now defunct Wareham Observer newspaper. The story was written by Wareham Observer publisher Robert Slager.

The article alleged that more than $3 million was laundered from the library from 1995 to 2005 when former Wareham Free Library director Mary Jane Pillsbury oversaw the library's operation, according to Sullivan's report.

Pillsbury died in 2008 after a battle with cancer. She worked for the library for 35 years, 25 of which were spent as director. She also served 15 years as a Selectman in Wareham.

At least 123 people were involved in the scheme, Slager's story alleged, in which large portions of donations to the library were immediately returned to the donors in cash, according to the Inspector General's report. The donors then allegedly declared 100% of the donations on their tax returns.

Slager was interviewed by Inspector General's office investigators in December 2009 and August 2010.

Slager said that on July 11, 2008, a Wareham Free Library trustee showed him a ledger containing every donation made during the 10-year period, but would not allow him to copy the ledger and, sometime after that meeting, told him that the ledger had disappeared from the library, Sullivan wrote.

Slager also alleged that the donors, as to not be scrutinized by the Internal Revenue Service, made multiple small donations over the 10 years, according to the report.

"[Slager] suggested in the story that there is a list containing the names of the 123 donors [who allegedly participated in the scheme] and that the list had been given to an unnamed third party in Florida who would release it in the event that something unfortunate happens to him," according to the report.

According to the report, Slager stated during the August meeting that he'd written a list of 40 names appearing in the ledger that he was familiar with, presumably names which were included in the 123 people who allegedly had received kickbacks. The investigators asked Slager to provide the notebook containing the 40 names, but it was never provided, Sullivan wrote.

Slager later provided 11 names of people who were allegedly among the 123 donors involved in the kickbacks, which investigators compared with donor records supplied by the Friends of the Wareham Free Library and the trustees of the library. One individual donated three times over the 10-year period, another donated once, and a third person donated once, according to the report.

"The names of the other eight alleged participants in the donor kickback scheme ... were not found in the donor records," Sullivan wrote.

Slager alleged that the money remaining from the library donations after the kickbacks was evenly split between the library director, the Wareham Free Library Board of Trustees, and the Friends of the Wareham Free Library, according to the report.

The Office of the Inspector General interviewed 28 former Trustees of the Wareham Free Library, including three former treasurers of the trustees who had served within the 10-year time period.

"None of the former Trustees reported any knowledge of or participation in the alleged scheme," Sullivan wrote. "Many of those interviewed stated that the first that any of them heard of the alleged scheme was when it was first mentioned by [Slager] in his Observer newspaper article."

Slager wrote that in an effort to replenish the money from the kickbacks, as much as $1.5 million was allegedly embezzled from the Wareham Free Library via proceeds from used book sales and coin-operated copy machines, according to Sullivan's report.

The Friends of the Wareham Free Library, formed to raise funds for programs, materials, and other purchases for the library, put on annual and then monthly used book sales to help support the library.

The Observer story alleged that some of the books sold at the library's used book sales were new books purchased with public money, which, after being sold, were purchased again during the next budget cycle so Pillsbury could, Slager wrote, "cover her tracks," according to the Inspector General's report.

Interviewed during the investigation, a former president of the Friends of the Wareham Free Library said the Friends never sold new books and that the Friends only received books from the library that were going to be discarded anyway, according to the report. Old books, which are usually in bad condition, and books that are no longer of interest are removed from the shelves regularly, according to the report.

The executive director of the SAILS Library Network, of which the Wareham Free Library was among the founding members, also confirmed that a library will discard books if they are not of interest to the public or are deteriorated, according to the report.

The SAILS executive director told investigators that she did not believe that books were ever taken from the shelves and given to the Friends because the library would have had to "borrow the books given to the Friends from other libraries who are members of the SAILS Network so that the Wareham Library could satisfy its customers," Sullivan wrote. "There are no records in the SAILS system to indicate this ever happened."

The investigation indicated that the amount of money obtained from book sales "did not come anywhere close to the amount of the alleged embezzled money," according to the report.

As for the copy machines - Slager alleged the copiers would have generated about $300,000 in revenue throughout the 10-year period in question - the investigation determined that the money from the machines "never went to library personnel," according to the report. Only the company leasing the machines to the library had access to the money, and that company kept all of the revenue.

Furthermore, the money collected from the two coin-operated machines located in the library for an eight-month period during the investigation was only $917, Sullivan wrote.

Investigators analyzed financial records of the Friends of the Wareham Free Library and the Trustees of the Wareham Free Library and ultimately determined that there was no evidence showing any kickback conspiracy.

"If there was a scheme to kickback large amounts of cash to certain Library donors, one would expect there to be large unexplained cash withdrawals from some or all of the bank accounts under the control" of the trustees and the Friends, Sullivan wrote. "This was not the case."

Reviewing the financial records further revealed that "the persons involved in the alleged scheme never had access to funds" amounting to more than $3 million "or funds anywhere close to that amount," Sullivan wrote.

Asked for his comment on the report's findings, Slager replied with a 1,500-word statement, largely consisting of his communications with the Inspector General's office. In one communication, he pleads with the IG's office to interview more people because Slager believes "100 percent in my heart" that his sources "aren't lying to me."

Family members of former library director Pillsbury say she "loved the Wareham Free Library with all of her heart" and they're happy she has been "exonerated and vindicated," said Pillsbury's son, Matthew.

"Not one single shred of evidence of any wrongdoing whatsoever on my mother’s part was found. This is because these false claims simply did not happen, Matthew said, adding that the ordeal has caused his family "immeasurable pain and suffering."

"It was painful enough for us to watch my mother fight and lose a physically and emotionally painful battle with cancer, but to have to put up with her reputation being attacked with ridiculous and untrue claims is an experience that no one should ever have to go through," Matthew said. "We have been put through Hell."

To read the full Inspector General's report, click the link below this story.