The principal of a D.C. public school was dismissed after officials concluded that he purchased two buses with school money and that one of them might have been sold in Panama.

One bus sits unused in a school lot, but the other has not been located. A clue to its whereabouts is in a letter written by the fired principal, Enrique Watson, in which he portrays himself as a bus salesman to a potential client in his native Panama, said John M. Cashmon, the school system's director of compliance.

"You improperly disposed of a DCPS asset in the form of a school bus," Loretta Blackwell, the school system's director of labor management and employee relations, wrote in a December letter telling Watson that he was being dismissed. "The improper disposal potentially denied DCPS revenue from its sale and violated your fiduciary duty to protect DCPS assets within your control."

Watson, who worked at Lincoln Multicultural Middle School from 1987 until he was placed on leave last summer, declined to comment. He referred questions to his attorney, Vandy L. Jamison Jr., who said Watson denied "any breach of his fiduciary duties."

"It is unfortunate that these unfounded allegations would be sent to the media out of context while deserving students are denied the leadership of a truly dedicated educator," Jamison said. "This is a guy who was there for 16 years and who changed the light bulbs and fixed things and did everything that needed to be done to make that school function for those students."

School officials said that Watson has appealed his dismissal from the school, which until 2002 was in Columbia Heights in Northwest. Lincoln is being rebuilt, and its students attend classes at a temporary location in Northeast.

Blackwell's letter, obtained through a Freedom of Information Act request, listed a number of other reasons for Watson's termination. Among them, the letter cited an internal school report saying that the school had made $17,691 in "potentially fraudulent or improper" transactions from 2000 to 2003 using student activity money and funds from the school's budget.

The letter cited two checks totaling $1,196 that Watson allegedly wrote out to cash, for which no documentation was found showing that the money was used to benefit students. The letter described $5,678 in transactions in which the school used student activity funds to hire contractors to do work that should have been done by D.C. schools workers or by using money from other budgets.

The dismissal letter also said that the assistant principal forged Watson's signature on some checks and that the principal failed to review the bank statement and canceled checks, a violation of regulations. The assistant principal, Awilda Hernandez, was terminated in December. She could not be located for comment.

Cashmon, who investigated Lincoln's finances, said that Watson spent student activity money on items such as crystal dishes, soaps and candles.

"There were some personal gifts," Cashmon said. "These were beyond what the scope of anything the principal should have been doing with the student activity fund."

He said some money from the school's regular budget was also misspent.

Student activity money is raised from sources such as vending machines and athletic events. School rules dictate that the money should be used to "promote the general welfare, education, and morale of students" and pay for extracurricular activities.

In the past few years, there have been cases at several schools in which student activity money was allegedly misused or not accounted for properly.

In 2003, school officials concluded that the former principal of Burroughs Elementary had improperly spent $9,800 from a student activity fund on lobster tails, sushi, a Palm Pilot, DVDs, a spa kit and other items.

At Ballou Senior High School in Southeast, investigators concluded last month that $15,400 in cash and about $12,000 in undeposited checks from student activity money were being stored in the building, a violation of policies requiring the money be promptly deposited. An internal report said that records accounting for the money were in "deplorable" condition.

In the Lincoln case, Cashmon said that when investigators questioned Watson about the two buses, the former principal said he used money from the school's budget in 2000 to purchase them for $5,000 at an auction house in Pennsylvania. However, Cashmon said that no records of the transaction were found and that he could not confirm the amount spent or the source of the funds.

Watson said he wanted a bus for field trips and to rent to other groups to raise money for the activity fund, according to Cashmon. The school system has its own fleet of buses for transporting special education students that are also used for field trips. School officials said they are unaware of any other schools that had purchased buses.

Watson, who was named principal in 1996, told investigators that he purchased two buses so that he could use parts from one to repair the other. He took the buses to Khalsa Car Sales in Accokeek, where he lives, Cashmon said.

According to Cashmon, Watson said he gave the second bus to the owner of the car shop in exchange for helping fix the first bus. But the owner of the shop, Kashmir Dhariwal, said in an interview that he did not assist Watson in the repairs and that he told Watson to remove the second bus after it had been sitting on his lot for a few months. He said the bus was eventually removed.

Cashmon said investigators found a letter from Watson to someone in Panama that could provide a clue to the whereabouts of the bus. "He was saying that he was a bus salesman," Cashmon said, "and that he could provide this person with a bus."

Cashmon said he suspects the bus is in Panama but has no proof.

The bus that was not disposed of -- a 1987 Blue Bird that holds 44 passengers -- sits in poor condition on one of the school system's bus lots.

The head of the city's Congress of PTAs said it was upsetting to imagine a principal doing such a thing.

"If you're in the business of being the instructional leader for the school, why do you need the sideline of allegedly being a bus salesman?" said Darlene Allen, the PTA official.

"How do we continue to hire people who turn out not to have had the interests of our children at heart?"

One of the buses Enrique Watson bought sits in a lot. No official paperwork has been found on the purchase.Watson, who was principal of Lincoln Multicultural Middle School, said he bought the buses to use on field trips and to rent to other groups.