LoadError in Home#index “no such file to load — sass”

Question

I'm getting the following error when i run my application with Apache (thru passenger gem) or Rails server:

LoadError in Home#index

Showing /webserver/projects/My_Project1/app/views/shared/_includes.html.erb where line #1 raised:

no such file to load -- sass
  (in /webserver/projects/My_Project1/app/assets/stylesheets/agencies.css.scss)
Extracted source (around line #1):

1: <%= stylesheet_link_tag 'formtastic', 'formtastic_changes', 'application' %>
2: <%= javascript_include_tag :defaults %>
3: <%= csrf_meta_tag %>
Trace of template inclusion: app/views/layouts/application.html.erb

Rails.root: /webserver/projects/My_Project1

Application Trace | Framework Trace | Full Trace
app/views/shared/_includes.html.erb:1:in `_app_views_shared__includes_html_erb__161748454_90781460'
app/views/layouts/application.html.erb:5:in `_app_views_layouts_application_html_erb__598536072_90214230'

I have installed RVM and the following version of ruby as default:

$ruby -v
ruby 1.9.2p290 (2011-07-09 revision 32553) [i686-linux]

and this version of Rails:

$rails -v
Rails 3.1.1

Using CentOS 5.7

UPDATE: I have installed a gem called 'sass' and converted manually all the css.scss files to .css in stylesheets directory: /webserver/projects/My_Project1/app/assets/stylesheets/, now i can see the a welcome and login message, but not properly at all. It doesn't render a background or something else.