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April 26, 2013

DiNapoli Audit Finds $7.7 Million in Questionable Charges by Special Education Providers

The Lake Grove School and the Mountain Lake Children’s Residence, two special education providers run by the same company, overcharged taxpayers by as much as $7.7 million over a four-year period, according to an audit released today by New York State Comptroller Thomas P. DiNapoli.

“Children are getting shortchanged by some special education providers taking advantage of lax oversight to bilk taxpayers,” DiNapoli said. “The State Education Department and the Office of Children and Family Services need to step up and do a better job policing providers and making sure they only charge for appropriate costs they incur for their services, not exorbitant salaries and perks.”

The two facilities, located in Lake Grove, Suffolk County and Lake Placid, Essex County, provide special housing and educational services to eligible children with disabilities. Both are managed by Windwood Meadow Inc., a Suffolk County based management company.

Auditors found that during the four years ended June 30, 2009, Windwood allocated its management fees among several of its affiliates, including Lake Grove and Mountain Lake, but could not explain how they determined those allocations. Because of that, DiNapoli’s auditors could not verify if the $5.4 million in management fees allocated to Lake Grove and Mountain Lake were proper.

Additionally, auditors concluded that many of the costs embedded within their management fees do not qualify for taxpayer reimbursement.

Windwood’s former chief executive officer John Claude Bahrenburg was paid $450,521 in fiscal year 2006-07, $480,619 in FY 2007-08 and $480,619 in FY 2008-09. Program reimbursement guidelines for both the State Education Department (SED) and Office of Children and Family Services (OCFS) require salary costs to be supported by time and attendance records for the funded program. Auditors found that Bahrenburg did not maintain such records or any other documents to show how his actual time was allocated among Windwood’s various facilities. His salary also significantly exceeded executive compensation for other not-for-profits of comparable size.

Bahrenburg also received a $14,000 vehicle allowance for three years, as well as $30,000 for charitable donations for two years. Those expenses are clearly not reimbursable under SED guidelines. Under OCFS guidelines these expenses may have been reimbursable if there had been documentation showing that the expenses were program related.

The management fees claimed by Windwood also included $55,395 in interest it paid on a $250,000 loan obtained for the CEO over the three years ended June 30, 2009. Bahrenburg was supposed to repay $50,000 per year but Windwood excused the annual repayment for two years. That resulted in both the interest and annual payments being charged to the company’s affiliates as part of the management fees. State Not-For-Profit Corporations Law prohibits loans made by a facility to its officers or directors.

DiNapoli’s auditors determined Windwood inappropriately paid a board president $180,000 over a three year period and inappropriately paid $127,334 to 12 other Board members for honorariums over a two year period. Additionally, Windwood paid $278,963 to three board members for serving as consultants. Auditors could find no evidence of any work product produced or received from these consultants.

Auditors also identified $998,875 in payments that were inappropriate or unsupported including the salary for a chief operating officer, consultant fees, non program-related travel, lobbying expenses and food and incidentals for staff.

The CPA firm that certified Windwood’s financial documents submitted to SED and OCFS was BDO Seidman LLP.

DiNapoli recommended:

  • SED and OCFS revise the reimbursement rates for Lake Grove and Mountain Lake and seek restitution for any overpayments;
  • Lake Grove and Mountain Lake ensure that their reporting of reimbursable expenses complies with SED and OCFS requirements; and
  • SED and OCFS enhance their monitoring of expenses submitted by Lake Grove and Mountain Lake.

For a copy of the report visit: http://www.osc.state.ny.us/audits/allaudits/093013/09s90.pdf

DiNapoli has identified fraud and improper use of funds in a recent series of audits of special education providers. There have been several criminal referrals, felony arrests, criminal convictions and hundreds of thousands of dollars in restitution made as a result of the audits. In total, 30 special education contractors have been or are being audited.

The Comptroller's recent audit of SED’s fiscal and program oversight of special education providers found that the agency has not conducted any on-site provider audits since 2007.

SED oversees special education programs for students with disabilities between the ages of 3 and 21. In addition to services provided by local school districts, these programs include services delivered to about 75,000 students by more than 300 for-profit and not-for-profit entities at an annual state cost of $1.3 billion.

For a copy of that report, visit: http://osc.state.ny.us/audits/allaudits/093013/12s103.htm



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