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August 1, 2012


DiNapoli: Special Education Contractor Bilked Taxpayers Out of $2.6 Million

Overcharges Include Pay For Executive’s Relatives

IncludED Educational Services, a Cedarhurst-based provider of special education services, inappropriately charged New York City’s Department of Education (DoE) and others more than $2.6 million over a two-year period, including more than $850,000 in salaries paid to the sons and other relatives of its executive director, according to an audit released today by State Comptroller Thomas P. DiNapoli. The findings have been referred to the Manhattan District Attorney’s Office.

“Waste, fraud and abuse cannot be tolerated in our special education programs, but my auditors keep finding it,” DiNapoli said. “Allowing these abuses to continue deprives children with disabilities of the resources intended for them and threatens the entire private special education program. The state and localities need to improve their management and oversight of special education providers to make sure taxpayers get what they’re paying for and students aren’t cheated.”

The audit released today is part of an in-depth review by DiNapoli’s office of New York’s special education program by a team of auditors and investigators. Three audits released in June led to the arrests of four contractors and restitution of $610,000. The findings of another audit, Bilingual, released in July were referred to the Queens District Attorney’s Office for further investigation.

IncludED provides special education services to 375 children between the ages of three and five years. The State Education Department (SED) oversees special education programs statewide. The DoE and other districts pay tuition to IncludED using rates set by SED. These rates are based on costs from financial reports that special education providers, such as IncludED, submit to SED. The costs included on the reports must fully comply with the guidelines in SED’s Reimbursable Cost Manual.

IncludED could not provide auditors with the documentation to support salary and wage costs for 50 employees totaling $1,540,082. Of this amount, $856,827 was paid to 11 relatives of the executive director, who routinely deposited the paychecks of his two sons into his own personal bank account. Auditors disallowed another $324,761 for fringe benefits.

DiNapoli’s auditors found IncludED’s executive director and his wife billed DoE for personal costs totaling $32,359 including:

  • $19,888 in non-allowable meal expenses;
  • $9,720 in student loan payments and tuition costs;
  • $1,482 in repair and maintenance expenses for landscaping services performed at their home; and
  • $1,269 in airline ticket charges.

Auditors also found IncludED charged the city and state $15,382 for rent and expenses for the California home of the son of the executive director. The son admitted he “made up” an invoice to obtain reimbursement of $6,000 for the security deposit and rent – of which $4,682 was allocated to the audited programs. He claimed another $10,700 in costs for light fixtures, installation fees, car rental, a computer, an iPhone, and other items.

Auditors also disallowed IncludED’s claims for:

  • $156,158 in office supply and advertising expenses;
  • $59,553 in depreciation expenses that were unsupported;
  • $53,311 in lease costs attributable to a separate day-care center, an early intervention program, and an unapproved program site in Flushing; and
  • $36,547 for items such as cribs and changing pads that were used in other programs operated by IncludED’s owner that were separate from the special education programs.

DiNapoli recommended SED review the findings of auditors and investigators and take the appropriate actions to recover the inappropriate expenses.

SED officials generally agreed with the audit’s findings and intend to seek restitution as appropriate.

For a copy of the report visit: .



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