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August 7, 2013

 

DiNapoli Audit Questions Special Education Contractor Charges

The John A. Coleman School, a special education provider based in Westchester County, submitted almost $640,000 in unwarranted charges to area school districts and New York City, including more than $500,000 for employee bonuses, according to an audit released today by New York State Comptroller Thomas P. DiNapoli.

“Special education providers perform a great service, but they have a responsibility to use taxpayer dollars responsibly,” DiNapoli said. “The Coleman School is just the latest example of why these providers need more oversight.”

Coleman, with classrooms in White Plains and Yonkers, provides special education itinerant teacher (SEIT), preschool, and school-aged special class services to disabled children. The New York City Department of Education (DoE) and other school districts pay tuition and fees to Coleman using rates set by the State Education Department. The DoE and the other localities use the rates to pay for services and then are partially reimbursed by SED. For the three years ended June 30, 2011, Coleman claimed about $27.3 million in reimbursable costs for the programs audited.

DiNapoli’s auditors disallowed a total of $639,338 in costs that were not in compliance with state reimbursement guidelines. The disallowances included $512,783 in personal service costs and $126,555 in other-than-personal service costs.

The personal service disallowances consisted of: $366,842 in bonus payments to employees and contracted personnel that were not supported by formal performance evaluations; $140,512 in bonuses that were claimed for the 2010-11 year, but were not paid in that year; and $5,429 in excessive charges for severance pay.

In fiscal year 2005-06, Coleman received a $1.5 million loan from the New York Foundling Charitable Corp., an entity related to Coleman. For fiscal years 2008-09 through 2010-11, Coleman made no payments to reduce the principal on the loan. Instead, $166,588 in interest expense was reported. Auditors disallowed $126,555 in interest expenses because interest only payments are not reimbursable under SED guidelines.

DiNapoli recommended SED

  • Review the disallowances resulting from our audit and make the appropriate adjustments to the costs reported to the state. Adjust Coleman’s tuition reimbursement rates, as appropriate; and
  • Direct Coleman officials to fully comply with SED provisions and to ensure that only eligible costs are included on its consolidated financial reports (CFRs).

DiNapoli recommended Coleman:

  • Ensure that costs reported on the CFR comply fully with state guidelines; and
  • Ensure that costs reported are accurate and complete.

SED generally agreed with the report’s findings and recommendations.
For a copy of the complete report, including responses from SED and Coleman, visit: http://www.osc.state.ny.us/audits/allaudits/093013/12s16.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.

In the closing week of this year’s official session, the legislature passed legislation mandating audits of every preschool special education services program provider in the state by the Comptroller’s Office. The legislation, a program bill of the Office of the State Comptroller sponsored by Sen. John Flanagan (S.5568-A) and Assemblywoman Catherine Nolan (A.7302-A), also tightens weaknesses in the program, including how students are evaluated and placed in programs, and how reimbursement is calculated. DiNapoli is urging the legislation be signed into law.

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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