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February 7, 2013

DiNapoli: Special Education Providers Charged Taxpayers for Excessive Salaries and Personal Items

The owners of two Manhattan-based special education providers claimed more than $500,000 in expenses to which they were not entitled, including extra money for their salaries, vehicle costs and personal expenses, as well as bonuses for staff that could not be justified, according to two audits released today by New York State Comptroller Thomas P. DiNapoli. The audit findings are being considered for referral to law enforcement.

“Money that should be going to students with special needs is instead paying exorbitant salaries and bonuses for providers. This has to stop.” DiNapoli said. “Time and time again, we’ve found special education providers taking advantage of the poorly designed state reimbursement process and lax oversight. It is time for more aggressive action to ensure money is not misused.”

As part of an ongoing initiative delving into preschool special education providers, DiNapoli’s auditors examined Kids Quality Care Inc. (KQC) and Kids & the Training Institute (KTI) which, over the years, have collectively billed the state and localities more than $6 million for their services. KQC leases office space for its business operations and subleases to and shares office space with KTI. The executive directors/owners of KQC and KTI, Orly and Yair Cohen, were previously married to each other and each provides services to the other’s company.

In examining the records of KQC, DiNapoli’s auditors found the agency claimed $237,926 in costs that were not properly calculated, documented or allowable. The disallowances included $138,136 in personal service costs with $73,258 of that excess salary to Executive Director/owner Orly Cohen, and $64,878 for unsupported bonus payments to employees.

Auditors also disallowed:

  • $31,925 for unapproved facility lease and improvement costs and $32,120 for vehicle costs for Orly Cohen’s Toyota Prius;
  • $4,826 for personal expenses including Ticketmaster charges, fees for an online dating website, taxi cabs, cable service, books, foreign news magazines, food and meals;
  • $1,445 for legal fees not related to KQC’s educational program, overstated costs for property and casualty insurance, expenses attributable to another program; and
  • $1,097 for two cell phone lines registered under Orly Cohen’s name that were used by her former husband and their daughter.

DiNapoli’s auditors found that KTI claimed $287,952 in costs that were not properly calculated, documented or allowable for the two years covered by the audit. The disallowances include $215,592 in personal service costs, including $44,824 in excess salary for Executive Director/owner Yair Cohen. DiNapoli’s auditors also disallowed $169,648 in unsupported bonus payments to staff and $1,120 in gift cards to employees.

Auditors discovered $31,577 claimed for ineligible vehicle costs, $16,389 for numerous personal expenses, and $3,753 in expenses claimed for Yair Cohen’s residence. Records revealed that KTI’s director/owner purchased a $42,000 Toyota 4Runner partly with public funds, with the vehicle registered, titled and insured under his name.

Additional disallowances included:

  • $2,263 for telephone expenses, including $1,535 for two cell phones registered to KTI’s executive director/owner which were actually used by his former wife, Orly Cohen, and their daughter;
  • $4,770 for legal fees not related to the agency’s educational program. The disallowed costs include expenses for handling immigration matters, work visas and permits;
  • $3,141 for training, education and related costs (including travel) incurred by KTI’s executive director. This included $1,900 for the executive director’s airfare overseas to purportedly attend a training course and $527 for telephone charges while overseas. Auditors determined that the supporting documentation provided by the agency was not contemporaneous with the training.

The State Education Department (SED) requires special education providers, such KQC and KTI, to have a CPA firm certify that the fiscal reports submitted comply with SED's Reimbursable Cost Manual. Although more than $500,000 in reported costs were not in compliance, Loeb and Troper LLP certified the reports filed by KQC and KTI audited by DiNapoli's office.

DiNapoli recommended:

  • State Education Department (SED) review disallowances and make the appropriate adjustments to costs reported to the state and the tuition reimbursement rates;
  • SED direct KQC and KTI officials to comply with state provisions pertaining to less-than-arm’s-length business relationships, time and attendance records and classification of expenses and ensure that they do so;
  • SED carefully monitor KQC and KTI to ensure that their consolidated fiscal reports comply fully with the Manual requirements.

SED generally agreed with the audits’ findings and said it would work to better train providers and recoup excessive payments.

For a copy of the KQC report, visit: http://www.osc.state.ny.us/audits/allaudits/093013/10s68.pdf

For a copy of the KTI report, visit: http://www.osc.state.ny.us/audits/allaudits/093013/10s69.pdf

DiNapoli’s auditors identified fraud and improper use of funds in a recent series of audits of special education providers, resulting in more than $13 million in disallowances. There have been several criminal referrals, felony arrests and hundreds of thousands of dollars in restitution made as a result of the audits. Seven providers so far have been referred to law enforcement. 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 and has no process to routinely review the providers who provide services through the special education program. 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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