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NYS Comptroller

THOMAS P. DiNAPOLI

Press Releases

December 11, 2015, Contact: Press Office (518) 474-4015

DiNapoli Audit: Pre-K Special Education Provider Spent $2.5 Million in Unallowed Expenses

New York State Comptroller Thomas P. DiNapoli announced today that an audit of a Brooklyn preschool special education provider found it charged the State Education Department (SED) for $2.6 million in expenses that were not allowed. 

“The State Education Department determines how special education providers can use public funds to make certain that children get the greatest benefit,” DiNapoli said. “Unfortunately, once again we’ve found another school that failed to spend the money properly and shortchanged special needs children. We’ve shared our findings with the State Education Department so that they can recover the misspent funds.”

Shared staff at Starting Point Services divided their hours between the school’s preschool Special Education Itinerant Teacher (SEIT) program and its related services program. The state reimburses Starting Point, and other providers, for the cost of their SEIT programs based on the eligible expenses they report. Providers are not allowed to charge the costs of related services to the SEIT program for reimbursement. But DiNapoli’s audit found Starting Point did just that. Starting Point submitted 100 percent of the cost of its shared staff to the SEIT program for reimbursement, even though some employees worked solely for its related services program.

When DiNapoli’s auditors asked Starting Point officials to explain the costs it reported to SED for reimbursement, it could not provide documentation explaining where staff worked and when.

Starting Point’s financial mismanagement existed despite the fact that over a three-year period ending June 30, 2013, it not only paid a consultant $310,136 to act as Chief Financial Officer (CFO), but also employed a controller at a cost of $586,310. DiNapoli’s audit concluded that the payments to the CFO consultant were not eligible for reimbursement because the staff controller should have been capable of providing the same services. Moreover, the CFO’s consultant services were inadequately documented because his invoices did not indicate the specific services provided, as required.

The audit initially examined the $16.4 million in reimbursable costs the school reported to SED for the fiscal year ending June 30, 2013, but when problems were found the audit was expanded to include certain expenses from the two prior fiscal years.

The audit recommended SED disallow $2,585,454 in expenses the school reported to the state for reimbursement, including:

  • $1,981,802 in salaries and fringe benefits that should not have been charged to the State;
  • $310,136 in undocumented consulting costs that did not indicate what services the consultant provided or their hourly rate; and
  • $173,539 in staff bonuses that were not supported by performance evaluations, as required.

DiNapoli’s audit recommended that SED adjust the school’s reimbursements of over-time costs to recoup the money. Finally, the audit recommended the school take steps to ensure its costs are properly reported and meet SED requirements for reimbursement.

The New York City Department of Education (DoE) refers students to Starting Point based on clinical evaluations and pays for Starting Point’s services using rates established by SED. The rates are based on the financial information that Starting Point reports to SED on its annual Consolidated Fiscal Reports (CFRs). To qualify for reimbursement, Starting Point’s expenses must comply with the criteria set forth in SED’s Reimbursable Cost Manual (Manual), which provides guidance to special education providers on the eligibility of reimbursable costs, the documentation necessary to support these costs, and cost allocation requirements for expenses relating to multiple programs. Reimbursable costs must be reasonable, program-related, and properly documented. The State reimburses DoE 59.5 percent of the statutory rate it pays to Starting Point.

The full audit can be found at www.osc.state.ny.us/audits/allaudits/093016/14s64.pdf.

Background
There are approximately 81,000 preschool students with disabilities who receive Special Education services in New York. Each year the state and municipalities spend more than $1.4 billion to help provide those badly needed services. Unlike in other states, preschool special education services in New York are predominantly provided by for-profit and not-for-profit private contractors rather than the school districts themselves. There are about 320 approved private preschool special education providers in the state.

In June 2012, after his audits uncovered waste, fraud and abuse of special education funds, DiNapoli announced an initiative involving a broad look at the special education sector and proposed legislation to improve oversight of preschool special education provider programs.  Chapter 545 of the Laws of 2013 was signed into Law on December 18, 2013. This Law requires the Comptroller to audit, by March 31, 2018, the expenses reported to SED by preschool special education providers throughout the state. The audits have continued to find improper use of public funds for special education and in some cases, outright fraud. Investigations related to these audits have resulted in 10 arrests and five criminal convictions and the recovery of more than $5 million in misspent public funds.

A comprehensive look at past audits is available online: www.osc.state.ny.us/audits/seitannualrpt.pdf

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