New York State Comptroller Thomas P. DiNapoli today announced that his latest audit of expenses submitted by publicly-funded special education preschool program providers found a Brooklyn school that claimed $800,000 in costs that were not eligible for reimbursement.

“The State Education Department instructs special education providers how it can and can’t spend taxpayer’s money to ensure that special needs children get the greatest benefit,” DiNapoli said. “When providers ignore these rules or fail to follow them, they shortchange New York’s most vulnerable children. We have forwarded our findings to the State Education Department for review and to recover the ineligible reimbursements.”

The Milestone School for Child Development is a for-profit preschool that offers special education services to children aged three to five years old.  During 2012-2013 Milestone provided services to about 110 students from Brooklyn and neighboring boroughs. 

The New York City Department of Education (DoE) refers students to Milestone and pays the school’s expenses based on rates set by the State Department of Education (SED). The school must submit its annual expenses to SED, which reimburses DoE for a portion of its payments to Milestone. For the fiscal year ended June 30, 2013, Milestone reported approximately $3.8 million in reimbursable costs for its SED programs. DiNapoli’s audit focused on fiscal year 2012-13, but was expanded to include certain costs Milestone claimed for fiscal years 2010-11 and 2011-12.

DiNapoli’s audit identified $801,859 in reported costs that were not eligible for reimbursement. The audit recommended SED adjust reimbursements to recover the money.

The ineligible charges, ranging from large to small, included:

• $196,160 in excessive rent expenses. Milestone claimed higher rent costs than what it should have paid based on a review of its lease agreements;
• $188,447 in unsupported charges, including $26,422 in telephone expenses that had no invoices or contracts to support them, and $31,926 in American Express charges with no invoices to support the billing statements;
• $149,815 in unsupported or inappropriate fringe benefit expenses, including $78,307 in expenses that were double-counted because they were already included in Milestone’s gross compensation charges;
• $105,632 in salary to three employees, including the executive director. Milestone charged their full salaries to the state even though the employees were also working for other service programs;
• $32,142 in checks that Milestone voided, but still included in its annual expenses reported to SED;
•   $10,508 for entertainment, food and gifts, including $4,495 in holiday and staff appreciation gifts;
• $2,470 in salary for a teacher’s assistant. Milestone charged the state $9,240 even though it only paid her $6,770.

Milestone’s response, in which it disagreed with the audit findings, and the audit rebuttal are detailed in the full audit here www.osc.state.ny.us/audits/allaudits/093015/14s37.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 every preschool special education provider. 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: https://osc.state.ny.us/sites/default/files/state-audits/documents/pdf/2019-02/seit-annual-report-2014.pdf