A Manhattan-based preschool for children with disabilities charged the State Education Department (SED) nearly $6 million for expenses that did not qualify for taxpayer reimbursement, State Comptroller Thomas P. DiNapoli announced today. DiNapoli's audit of New York League for Early Learning Inc. (NYL) focused on $138 million in expenses the school claimed for special education services over the three fiscal years ended June 30, 2014.

"This special education provider failed to adhere to the State Education Department's rules for getting taxpayer funded reimbursements," DiNapoli said. "We have referred our findings to the SED for the recovery of this money. Department officials are in agreement with our recommendation."

NYL is a not-for-profit preschool special education services provider that is reimbursed based on costs it reports to the state. It also runs a private day care, and early intervention and universal Pre-K programs that are paid for through separate funding sources.

During the audit period, it shared space with the Manhattan Star Academy, a private school that serves school-age special education students. It was also a member of the eight-member Young Adult Institute Network, which also included YAI and the academy. NYL served about 818 students during the 2013-14 school year.

Prior to the audit, on March 1, 2010, NYL entered into a five-year management agreement with YAI. This agreement, which was automatically renewed for an additional five years beginning March 1, 2015, gave YAI the power to "serve as NYL's manager of all business, management, fiscal, personnel, fundraising, planning, and program functions and services." For the three fiscal years ended June 30, 2014, NYL, using taxpayer funds, paid $13.8 million in fees to YAI for such services. The agreement was terminated on Nov. 10, 2015, after the audit was underway.

Auditors found costs for the period under audit were significantly impacted by the management agreement. SED's Reimbursable Cost Manual (RCM) states that costs charged to programs receiving administrative services, as well as technical consultants from a related organization are reimbursed provided such costs are not duplicative in nature, provide a direct benefit, are based on actual direct and indirect costs allocated on a consistent basis and are reimbursable.

Among NYL's expenses that DiNapoli's auditors recommended SED disallow were $1.7 million in redundant administrative costs for NYL's executive director, assistant executive director and seven agency administrative staff and $1.2 million in redundant costs for services including technical consultants. These expenses should have been covered under their management agreement with YAI. Instead, they were charged to both YAI and the state, duplicating claims for reimbursement.

Other ineligible costs included:

• $1.2 million in personal service expenses for programs under NYL that are paid for through separate funding sources;
• Nearly $1 million for expenses including food for staff, recognition awards and vehicle expenses that were not supported or documented; and
• $738,000 in employee bonuses.

DiNapoli recommended SED review the suggested disallowances resulting from the audit and make the appropriate adjustments to NYL's Consolidated Fiscal Reports and future reimbursement rates. He also recommended SED work with NYL officials to help ensure their compliance with RCM provisions.

The duration of the audit fieldwork was prolonged because auditors experienced significant difficulties obtaining requested documentation to support the expenses reported on the CFRs. NYL disputed claims that it does not adhere to the manual's requirements and that it provided insufficient documentation.

Read the report, or go to: https://www.osc.state.ny.us/sites/default/files/state-audits/documents/pdf/2019-01/sga-2017-15s43_0.pdf

DiNapoli's Special Education Audits

In June 2012, DiNapoli announced a new special education audit initiative involving a broad look at the special education sector as well as multiple individual providers. The effort found numerous cases of waste, abuse and in some cases criminal conduct.

As a result of these findings and at the request of DiNapoli, the state enacted legislation requiring the Comptroller to audit the expenses reported to SED by every program provider of special education services for preschool children with disabilities at least once by March 31, 2018. OSC has completed 71 audits of preschool special education providers, finding $48.4 million in unsupported or inappropriate charges. Investigations related to these audits have resulted in 10 arrests, seven criminal convictions and the recovery of more than $5 million in stolen public funds.

For access to state and local government spending and more than 50,000 state contracts, visit www.openbooknewyork.com. The easy-to-use website was created by DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.