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Three private contractors hired to provide special education services for pre-K children used public money for inappropriate and unallowable expenses, according to audits released today by New York State Comptroller Thomas P. DiNapoli. Some contractors billed for no-show jobs, improper staff bonuses, landscaping services and flooring for a vacation home, and much more.

DiNapoli called the schemes to defraud the state “unconscionable.” In some instances, contractors attempted to hide the fraud, while in others the fraud was barely concealed. DiNapoli’s office began a widespread probe into the operations of special education contractors after irregularities arose in financial disclosure reports. This probe so far has led to felony arrests of four contractors and restitution of $610,000.

“This money was intended to give our most vulnerable children the services they needed, instead the money was used for contractors to landscape their second homes or for no-show jobs. Special needs kids were shortchanged by contractors that had figured out how to game the system,” DiNapoli said. “Working with the Manhattan District Attorney Cyrus Vance and Bronx District Attorney Robert T. Johnson, we have been able to recover taxpayer dollars and bring these individuals to justice. My office is also working closely with the State Education Commissioner John King to improve monitoring and prevent future abuse.”

“Stealing from children with special needs is reprehensible,” State Education Commissioner John B. King, Jr. said.  “”Fortunately, the overwhelming majority of pre-k special education providers are committed to serving special needs children honestly and compassionately. We will continue to work with Comptroller DiNapoli and the special ed community to ensure every pre-k special education dollar provides the services our children need. We have a responsibility to these children, and we’re going to make sure we meet that responsibility.”  New York State Education Commissioner John B. King, Jr.

Manhattan District Attorney Cyrus R. Vance, Jr., said, “Through the work of the Office of New York State Comptroller Thomas DiNapoli, who discovered this fraud, and the Public Integrity Unit of my office, we were able to investigate and uncover a scheme that took thousands of dollars away from our city’s already strapped education budget. This disposition will result in the recovery of $610,000 for a vital city program – pre-school special education.”

In New York State, SED, through private contractors, provides special education services to children aged three to 21. Contractors are reimbursed for expenses and fees by New York City and the counties through rates set by the State Education Department (SED), which oversees special education programs statewide. SED sets reimbursement rates for each contractor, which may vary.

This is an in-depth review of the $2 billion program and there are currently 18 audits underway, including the three released today, of special education contractors to determine whether the costs submitted by them were properly calculated, adequately documented and allowed under SED guidelines. DiNapoli’s office has also initiated a training program for special education providers to detect and combat fraud and encourage the reporting of suspected wrongdoing.

The three audits released today looked at Important Steps (Bronx), Special Education Associates (Brooklyn) and Capital District Beginnings (Troy). Findings include:

Important Steps Auditors and investigators found nearly $250,000 in improper costs over the course of a single year claimed by Important Steps, including $3,162 used to purchase trees, bushes, gravel, carpeting and tiles for the vacation residence of its executive director and her husband.

Examples of other improper expenses included:

• Payments of $91,330 to two independent contractors who were also full-time employees of Important Steps.
• Workers compensation costs of $65,541 paid on behalf of independent contractors, which is prohibited.
• Corporate income tax expenses of $38,827.
• Unsupported vehicle-related costs of $19,050.

Bronx District Attorney Johnson has charged the Executive Director Janet Reznik and her husband David Shapiro with five felony charges including grand larceny, tampering with public records and filing false documents with the state. Reznik and Shapiro were arranged on June 6 in Bronx Criminal Court and are scheduled to appear in court today.

Special Education Associates Special Education Associates (SEA) claimed $324,881 in salary for a no-show executive. SEA compensated its Assistant Executive Director Deena Bernstein, who is the wife of SEA’s Executive Director Samuel Bernstein, as a full-time employee even as she was employed at the same time as a full-time dean, professor and department chair for the City University of New York. Auditors and investigators found the hours reportedly worked by Deena Bernstein as SEA’s assistant executive director were often the same hours that she reportedly worked at CUNY. In one instance, CUNY attendance records show Mrs. Bernstein attending a conference in Florida while SEA records show her working that same day in New York City from 9 a.m. to 6 p.m.

Another $60,857 in improper expenses was claimed including $34,010 in vehicle lease costs for the Bernsteins. SEA also improperly employed the Bernstein’s granddaughters, who were 12 and 16 years old, as independent contractors in SEA’s records rather than employees per Internal Revenue Service regulations.

Manhattan District Attorney Vance prosecuted the Bernsteins. Samuel Bernstein pled guilty in December 2011 to one count of defrauding the government, a class E felony and, as part of his plea, paid $610,000 in restitution. He agreed to a lifetime ban in the operations of SEA. Deena Bernstein is next scheduled to appear in New York County Supreme Court on June 27.

Capital District Beginnings Auditors and investigators found that Capital District Beginnings inappropriately obtained reimbursement for the salary of one of its owners/executive directors for providing services to children even though she lives full time in a southern state and spent an average of only 55 days in New York.

In total, $831,244 was disallowed for services for no-show executives, inappropriate staff bonuses and other costs, including more than $40,000 for vehicles including one for the director who lives out of state.

SED generally agreed with the findings of the audits and indicated it would take necessary steps to adjust reimbursement rates for these entities. Its full response, along with the response of each contractor, is included in the final audit reports.

The comptroller is continuing to work with SED and the New York City Department of Education to address these issues and protect funds from misappropriation.

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