NY State Comptroller DiNapoli's Audit Of Roosevelt Island Child School Finds Almost $1 Million Of Ineligible Reimbursable Claims

Image From NY State Comptroller December 2014 Child School Audit Cover Page

The Roosevelt Island Child School/Legacy High School (Child School):

...is an independent K-12 school that educates students with learning disabilities. Students are given appropriate accommodations so that they receive full access to a general education curriculum and the school currently boasts a 94 percent graduation rate.

The Child School has had some prior financial and managerial difficulties.

 Image of Child School From Their Web Site

Reported February 7,2013:

Reported last Friday of job layoffs at Roosevelt Island's Child School/Legacy High School ("Child School") Just learned today that Sal Ferrera resigned yesterday as Executive Director of the Child School. Below is letter from the Child School/Legacy High School Board of Directors announcing Mr. Ferrera's resignation:...

and:

... According to RIOC Press Spokesperson:

Please be advised that Dr. Salvatore Ferrera has resigned from the Roosevelt Island Operating Corporation Board of Directors effective immediately. We thank Dr. Ferrera for his service, including his work as a Board member and as Executive Director of The Child School/Legacy High School. Dr. Ferrera has been, and will continue to be, a valued member of the Roosevelt Island community. We wish him well....

and:

... Child School gave back its lease for new 504 Main Street Arts Center/Auditorium to Master Leaseholder Hudson Related....

On December 31, 2014, NY State Comptroller Thomas DiNapoli issued this audit (Audit) of the Child School covering fiscal years 2009 - 20111. According to the Audit (Executive Summary Page 1):

Executive Summary

Purpose

To determine whether the expenses reported on the Consolidated Fiscal Reports (CFRs) of the Child School (School) were calculated properly, documented adequately, and allowable pursuant to the State Education Department’s (SED) Reimbursable Cost Manual (Manual). Our audit covered the three fiscal years ended June 30, 2011.

Background

The Child School provides special education services to New York City children between 6 and 21 years of age. The School is certified to provide special education services for up to 239 children. Pursuant to the State Education Law, special education providers, such as the School, are reimbursed for their services using tuition rates established by SED based on the financial information the School reported on its annual CFRs. For the three fiscal years ended June 30, 2011, the School claimed about $26 million in reimbursable expenses for the special education programs we audited.

Key Findings

In total, we identified $992,765 in reported personal service and other than personal service (OTPS) costs that were ineligible for reimbursement.

The ineligible personal service costs ($435,471) included overstated compensation, ineligible bonuses, non-program-related costs, and other unsupported costs. Among these ineligible costs were: $114,338 in excessive salary expenses for 70 employees; $168,579 in excessive pension costs; and $41,523 in bonuses that were not supported by the required formal performance evaluations.

The ineligible OTPS costs ($557,294) were either unsupported, unnecessary, unreasonable, or not program related. Among the ineligible OTPS costs were: $180,073 for a less-than-arm’s-length contract for building maintenance and cleaning services; $139,647 for non-program- related and/or inadequately documented “Other” expenses; and $72,856 for costs (including depreciation) for the vehicles purchased and leased for the School’s Executive Directors....

Audit Page 5:

... During the audit period, two Executive Directors (including the School’s founder) resigned their positions at the School. The first Executive Director (and founder) held this position until June 30,2010 and subsequently served the School as a consultant. The School’s second Executive Director was appointed in July 2010 and held that position until resigning in February 2013. For the 2010-11 fiscal year, the School generated a $1.5 million operating deficit...

Audit Page 7:

... For the three fiscal years we audited, the School claimed $527,526 under the “Other” expense category. We recommend disallowance of $139,647 of these expenses because they were ineligible or non-program related or lacked adequate support. The disallowed costs include $68,891 in food, entertainment, and other ineligible expenses. Among the ineligible items, the School claimed:

• $29,605 for food and entertainment, including a holiday party and a catered event for a parent meeting, $1,014 paid for invitations to a founders award benefit, $750 for a scholarship dinner, and $266 for Broadway tickets;
• $7,697 for parking violations;
• $3,464 for expenses normally paid by parents, including $1,864 for ice skating and $1,600
• for sporting events. The School claimed the $1,600 in question even though documentation
• showed that students’ parents already paid for these expenses;
• $4,600 for gifts; and
• $726 for a bronze statue....

Image From Audit Page 13

The Child School responded in a December 7, 2014 letter with these comments that are included in the Audit (Pages 18-23)

Child School Comment to Audit

Click here for the full Audit including responses from NY State Education Department and the Child School.

I asked the Child School for comment yesterday and will update post when a response is received.

UPDATE 2:10 PM - The Child School sent this letter to parents and stakeholders of the Child School in response to the Audit:

Child School Reply to Audit

Click here to view letter.

NY State Comptroller DiNapoli Audits Past Roosevelt Island Operating Corp Discretionary Spending And Reports $83 Thousand In Questionable Spending - RIOC Says Spending Took Place More Than 2 Years Ago And New Administration Established Procedures To Prevent Waste, Fraud And Abuse

Image From NY State Comptroller's 9/14 RIOC Discretionary Spending Audit

The NY State Comptroller's Office undertook an audit (Page 1):

To determine whether Roosevelt Island Operating Corporation’s discretionary spending complied with its guidelines and expenses were reasonable, adequately supported, and properly approved. Our audit covers from April 1, 2010 through December 31, 2012....

According to the Comptroller's Roosevelt Island Operating Corp (RIOC) discretionary spending audit released on October 3 (Page 1):

... During our audit period, we identified approximately $1.7 million of RIOC spending that was discretionary in nature. Each public authority should have formal policies and procedures specifying the types of discretionary costs that are appropriate and the dollar thresholds, supporting documentation, and formal approvals that are necessary to be accountable for such costs....

and (Pages 4-6):

...we examined 156 payments totaling $ 144,856 for the period April 1, 2010 through December 31, 2012.

We did not question 43 payments totaling $56,834. However, we questioned 98 payments totaling $83,419 because they were not properly approved, were not reasonable, and/or were not adequately documented or because no policy existed to determine the appropriateness of the expense. The remaining 15 payments totaling $4,603 raised other questions related to appropriateness, which are discussed in the section entitled Other Matters.

There were 21 payments where RIOC procedures were not followed:

• 17 payments totaling $5,612 pertained to employee travel costs for which RIOC could not provide support demonstrating the benefit to the authority. For example, $2,634 related to three employees who attended a conference in the Netherlands where two of them made a presentation. However, RIOC officials could not support why the third employee went to the conference at a cost of $2,279. RIOC also paid $355 for the two employees who made the presentation and extended their stay beyond the conference dates. The two employees did not reimburse RIOC for these additional costs.
• Four payments totaling $16,219 made to a vendor for public and media relations services were not properly procured through the competitive process. Instead, RIOC obtained these services by twice extending an existing emergency contract and then issuing a backdated contract to cover the services.

There were 77 payments not covered by RIOC’s procedures:

• Six payments totaling $29,001 were for training costs. However, RIOC lacked a policy to clarify how it determines and documents what training is appropriate for its employees to fulfill its mission. For example, RIOC paid $14,560 for three sessions of “Customer Service” training and $12,000 for 11 sessions of “Horticulture” training. RIOC officials could not demonstrate how these training programs were appropriate or what procedures they used to select the vendors. RIOC also could not document why it paid to send an outside contractor’s employees to the Customer Service training. Finally, we found RIOC paid $3,175 for an employee to obtain a management certification that was required for a potential promotion. However, the employee did not attend the course. RIOC did not request a refund in a timely manner, waiting 667 days, and ultimately received only a partial refund of $734.
• Three payments totaling $4,143 were for purchases of promotional items such as magnet squares, movie banners, and table throws. RIOC has no procedures related to promotional items, but RIOC officials asserted that these items fell within their General Development Plan (GDP). We found the GDP did provide for certain items, such as tee shirts given to event staff and teams, but there is no mention of the need for these other types of promotional items.
• Sixty-four payments totaling $27,420 were for food. RIOC had no policy and procedures in place pertaining to discretionary costs for food. For example, seven payments totaling $15,216 were for retirement and holiday parties and staff appreciation luncheons. Generally, high-level employees initiated these food purchases, so that no approval was requested or required. There was no documentation to support that the meals were necessary or that costs were reasonable.
• Four additional payments totaling $1,024 represented floral arrangements and food purchased for undocumented business meetings. These events were unrelated to RIOC’s primary purpose or mission.

We also identified 15 other payments totaling $4,603 that represent, at a minimum, questionable use of the Authority’s resources.

• Nine payments were made by a few employees who used the corporate credit card on several occasions to pay for personal purchases from places such as Apple iTunes, Best Buy, and Enterprise, and for personal meals. RIOC’s credit card policy prohibits the use of the card for non-business purchases. A RIOC official stated that these transactions were incidental, were committed by mistake, and eventually repaid by the employees. However, the fact that some staff repeatedly did not follow the policy calls into question whether their acts were unintentional.
• Three payments totaling $3,638 were for purchases of six high-definition televisions. Officials told us that they purchased these televisions for use in monitoring RIOC’s buses. However, RIOC was unable to locate two of the six televisions, and our auditors found three of the other four were being used for other purposes.
• Three remaining payments totaling $262 represented gifts, one of which was for a Board member. RIOC officials could not explain why these purchases had been made using the corporate credit card except to say that former RIOC executives had requested them.

Recommendations

1. Exercise increased restraint over discretionary spending and discontinue any spending that is not consistent with RIOC’s primary purpose or mission.
2. Establish written policies and procedures for discretionary costs, including requirements for necessary justifications, cost thresholds, formal approvals, and supporting documentation.
3. Improve accountability for small equipment assets.

RIOC President Charlene Indelicato sent the following letter dated September 10 in reply to the Comptoller's Audit (Pages 10-11) .

Ms. Indelicato adds in a statement today:

The issues mentioned in the Comptroller's report were identified over 2 years ago by the State and as a result, the State and RIOC Board appointed new leadership to reorganize the Corporation and has since taken further internal controls to prevent waste, fraud and abuse. Furthermore, criminal charges and demand for repayment of misused funds were brought on those found to have consistently violated the process.

Click here for the full NY State Comptroller's Audit on RIOC's discretionary spending during 2010 -12 (discretionary spending audits of other NY State Agencies here) and here for NY Post story on subject.

.@NYSComptroller DiNapoli rips Roosevelt Island Corp. for wasteful spending http://t.co/cvu6qowHp3
— Jennifer Freeman (@jfreemanNY) October 4, 2014

The Comptroller's Report follows the August 2014 NY State Inspector General's report on corruption from 2007 to 2012 at the Roosevelt Island Operating Corp under prior RIOC administrations.