2012 – NYS Comptroller Finds Waste, Abuse of Funds and Conflict of Interest in NYSED Audit and SUNY Research Foundation Audits Under King and Zimpher’s Watch

JICYMI – The following info concerns 2012 audit of the NYS Comptroller Thomas DiNapoli

The New York State Comptroller manages the spending practices of all state agencies and local governments, oversees the New York State and Local Retirement System, pensions, critically reviews the New York State and City budgets, and approves billions in state contracts and spending.

The purpose of the audits is to continue to change the way the fund operates to increase transparency and establish strong internal controls, ensuring the strongest investment performance and ethical operations. The goal, is to aggressively identify and curb the misuse of public resources that may cost teaxpayers millions.

The NYS Comptroller audits of special education providers have repeatedly uncovered increasingly serious deficiencies in fiscal management, including cases of waste and outright fraud on King’s watch per the audit from 2008-12. (See Report, Exhibit A.)

Moreover, a review of SUNY’s Research Foundation revealed serious misappopriation of monies on Zimpher’s watch from 2007-2012 per the audit.

Were you aware of this?

Take a look:

Letter from Dinapoli to King:

Office of the State Comptroller
State of New York
Division of State Government Accountability

December 18, 2012

Dr. John B. King, Jr.,

Commissioner NYS Education Department

89 Washington Avenue

Albany, New York 12234

Dear Dr. King:

The Office of the State Comptroller is committed to helping State agencies, public authorities
and local government agencies manage government resources efficiently and effectively and, by
so doing, providing accountability for tax dollars spent to support government funded services
and operations. The Comptroller oversees the fiscal affairs of State agencies, public authorities
and local government agencies, as well as their compliance with relevant statutes and their
observance of good business practices. This fiscal oversight is accomplished, in part, through our
audits, which identify opportunities for improving operations. Audits can also identify strategies
for reducing costs and strengthening controls that are intended to safeguard assets.
Following is a report of our audit of the State Education Department: Fiscal and Program Oversight
of Special Education Providers. This audit was performed pursuant to the State Comptroller’s
authority under Article V, Section 1 of the State Constitution and Article II, Section 8 of the State
Finance Law.

This audit’s results and recommendations are resources for you to use in effectively managing
your operations and in meeting the expectations of taxpayers. If you have any questions about
this draft report, please feel free to contact us.

Respectfully submitted,
Office of the State Comptroller
Division of State Government Accountability

Summary:

Purpose
To determine whether the State Education Department (SED) provides adequate onsite fiscal and
program monitoring of special education providers. The audit covers the period from July 1, 2008
to November 2, 2012.

Background
SED oversees special education programs for students with disabilities between the ages of 3
and 21. In addition to services provided by local school districts, these programs include services
delivered to about 75,000 preschool students by more than 300 for-profit and not-for-profit
entities at an annual cost of approximately $1.3 billion. Fifteen State Comptroller audit reports
of private special education providers have identified widespread fraud and abuse resulting in
$13.2 million disallowances out of a total of $139.8 million examined costs which were funded
by the State and local governments. In addition, six of these audits have been referred to law
enforcement. In response to the audit findings, the New York State Board of Regents has directed
SED to identify necessary program reforms.

Key Findings
• There has been no fiscal audit oversight of individual providers since 2007. There is also no
system to ensure programmatic review of providers on any cyclical basis. In the past four years,
only about one-third of providers have been reviewed. Other fiscal oversight is limited to the
desk reviews of self-reported information contained in the Consolidated Fiscal Reports (CFRs)
that providers submit annually.
• Because of the lack of other fiscal oversight, the Certified Public Accountants’ (CPAs) role
in certifying the CFR has become a critical control in the process. However, our audits have
determined – and SED agrees – that CPAs are not fulfilling the responsibility and as a result the
information is not sufficiently reliable. Still, prior to our audits, SED had no formal process to
refer CPAs for professional discipline or to follow up on such cases.
• Not only is the reliability of the CFR information questionable, but the process itself is complicated
and antiquated requiring many manual calculations and allocations, all of which increase the
risk of human error and/or the opportunity for abusive manipulation.
• SED has not taken advantage of opportunities to use technology to replace many of the manual
steps that staff must undertake. The 17 rate-setting staff work with CFR data from more than
700 providers who operate over 1,400 programs, each of which could require several different
rate calculations and adjustments.
• Providers receive limited training and instructions from SED. Training is limited to an optional
CFR preparation course offered twice each year. SED does give all providers manuals and
periodic updates describing regulations, cost reimbursement rules and CFR claiming processes.
However, it mainly relies on providers to ask questions if they don’t understand something.
• CFRs are often filed late and are often rife with error. Existing penalty provisions do not function
as an effective deterrent to these problems.
• Rates are usually not finalized until a year after services have been provided and paid for.
However, when audit disallowances do occur, the State recovers its funding immediately by 012-S-103
Division of State Government Accountability 2
reducing payments to the effected county, which is then left to handle any possible collection
from the provider.
• Information sharing between SED and other funding agencies is ad-hoc at best. Cost adjustments
do not result in a revised CFR available to other funding agencies. Although some sharing
does occur through the CFR Interagency Committee in the case of large audit adjustments
or suspected fraud, many programs funded by these other agencies are not cost-based and
therefore not affected.

Key Recommendations
• Develop and implement a strategy, including necessary resources, for providing adequate onsite
fiscal and program monitoring of special education providers.
• Establish a formal process for identifying and reporting CPAs who appear negligent in their
certification of CFRs to the Office of the Professions.
• Coordinate with other State agencies to develop a system to ensure that CPAs certifying provider
CFRs demonstrate appropriate training, competence and performance.
• Review the CFR and rate-setting processes to identify opportunities for streamlining operations,
updating technology and reducing complexity and the occurrence of errors.
• Assess the feasibility of meaningful monetary penalties for providers failing to provide an
accurate and timely CFR.
• Formalize policy and procedures for sharing identified provider problems with other State
agencies that are also funding the provider.
• Reevaluate and enhance provider training requirements, including frequency, content and
requirements for attendance

Read the full audit report here. 

Additionally, an audit was conducted on Bingual SIET Pre School which found numerous instances of misappropriation of funds. DiNapoli’s office referred the company to the DAs office for investigation. NYSED had partially reimbursed for these fraudulent expenses.

“Bilingual SEIT & Preschool, Inc. (Bilingual), located in Flushing, New York, is a for-profit organization
that provides special education itinerant teacher services (program code 9135) and preschool
special class (program code 9100) to about 700 disabled children between the ages of three and
five years. The New York City Department of Education (DoE) pays tuition to Bilingual using rates
set by the State Education Department (SED). SED sets these rates using financial information that
Bilingual presents in its annual consolidated fiscal reports (CFRs) filed with SED. Costs reported on
the CFR must comply fully with the guidelines in the Manual. SED issued the Reimbursable Cost
Manual (Manual) to provide guidance on the eligibility of costs and documentation requirements
that must be met for rate-setting purposes. DoE and the other local school districts use the SED
rates to pay the schools providing these services, then they are partially reimbursed by SED. During
the fiscal years ended June 30, 2008 and 2009, Bilingual claimed and received approximately
$23.4 million in reimbursable costs from the State.”

Read that report here

Read NYSEDs March 2013 response here.

 

Moreover, NYS audits also found conflict of interest, questionable, waste and possibly fraudulent practices by personnel from the SUNY Research Fund  from 2008 to 2012 under SUNY Chancellor Nancy Zympher’s watch:

October 19, 2012
Dr. Nancy L. Zimpher
Chancellor
State University of New York
State University Plaza
Albany, NY 12246

Dear Chancellor Zimpher:
The Office of the State Comptroller is committed to helping State agencies, public authorities
and local government agencies manage government resources efficiently and effectively and, by
so doing, providing accountability for tax dollars spent to support government operations. The
Comptroller oversees the fiscal affairs of State agencies, public authorities and local government
agencies, as well as their compliance with relevant statutes and their observance of good business
practices. This fiscal oversight is accomplished, in part, through our audits, which identify
opportunities for improving operations. Audits can also identify strategies for reducing costs and
strengthening controls that are intended to safeguard assets.

Following is a report of our audit of the Research Foundation for the State University of New York
entitled Selected Human Resource Controls and Potential Conflicts of Interest. This audit report
includes a follow up on the status of recommendations made in our prior audit of the Research
Foundation (2004-S-13 Research Foundation for the State University of New York: Administrative
and Discretionary Costs). This audit was performed pursuant to State Comptroller’s authority
under Article V, Section 1, of the State Constitution; and Article II, Section 8, of the State Finance
Law. It was also performed pursuant to the Agreement between the State University of New York
and the Research Foundation of the State University of New York, dated June 1, 1977.
This audit’s results and recommendations are resources for you to use in effectively managing
your operations and in meeting the expectations of taxpayers. If you have any questions about
this report, please feel free to contact us.

Respectfully submitted,
Office of the State Comptroller
Division of State Government Accountability

Executive Summary

Purpose

To determine if certain aspects of the Research Foundation for the State University of New York’s
(Research Foundation) employee practices, contracts and purchases complied with applicable
requirements. The audit covers the period July 1, 2008 through January 31, 2012. In addition,
we determined the status of implementation of the recommendations from our prior report
(2004-S-13) entitled Research Foundation for the State University of New York: Administrative
and Discretionary Costs.

Background
The Research Foundation was chartered in 1951 by the Board of Regents as a private, nonprofit
educational corporation. Its mission is to work with campus leadership to support research and
discovery at the State University of New York (SUNY) through administering sponsored projects
and sharing intellectual property for public benefit and economic growth. The SUNY Chancellor
serves as ex officio chair of the 15-member Research Foundation governing board. The Research
Foundation has a central office in Albany (Central Office) and offices at 30 SUNY locations. The
locations are responsible for day-to-day administration of sponsored programs.

Key Findings
• Edgar H. Turkle III, Operations Manager for the Research Foundation at Buffalo State College,
charged $130,887 to his corporate credit card for such questionable items as foreign travel,
high-end dining and hotels, and personal items such as a laptop computer, an iPad, iPhones and
groceries. His actions violated policy and resulted in his personal enrichment at the expense of
the Research Foundation.

• The Central Office compensated a former General Counsel $345,034, plus a severance package,
for less than a year of service. In fact, we calculated the total cost of hiring and employing
this individual was $665,356 for an 11-month period. We question the Research Foundation’s
justification for agreeing to these payments in the employment contract it entered into with
this individual.
• The Research Foundation assisted a retiree in circumventing Retirement and Social Security
Law limits on retiree compensation by hiring this former SUNY Stony Brook employee when she
neared the $30,000 salary cap. The employee continued to perform work for SUNY Stony Brook
even though she was being paid by the Research Foundation.
• The Research Foundation paid $3 million for 10 contracts where we identified a potential conflict
of interest and violations of Research Foundation policies. As a result, the Research Foundation
has little or no assurance that reasonable prices were paid for services.
• The Chancellor’s account was charged $27,968 to pay for questionable items, including
membership to a private club. Given the nature of these items, we recommend that criteria be
strengthened to make clear when such expenses are appropriate.
• We had questions regarding the time and attendance of a Research Foundation employee and
referred these matters to the State Attorney General’s Office.
• Certain of the findings we identified are similar to the findings in our prior audit of the Research
Foundation. In this regard, Research Foundation officials made limited progress in correcting 011-S-24
Division of State Government Accountability 2
the problems we identified in the prior audit. Of the prior report’s six recommendations, one
was implemented, two were partially implemented, and three were not implemented.
• We believe that many of the problems reported here are attributable to a weak internal control
environment. Since multiple people and locations were involved in the problems we found, we
believe an improved internal control environment is necessary to prevent abuses.
Key Recommendations
• Improve the control environment at the Research Foundation to better ensure compliance with
all relevant laws and policies, including those related to procurement and payroll.
• Recover funds spent on purchases and personnel costs that were excessive or not in line with
the Research Foundation’s mission

Read audit report to SUNY Chancellor Nancy Zympher here. 

JICYMI, Dinapoli’s Report on SUNY Research Foundation  abuse is here.

Here is SUNYs fiscal standing as of January 2014 here. It appears that SUNY has tightened up their act.

But, other missteps include NYSED grants that were over paid :

“We found the Department paid SCO $194,320 (or 31 percent of the total reimbursements) during
the grant year for expenses that were not related to the operation of the ESD program, not necessary or not allowable. These inappropriate payments occurred because the Department did
not have an effective monitoring system in place to ensure it paid SCO only for expenses that were appropriate and allowable under the contracts. The Department did not request, receive or
review supporting documentation prior to approving these payments. In addition, we found SCO management and program staff was not familiar with the terms and conditions of the contracts.”

See letter to King here.

There’s more…located on NYS Office of Comptroller site if you dig through it. Stay tuned.

 

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