State Education Department Fails to Detect Years of Fraud!

In Columns by Hal PetersonLeave a Comment

In December, the Office of State Comptroller released an audit of the State Education Department (SED) that I believe should serve as a case study for graduate students attending Harvard University. Why? The report is a tutorial of gross ineptness in the oversight of private special education providers that, over a nine year period, bilked the system of millions of dollars of funding provided by State and local governments. How bad? Consider the following:

The department of education oversees, at a cost of $1.3 billion annually, a special education program serving the needs of thousands of young people with physical, learning, developmental and other disabilities. What went wrong is simple enough to understand. Fifteen provider companies committed fraud overcharging the state by $13.2 million, according to the audit report. (1). The reasons qualify for Hall of Shame consideration, including the hiring of relatives for “no-show” jobs, paying themselves excessive salaries, renting an apartment for a son of one of the providers in California and, billing the state for personal expenses like cars, travel and even home improvements.

The exact amount of fraud involved might well be higher. Only 10% of the costs of operations were examined and ample evidence also exists that the entire certification process, including the preparation of Consolidated Fiscal Reports, is viewed as unreliable with charges pending against four CPA’s involved. One has been already disciplined.

How could this all happen with zero level of awareness?  For starters, SED now admits it never visited or audited a single contractor involved in the program since 2007; and to make things even more opaque, they shifted the focus of their Audit Services staff to less essential duties leaving an ongoing void in onsite monitoring.

Their response to the current audit is also superficial at best, leaving in doubt, the entire integrity of the administration of ongoing special education programs. It is also interesting to note that none of our elected officials have commented on the egregious issues cited, nor announced any plans for corrective action.

In my opinion, replace those in charge with people who know how to run a business. Prosecute the guilty, protect the funding of services for those in need and earnestly work to stop the stealing. Hopefully you agree.

(1)   Audit Report 2012-S-103 Attachment A.

1/22/13 Breaking News: The Governor just released his 2013-14 budget. Under the heading “Reform Preschool Special Education Program,” the incentive for local governments  to find and recover inappropriate spending by providers, will be increased to 75 percent rather than the current level of 40.5 percent.” A great sound bit, nothing more!


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