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Preschool special education contractor overcharged taxpayers $875,000, audit reveals

NEW YORK - TheraCare Preschool Services Inc, a downstate provider of preschool special education services, overcharged state taxpayers by more than $875,000 for improper staff bonuses and executive compensation over a three-year period, according to an audit released by State Comptroller Thomas P. DiNapoli.

“Audits by my office have found a continuing pattern of abuse in the state’s preschool special education sector,”DiNapoli said. “Many providers are continuing to take advantage of lax oversight to give themselves excessive salaries and unearned bonuses. Taxpayer dollars meant for children with special needs are being wasted. This has to stop.”

TheraCare, headquartered in New York City, is a for-profit organization that provides special education services to children between the ages of three and five who reside in New York City as well as Westchester, Nassau and Suffolk counties. TheraCare served 651 students during the 2010-11 school year and reported program-related costs for reimbursement of about $50.1 million for the three fiscal years ended June 30, 2011.

State Education Department (SED) guidelines state that the compensation paid to specific leadership positions, and charged to an SED program, may not exceed the “regional median compensation”for these positions. On that basis, DiNapoli’s auditors disallowed $316,539 in compensation paid to the executive director ($73,820), CFO ($111,796), and assistant executive director ($130,923) for the three-year period ended June 30, 2011.

Bonus payments to employees are reimbursable by SED only if they are based on merit as measured and supported by employee performance evaluations. Auditors found that TheraCare claimed $253,205 in expenses for bonuses predicated on the organization achieving its budget, not employee performance.

In addition, auditors found that TheraCare often awarded its teaching staff a sign-on bonus with the agreement that they will remain in TheraCare’s employ for at least one year. These payments are not performance based and thus do not meet the eligibility requirements for reimbursement by the state. TheraCare inappropriately charged SED $220,875 for these improper bonuses.

DiNapoli’s auditors also identified $76,766 in unnecessary and inappropriate South American recruitment-related costs and $9,513 in other non-personal service expenses that were either unsupported or not program-appropriate.

DiNapoli recommended:

  • ED review the disallowances resulting from the audit, make the appropriate adjustments to costs reported and to TheraCare’s tuition reimbursement rates, and recover the overpayments as appropriate;
  • SED work with TheraCare officials to help ensure that only eligible costs are claimed;
  • TheraCare ensure that its requests for SED reimbursement include only those expenses that are allowed.

SED agreed with the audit’s recommendations and has already made certain adjustments to future TheraCare reimbursement rates to recover some of the excess compensation. SED has also instituted a soon to be mandatory training course for providers. TheraCare disputed the audit’s findings. For a copy of the full report, including responses from SED and TheraCare, visit: