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Audit finds nearly $785,000 in overpayments, inappropriate payments, and questionable bank activities

Funds spent on karate uniforms, air conditioner, private sanitation services, and playground tiles

New York City Comptroller William C. Thompson, Jr. today harshly criticized the Department of Education for badly monitoring whether millions of dollars given to non-public schools were properly spent on Universal Pre-Kindergarten programs.

Thompson’s audit determined that funds earmarked for UPK services in the school system’s Regions 6 and 7 covering Staten Island and a portion of Brooklyn were instead used to pay for karate uniforms, an air conditioner delivered to a non-UPK site, and playground tiles.

The audit further uncovered questionable bank statement activities, including a cash withdrawal to reportedly repay an undocumented loan to one school’s building owner.

“It appears from our analysis that some of the schools are freely able to manipulate UPK funds without any Department of Education (DOE) oversight or authorization,” Thompson said. “When we brought these matters to the attention of DOE officials, they were not aware of them.”

The DOE generally disagreed with the audit’s findings and recommendations.

“It would seem that the substantial cost of the UPK program in non-public schools – approximately $97 million in FY 2004 alone - would compel DOE to seriously consider our findings instead of insisting that the system is working properly. Our findings signal a source of potentially large savings,” he said.

The audit - covering Fiscal Years 2004 and 2005 - analyzed UPK payments to non-public schools authorized by the DOE’s Regional Operation Center (ROC) in Staten Island. The DOE’s six ROCs provide fiscal support to schools and programs and determine whether contract expenditures are appropriate for children receiving contracted services.

The Comptroller’s Office selected the ROC covering Regions 6 and 7 because they had the greatest number of non-public schools (183) with UPK contracts during Fiscal Year 2004. (Overall, the DOE had UPK contracts with 583 non-public schools to provide services to an estimated 30,967 children at a cost of more than $97 million in FY 2004.)

The 10 schools audited were among 18 in the two regions that had contracts of more than $300,000, totaling an estimated $3.5 million. Certain tests were not possible for one of the schools because DOE could not provide all of the necessary documentation.

Overall, Thompson said the audit identified $377,621 in overpayments to schools, inappropriate payments and questionable bank activities, and charged that: “DOE did not identify whether schools spent all of their UPK funds, had unsupported or questionable expenditures, incorrectly classified expenditures, or operated with a lack of segregation of duties and poor record-keeping.” Among the audit’s key findings:

• DOE overpaid six schools - 60 percent of the schools sampled - by $141,055 in funds during Fiscal Year 2005 by paying for more children than were registered and attending the schools as of DOE’s cut-off date.

• Three schools had $82,321 in unspent UPK funds. They received adjusted annual contract payments totaling $1,275,813 during the audit period but reported to DOE expenditures of only $1,193,492.

• Expenditures totaling $97,586 in Other Than Personal Service (OTPS) lacked adequate supporting documentation for costs such as consulting services, instructional and office or janitorial supplies, minor maintenance and repairs and miscellaneous purchases.

• Thompson questioned $56,659 in OTPS expenditures – including karate uniforms, an air conditioner, and playground tiles - because they were not related to the UPK program or were not reasonable.

• Bank statements contained further questionable activities, such as cash withdrawals, checks issued and wire transfers, totaling $407,322 by five schools. One $20,000 withdrawal by the Smart Start Early Childhood Center allegedly was to repay its Educational Director (who also owned the building) for a loan and for rent.

• Thompson questioned the use of UPK funds for teacher bonuses, building rental costs between related parties, and private sanitation service.

Summary of DOE Overpayments and
Other Inappropriate Payments

Comptroller Thompson further singled out one facility, Children’s Playhouse in Staten Island, for “numerous” control problems “that increase the potential for fraud.” During unannounced visits, auditors uncovered inadequate record-keeping, a highly disproportionate amount of funds spent on administrative expenses, mainly for the executive director’s salary, unexplained checks totaling $64,506 either made payable to cash or the Executive Director-owner, the number of 3-year-old children exceeding 4-year-old children in a classroom (against DOE policy), and attendance records that conflicted with actual attendance.

“Poor record-keeping practices call into question the accuracy of the financial records of Children’s Playhouse and raise the possibility that errors, and even fraud, could occur and go undetected,” Thompson said.

Additionally, the Comptroller questioned why some schools in the two Regions used private sanitation services and paid the cost with UPK funds rather than having used the New York City Department of Sanitation services for free.

“Schools should use UPK funds for children’s services rather than for private sanitation services,” the Comptroller said.

Thompson made 24 recommendations, asking the DOE to: develop and implement written fiscal review procedures for the ROCs to follow and monitor when assessing the UPK program; recoup UPK overpayments made during Fiscal Year 2005 to six schools, $97,586 in undocumented expenditures, and $56,659 in expenditures unrelated to the UPK program, or unreasonable; investigate questionable bank activities totaling $407,322; and, investigate conditions at Children’s Playhouse and consider terminating its UPK contract.

You can view the audit at www.comptroller.nyc.gov.

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