Fraud in Darien? Audit could reveal district applied for money for undelivered services

Allegations have surfaced that could implicate a variety of school officials in yet another piece of a complicated and growing puzzle stemming from a crisis in the special education program.

An auditing firm is being called in to scrutinize Darien Schools’ special education expenses as it pertains to state reimbursements. Sue Gamm, the Chicago attorney hired to investigate the town’s special ed program, found numerous errors in the district’s reimbursement applications to the state, which could elicit both monetary and criminal penalties.

The “excess cost grant” is money the state reimburses a district for special education-related expenses that surpass the per pupil cost by 4.5 times. Federal money is given to state governments, which then divvy up the funds to local districts. Federal law does not define how to set an excess cost threshold. In New Jersey, for example, the threshold is set at $11,000 above the per pupil expense.

In interviews with The Darien Times, several parents of children with disabilities indicated the upcoming audit could reveal fraudulent activity. Two parents told The Times that there were names of resigned employees on their children’s individualized education plans, or IEPs, which are legal documents that outline the services to be rendered to a child identified as needing special education.

These employees were listed on the IEPs as having provided services to certain children, but the employees were no longer working for the district. This means that it’s possible that the school district not only took services away from children with special needs — which has been confirmed by a state investigation — but also applied for money from the state to pay for services that didn’t exist.

Gamm declined to comment on whether parents sent her information showing Darien could be submitting for reimbursements for ghost services. It remains unclear what would happen if the upcoming audit finds evidence of fraudulent activity.

If Darien were found to have applied for money fraudulently, it would be required to pay back the state those funds, which could surpass $1 million. Excess cost submissions from year to year have been $2 million or more since 2008.

It’s also possible that the town might need to sell bonds to pay for some of the costs, which could negatively impact the town’s credit rating. Moody’s put Darien’s credit rating on a watch list last year, but eventually decided to keep the town at AAA. Liz Mao, Board of Finance chairman, denied that Darien’s credit rating is at risk.

Pressure over the last few years from the Board of Finance and the Board of Education on the school administration to better manage special education expenses could have contributed to an environment where administrators felt the need to cut corners to save money, some have said. [Note: After publishing this story, this allegation was confirmed in Gamm’s report, and was evidenced in numerous email exchanges between these elected officials]

Robin Pavia, former special education director, said that while she was employed by the district, frugality became a priority over following the law.

“There was a mindset in the central office that cutting costs was a priority and that the law was simply an inconvenience, and a matter of personal interpretation,” Pavia told The Times.

However, neither the finance board nor the school board are being subject to Gamm’s investigation, despite numerous emails obtained through the Freedom of Information Act that showed finance members engaging with school officials in a manner that focused on finances instead of education. These exchanges could violate both boards’ legal obligations.

School administrators have lauded themselves in the past for being highly effective in getting more money from the state than other similar districts. In 2011, Steve Falcone, then schools superintendent, told the Board of Education that he moved money from a legal services budget line into a tuition account. This money — $320,000 — was used to settle 15 cases with parents who disagreed with the district’s special education plan for their children. Falcone said that moving the money from legal services to tuition “made sense, because that’s what the money is used for,” though it’s unclear if some of that money went to legal fees.

It’s also unclear if that money was then reimbursed by the state, as it would likely be illegal for money spent on lawyers to be covered by state funds. Dick Huot, then finance director for the schools, did not respond to a request for comment. Huot submitted the excess cost grants to the state, although the depth of his involvement in choosing what to submit is unclear. [Note: Soon after publishing this story, Huot disconnected his phone number and has been unreachable]

Huot is one of several high-level administrators who have resigned in the past year, which also includes Falcone, assistant superintendent Matt Byrnes and literacy coordinator Antoinette Fornshell.

Deirdre Osypuk, the special education director who replaced Pavia, has been on paid leave since mid-June. Osypuk oversaw much of the implementation of last year’s IEPs. She appears to have reported directly to Judith Pandolfo, assistant superintendent of elementary education. However, Falcone said Osypuk reported to him, despite internal emails showing much more interaction between Osypuk and Pandolfo.

Disagreements over the actual chain of command has confused many parents and school board members. Additionally, Pavia said she reported to Pandolfo, further refuting Falcone’s claim. Pavia also suggested that Pandolfo has been the architect behind much of the special education program changes that state investigators found to be in violation of state and federal law. Pandolfo has not responded to requests for comment.

Excess costs have been a constant source of stress for the district since 2007, when the state began to fund less than 100% of a locality’s submissions. As Darien’s special education expenses continued to exceed budgeted figures, the district continuously faulted a partially-funded excess cost grant as a major source of the problem. This has also led to disagreements between town boards.

At an April 2012 Board of Finance meeting, board member Martha Banks asked school board Chairman Betsy Hagerty-Ross if the schools could add $200,000 to its revenue line for excess costs reimbursements, as the town had never received less than 1.75% of the state’s total disbursements to all towns, and Darien was budgeting to only get 0.7%.

“To handcuff us to a number that we don’t believe we can make, it’s setting us up for another deficit next year,” Hagerty-Ross said at the time.

Banks turned out to be correct, almost to the dollar. The district budgeted to receive $2 million from the state through the excess cost grant this year, but received nearly $2.2 million.

For the last two years, the schools received its reimbursements at two intervals. In both instances, the district got an expected amount first, followed by an additional unexpected amount later. State officials have not responded to requests for comment on clarification of this process.

Fraud is common

Special education fraud is not uncommon, according to Steve Sanders, executive director of Agencies for Children’s Therapy Services, a New York organization that represents private special ed service providers. In 2012, New York’s comptroller found that private contractors defrauded that state of millions for special services that were never delivered. Some providers used state money to fund vacations for executives or to buy luxury vehicles, the state found.

“There are a lot of reasons a school district may over-bill or mis-bill,” Sanders told The Times. “Some of it may have to do with school districts being squeezed by the state.”

Both private providers and public school districts are prone to cut corners, he said, because there is little oversight over how funds are distributed.

“For many, many years, there were not rigorous audits being done” in New York, he said. “You end up with people who view the system as one that is open to their corruption. If nobody is looking over their shoulder, it’s too easy to pad a payroll or claim a service that’s not being provided.”

Ellen Chambers, a former business professional turned education advocate based in Massachusetts, said that privacy issues surrounding special education expenses make it easy for a district to commit fraud. Parents are rarely networked with each other, which could help weed out some of the dubious activities.

Medicaid fraud is also common, according to Chambers.

“Some [school districts] will falsify service logs,” she said. “I have had parents tell me their child wasn’t even in school on dates that appeared on service logs. Most often, logs are not kept at all.”

Instances of fraud can be found across the country. Earlier this year, a Pennsylvania man was sentenced to 57 months in prison for defrauding that state of $2.7 million after he lied about providing special education and bilingual services to children.

Darien response

News hit the town about the audit shortly after a conference call between Hagerty-Ross, acting Superintendent Tim Canty, First Selectman Jayme Stevenson and finance board Chairman Mao on Monday, Oct. 28. The hasty release of information from Stevenson’s office could indicate the severity of the situation.

“Liz Mao and I acknowledge the serious financial implications this new information may have for our town,” Stevenson stated in the release. “It’s our mutual desire to immediately engage our auditors to detail the existence and extent of any reporting errors and to keep the public well informed.”

Patrick Hagan, a partner with McGladrey, the auditing firm, declined to comment. The company has been the town’s auditor since 2010.

Stevenson and Mao will hold a special joint meeting of the Board of Selectmen and the Board of Finance on Thursday, Oct. 31 at 8 p.m. to discuss hiring the auditing firm McGladrey to conduct a “special audit” in connection with special education expenses submitted to the state. The meeting is open to the public and includes a discussion section on its agenda.

Originally published in The Darien Times. Reporter’s note: The Sue Gamm report, which uncovered the faulty accounts, was made possible because of the constant pressure our reporting placed on the school district. This pressure arose from the lackluster state investigation that was riddled with problems and likely conflicts of interest, which led to questions about its integrity.

The state, however, also found numerous instances of illegal activity, but its subsequent actions and demands on parents left many questions unanswered and raised many new questions as well. The Gamm report was necessary, as she was a disinterested third-party investigator from Chicago who objectively uncovered other problems, including the accounting errors that could go back years. The state either did not examine these accounts, or it did examine them and found no problems. Either way, this fact alone proves the state’s investigation was incomplete at best, or a fabrication at worst.

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