Special ed fraud in Darien?

Parents: Audit could reveal district applied for reimbursements for services it didn't provide

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 possible errors in the district’s reimbursement applications to the state, which, if confirmed, has the possibility for 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 removed services to children with special needs (which has been confirmed by a state investigation), but also applied for money from the state 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.

Some have suggested that 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 could also require the town to issue 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.

• Explore all stories, letters to the editor and editorials related to the special education crisis here

• View the state reports, parent complaint documents, and other PDFs here

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 the publishing of this story, this allegation was confirmed in Gamm’s report]

Robin Pavia, former special ed 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 that showed finance members engaging with school officials in a capacity that some have said went too far, and further placed the focus on finances instead of education.

School administrators have lauded themselves in the past for being highly effective in getting more in reimbursements 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.”

It’s unclear if that money was then reimbursed by the state, or if it would be legal for that money to be reimbursed. 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.

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 and has been on paid leave since mid-June, 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.

Pavia said she reported to Pandolfo, further refuting Falcone’s claim over the chain of command. Pavia also suggested that Pandolfo has been the architect behind much of the special ed program changes that the state found to be in violation of state and federal law. Pandolfo has not responded to requests for comment.

• Silence broken: Former admin says Falcone not culprit; Pavia says cutting costs was priority at central office

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.

Darien Schools gives back more than $350,000 to town

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 ed 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.”

He said that both private providers and public school districts are prone to cut corners 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, said Medicaid fraud is also common.

“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.”

Privacy issues surrounding special ed expenses make it easy for a district to commit fraud, Chambers said. Parents rarely are networked with each other, which would help weed out some of the fraud.

A Pennsylvania man was sentenced to 57 months in prison for defrauding the 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 Board of Finance Chairman Liz Mao on Monday, Oct. 28. The timing of the press release from Stevenson’s office shows the severity of the situation, some have said.

“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.

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  • lisbeth ehrlich

    And all is quiet on message boards arount town. A moment of silence to reflect on what families have suffered over the years and contemplate the seriousness of the situation.

  • strongwoman

    “Suffered over the years.” Translation: when your free handout falls short of what you demand, it makes you a victim, and you “suffer.” Pigging out on the common purse may be legal, but is it moral?

  • Liz

    Once again, I am compelled to correct the numerous factual errors and outright suppositions the reporter writes in this article. Whoever “some people” are whose unfounded suppositions are reported as facts, they are clearly in over their heads on the financial aspects of the issue.

    Article Errors:
    1. “It could also require the town to issue bonds to pay for some of the costs, which could negatively impact the town’s credit rating “
    a. Typically, when a community receives more in Special Education Excess Cost Reimbursement than entitled, the State deducts the overpayment from the Town’s Equalized Cost Sharing (ECS) grant for the ensuing fiscal year. The concept that the town may issue bonds is a complete supposition on the part of the reporter and has no basis in fact. Even if the State did not take the overpayment out the ECS payment for FY 2014, the Town would not need to issue bonds to reimburse the state. The Town has sufficient funds in fund balance to make such a payment.
    b. Issuance of a mere $1 million in bonds would have no impact on the Town’s credit rating. The suggestion is simply absurd and has no basis in fact.
    2. “ Moody’s put Darien’s credit rating on a watch list last year, but eventually decide to keep the Town at AAA.” Two years ago, in July. 2011, Moody’s did put the Town on a watch list. This occurred at the time that the US Federal Government’s rating was put on a negative outlook. This was due to the long held belief that no subordinate government should have a higher credit rating than the sovereign government. Moody’s put any Aaa rated community that they felt might have an indirect link to the US Federal Government on a watch list. Issuers with an indirect link were those not reliant on direct federal support, but possibly vulnerable to the same credit pressures that would lead to a downgrade of the sovereign government. After a review, Moody’s removed the negative outlook in December, 2011. While the reporter’s statement was basically factual, it was deceptive, and may have misled readers to infer the Town was on a watch list due to its own actions.

  • lisbeth ehrlich

    No, suffered. Three year old children hit and slapped for months because teachers feared to come forward. Children locked in padded rooms because parents were afraid to come forward. Children not receiving educational services they needed complicating existing conditions and causing them to lose years of potential progress that can’t be replaced. The aura of fear stretches back a decade, but fortunately some parents have decided enough is enough.

  • strongwoman

    “The aura of fear stretches back a decade.” It just gets crazier and crazier. Central Office has files disproving those ugly lies about children being beaten and restrained. If a small faction of parents would train their offspring not to commit physical aggression or disruptive conduct, it would be unnecessary to protect other students, teachers and aides from their uncivilized acts. It’s called respect for others. It’s called decent manners. It all goes back to the parents. Bringing your kids up as wild animals is no excuse for demanding special treatment from the district, and a blank check from the taxpayers. This is about money, not “fear.”

    • lisbeth ehrlich

      actually, they have admitted to all of the referenced activities.

  • mom50

    Your “Credit Watch” explanation is useful information and correct (as I remember when all  that happened). We do depend, somewhat,  upon the federal government to support mandates, though. It’s not solely indirect.   

    But a Watch is just that–a re-look at the numbers in light of new events for possible downgrade. 

    The new event in 2011 was of course the downgrade of the US bonds. We all kind of knew the re-look was not going to result in a downgrade of Darien given our moderate debt level and strong and stable tax base. But it was a new development and the rating agencies were obligated to re-look. 

    The current situation is a significant new development, too.  

    I gathered that David was (appropriately) thinking worst case scenario. For example, the audit discovers padding of expenses, which triggers more audits of past excess costs, which triggers perhaps future heightened scrutiny of all grants and excess costs, and possibly triggering a need for  not just a $1 million bond but a bond for over $2 million, and even more. Perhaps if there is a fine, a lawsuit, who knows? 

    All speculation, and we certainly are a wealthy town, but any bond rating analyst  who didn’t re-look at our credit based upon these significant events would be incompetent.  

    Darien is one of the only districts that calculates excess costs for in district students. Almost all districts (according to that Badway report ) calculate it using only out of district expenses: tuition contracts plus transportation. That is because it’s very difficult to calculate in district costs. This calculation of in district students is why Darien submits excess costs for 70% of it’s available pool–far above average all but one other district in Connecticut according to the Badway report.  

    I am not sure where to find precedent for what you suggested we could do. i.e. simply offsetting the next year with miscalculations of the current year.  Are there precedents for fraudulent submissions by a district that  calculates in district costs? If there has been fraud, would the state simply deduct from the next year? I don’t know.  

    Not to mention what this would make our town look like.  I would assume that rating agencies look at quality of town governance, too. I would expect that they would take into account what is going on in the town since reputation is important. 

    It seems to me that our risk profile with bond investors could potentially be damaged, which could lead to less stable property values which could lead to higher taxes. We can always raise taxes, but that is hard enough as it is. 

  • lisbeth ehrlich

    As the school year just ended, hopefully this year’s ECS numbers haven’t been submitted yet. I wouldn’t think it would be difficult at all to calculate the cost per student, both in and out of district. Boring and meticulous yes, but with proper distribution methodologies and standard cost sharing distributions for aggregate costs like buildings, utilities, etc we should have the basic info on hand to work out what it costs for each student, within a reasonable margin of error. Money in and money out. But transfering legal costs to a tuition line item because ” that’s what it is spent on anyways” rather misses the point that the money was spent on legal costs precisely because they refused to provide services. I am pretty sure that would not pass an audit. I guess we will know soon enough. BTW, is the Badway report the special ed study that was done in 2010 and never implemented?

  • mom50

    Hey Lisbeth,

    Yes, a better thing to say is the calculation for in district is probably a pain in the rear, as opposed to too difficult.

    It’s not a bad thing that Darien spends the time to calculate these costs for reimbursement. It’s credit to our work ethics. These mandates are partially funded anyway, might as well try to get as much as we can. That is good not only for our district cash flow but also for our kids.

    But when you start assigning legal fees, or salaries of teachers who are no longer with us, or invisible aides etc etc.. that’s different…that is making money off the kids. Not good.

    I have no idea when they submit. Probably October. That is not the issue. I assume that would be an easy revision. It’s what we have already received that is the big risk. If that is what is being audited? That may p–s the state off for sure.

    I honestly hope this does not happen. I don’t want my taxes spiraling. I don’t at all (at all!) want our bonds downgraded. Dear God, we have to move on. Move forward.

    Yes the Badway report was that study that never got implemented. Have you read it. Very interesting.

    • lisbeth ehrlich

      Yes I have read it. It seems every few years we pay for a report and ignore the recommendations. Def not very efficient. And why does no one use the state department website for info? or at least they dont publicize it if they do. Thats where you can find tons of info on participation rates, number of paras, educational settings,inclusion time, restraint and seclusion reports. When you compare us to Wilton or New Canaan we stack up very poorly in some ares which might give us a good indication where to start.

  • strongwoman

    No competent auditor would conclude that our district incurred legal fees because we “refused to provide services.” We were forced to incur legal expenses by a small but litigious special interest faction demanding a blank check from the district for expensive tuitions at private schools of their choice, special services, tutoring, livery transportation and a continued free ride on the gravy train. As a taxpayer, I expect our district to take every possible action to recover all legal expenditures from the same individuals whose actions made them necessary. We know who they are. Failure to pursue restitution would be a breach of public trust, and would create a slippery slope for future special interest banquets at the taxpayer trough.

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