State Comptroller: Cedarhurst-based special-ed contractor defrauded NYC of more than $2.6M

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IncludED Educational Services, a Cedarhurst-based provider of special education services allegedly bilked taxpayers of more than $2.6 million over a two-year period (2007-‘08 and 2008-‘09)  based on an audit conducted by the New York State Comptroller’s office.

            The business, operated by owner and Executive Director Morton Kramer, improperly charged New York City’s Department of Education, while paying more than $850,000 in salaries to 11 family members, including his sons, according to the audit released on Aug. 1. IncludED ceased operation on April 1 of last year.

            State Comptroller Thomas DiNapoli’s findings have been referred to the Manhattan District Attorney’s Office and he recommended that the State Education Department review the audit and take the needed actions to recover the money.

            “Waste, fraud and abuse cannot be tolerated in our special education programs, but my auditors keep finding it,” DiNapoli said in a prepared statement. “The state and localities need to improve their management and oversight of special education providers to make sure taxpayers get what they’re paying for and students aren’t cheated.”

            According to the audit, IncludED couldn’t provide auditors with the proper documentation to support salaries and wages for 50 employees totaling more than $1.54 million. Included in that amount was $856,827 paid to Kramer’s relatives, who regularly deposited his two sons two paychecks in his personal bank account. Another $324,761 identified as fringe benefits was disallowed by the auditors.

            IncludED provides special education services to 375 children between 3- and 5-years-old. The State Education Department is responsible for special educations programs throughout New York. The city’s Department of Education and other school districts pay tuition to IncludED based on rates set by the state. These rates are based on costs reported by special education providers, such as IncludED, to the State Education Department. The costs must comply with guidelines in the state’s Reimbursable Cost Manual.

            “Allowing these abuses to continue deprives children with disabilities of the resources intended for them and threatens the entire private special education program,” DiNapoli stated.

            Auditors also found that Kramer and his wife billed the Department of Education for personal costs totaling $32,359, including $19,888 in non-allowable meal expenses; $9,720 in student loan payments and tuition costs; $1,482 in repair and maintenance expenses for landscaping services performed at their home and $1,269 in airline ticket charges.    

            In addition, the audit uncovered that IncludED charged the city and state $15,382 for rent and expenses for the California home belonging to Kramer and one of his sons, who admitted that he “made up” an invoice to obtain reimbursement for $6,000 for the security deposit and rent — $4,682 of that amount was billed to the audited programs. The son also claimed another $10,700 in costs for light fixtures, installation fees, car rental, a computer, an iPhone and other items.   

            State Education Department officials said they will seek to recover the money. “This will entail additional discussion with the Office of the State Comptroller’s auditors and review of auditors’ work sheets to determine the impact of adjustments on each year and each program operated by IncludED since this has not specifically been identified in the report. We will also review and consider additional information IncludED may submit in response to this report,” Sharon Cates Williams state in the department’s response letter.

            The Cedarhurst office at 445 Central Ave. was IncludED’s main administrative office and the Nassau County regional office. There were three other offices in Queens, Brooklyn and the Bronx.

The report can be viewed at http://www.osc.state.ny.us/audits/allaudits/093012/10s59.pdf