New York State Audit Exposes Child School Problems Under Sal Ferrera

News analysis by Dick Lutz

Under Executive Director Salvatore Ferrera, The Child School undertook a complex and questionable transaction for which it attempted to bill New York State. As described in an audit published by the Office of the New York State Comptroller, it was one of several elements that led to Ferrera’s hasty departure from the Island-based institution – and, simultaneously, from a seat on the Board of Directors of the Roosevelt Island Operating Corporation (RIOC).

That transaction, plus claims based on poor record-keeping, and other seeming attempts at financial sleight of hand, led to days of chaos at The Child School in which over 40 staffers were dismissed – not for any apparent offense by them against New York State law, but because a denial of claims for State funds produced an instant budget crisis.

It led to a lunchtime scene at Trellis in which Ferrera’s son hastily transferred records and responsibilities to another staffer on his final day on the job. Ferrera’s son was among the 40-plus who lost their jobs in a speedy response to the crisis.

A bare outline of that story has only recently come out with the long-delayed release of the audit report. One incident bears a remarkable resemblance to an earlier Roosevelt Island incident for which a former RIOC executive served time in jail.

Ferrera was something of a controversial figure during his time on Roosevelt Island. At the behest of a Republican State Senator from Brooklyn, Governor Andrew Cuomo appointed Ferrera, a non-resident of Roosevelt Island whose institution is a tenant of RIOC’s, to the RIOC Board. At his first meeting, resident-nominated members of the Board urged him to resign to protect Islanders’ efforts to achieve some democratic voice in governance of the Island. Earlier, a delegation of activists made the same request. Ferrera paid no heed.

The Child School then put forward a proposal for a horseback-riding facility just south of The Octagon, and a kayaking facility near the Queensboro Bridge, and took a lease on the second floor of 504 Main Street, the future home (on the ground floor) of the Island branch of the New York Public Library. (The lease was dropped when Ferrera resigned.)

For a time, Ferrera seemed to be leading The Child School and Legacy High School (TCS/LHS) to new heights. That ended with his resignation and the start of a period of financial hardship and recovery that remains the problem and task of new TCS/LHS leadership. That current leadership refused The WIRE’s request for an interview to discuss the impacts of Ferrera’s reign and departure, despite an invitation to parents in a January 16 letter to “call if you have any questions.” But the broad outline presented by Comptroller Thomas P. DiNapoli’s staff (which referred WIRE inquiries to a public relations department) suggests sloppy record-keeping, and presents a list of questionable filings for State support.

State Support

TCS/LHS is supported almost entirely by New York State, which, under law, is obligated to provide an education for any child with special needs that cannot be met by the public school system. Children with emotional difficulties and learning handicaps receive an education there, and the school boasts an impressive record of high school graduates, including many with Regents diplomas. While based on Roosevelt Island, it is only peripherally of Roosevelt Island. Its students are largely from off-Island, brought daily by school buses. A few Roosevelt Island children have been educated there, and their parents praise the school – sometimes for finding an educational solution that wasn’t available in the New York City public school system.

The school has made efforts to integrate with the community, inviting residents to student exhibitions and sending students to help with The WIRE’s Friday-morning “stuffing” sessions – inserting loose advertising matter into the newspaper.

Maari de Souza, the school’s founder, had started it in her Island House apartment, moved it to larger quarters downtown, then found a way to turn the Island’s long-abandoned and derelict minischools into a beautiful and well-disciplined institution of special education. She resigned in August 2009, and took the title of Educational Advisor, which she described as “a unique and envious [sic] opportunity to devote all my time to our children.”

Ferrera took over in July 2010. Others who have taken over subsequently now face the problem of making up the disallowed charges submitted to the State under Ferrera.

Arm’s Length

The State audit describes one Ferrera transaction this way under the heading, “Less-Than-Arm’s-Length Transactions.” During fiscal 2009-10, the School used Vendor A and Vendor B to provide building maintenance and cleaning services. According to its records for this period, the School paid $114,839 to these two vendors. After the second Executive Director [Ferrera] came on board (fiscal 2010-11), he replaced Vendors A and B with a Vendor C. Moreover, the School paid Vendor C $186,670 (or $71,832 more than it paid Vendors A and B) to do ostensibly the same work.

However, Vendor C did not actually perform the contracted work, but subcontracted it to Vendor D, owned by a former coworker of the Executive Director. The School did not use competitive bidding to select Vendors C and D, whose charges significantly increased (by the aforementioned $71,832) the school’s maintenance and cleaning costs. As such, we recommend that SED [the State Education Department] disallow the additional $71,832 in costs attributable to the School’s less-than-arm’s-length arrangement involving Vendors C and D.

In addition, Vendor D billed the school $108,241 for other work (i.e., snow removal and warehouse work) for which there was no supporting documentation other than Vendor D’s invoice. There was no evidence that the work was requested by the School or that it was competitively bid. Further, there was no explanation why this work was not covered by the existing maintenance and cleaning contractor with Vendor C. Consequently, we recommend that SEC disallow the $108,241 paid to Vendor D.

The section concludes, In total, we recommend disallowance of $180,073 in regard to Vendors C and D.

In all, the State’s audit recommends that the State Education Department disallow $992,765 in claimed program costs for the three fiscal years from 2008 to 2011 – a significant hit for a non-profit institution when measured against the overall claim of $25,792,637 for that period.

The broad outline of the “Vendors C and D” transaction resembles a transaction for which a RIOC Vice President, Fernando Martinez, pled guilty and served jail time. In a different less-than-arm’s-length transaction, Martinez helped associates get clean-up work at Southpoint Park. A State audit led to charges against Martinez. (The same audit led to the sudden departure of RIOC President Leslie Torres for other infractions.)

The other audit results that led to the recommended denial for nearly $1 million in TCS/LHS claims for State money included these:

Overstated Compensation

$114,338 in overstated salaries and fringe benefits for 70 employees;

$168,579 in excessive pension costs for all three [audited] years;

$27,448 in health and dental insurance costs. “For example, on June 30, 2011, the School accrued $21,043 in health insurance costs and claimed this expense... The School did not have documentation to support this expense had been paid.”

$43,017 in health insurance premiums for 24 former employees and dental insurance premiums paid on behalf of 17 former employees...

$41,523 in bonuses for 32 employees “because they were not based on merit.”

There were also non-personnel costs, identified in audit-speak as OTPS (Other than Personal Service) costs.

$29,605 for food and entertainment, $1,014 for invitations to a founder’s award benefit, $750 for a scholarship diner, and $266 for Broadway tickets.

$7,697 for parking violations

$3,464 for expenses normally paid by parents. (“The School claimed $1,600 [for sporting events] even though documentation showed that students’ parents already paid for these expenses.”)

$4,600 for gifts

$726 for a bronze statue

“We identified another $70,756 in charges for which there was either no supporting documentation, the expense was already charged in a different expense category, or the expense was charged to the wrong fiscal year... Further, we identified certain duplicate payments and accrued expenses that were claimed, but were not actually paid.”

The audit also lists and recommends disallowance of costs for six vehicles “for use by its two former Executive Directors” amounting to $72,856 for lease payments, insurance, maintenance, and parking. (While some or all of the vehicle leases were apparently for 36 months, no more than one car per Executive Director was on lease at any time.)

Response and Defense

A response from TCS/LHS dated December 7, 2014, outlines “corrective efforts instituted during the 2008-2009 school year, attributes financial imprecision to “a year of major transition for the School,” adding, “such findings must be viewed in the context of the significant transitional issues leading up to the resignation of the Executive Director who founded the School and led it for some forty years. During this year, in spite of administrative disruptions, the School continued to meet its core objectives. Twenty-seven students received high school diplomas. Of these, 8 received Advanced Regents Diplomas and 7 received Regents Diplomas. This record of academic success in a special education school for children with severe disabilities is extraordinary.”

Describing the “First Term of New Executive Director,” the TSC/LHS response says, “This year [2010-2011] marked another year characterized by disruption in all aspects of management, including financial operations. An Executive Director hired to replace the founder in July 2010 was replaced by the Board of Trustees within the next three years. Difficulties with budgetary controls during this year are pointed out in the Audit Report, but it should also be reported that during this year 19 students received high school diplomas, including 9 with Advance Regents Diplomas and 5 with Regents Diplomas. The School also developed a program... to serve children with autism spectrum disorders...”

In another section: “It should be noted that before preliminary audit findings were issued, the School had itself initiated a review to identify and correct the shortcomings identified in the preliminary and final [audit] reports. A consultant with a financial background was retained in November 2012 and appointed interim Executive Director in early 2013 specifically for the purpose of examining financial conditions and instituting financial controls.”

It is also noted that “the School is hampered in its ability to provide explanations for certain book entries and expenditures...” that occurred “during a period in which the School was led by two Executive Directors who have since resigned.”

The school, in its defense, also notes that some compensation costs were shifted from one fiscal year to another – claimed, but not paid at the time, apparently for lack of ready funds. It points out that the need for Broadway tickets was attributable to the school’s theatrical productions, which were a source of great pride to parents of the performing students.

The school also requests a meeting to discuss findings with auditors and the State Education Department. “We believe that the circumstances of the transitions described herein severely limited our ability to respond to Preliminary Findings in August 2013 and to respond now to the Draft Report in a timely and comprehensive way.

“In addition, the School is now moving forward in directions that are extremely promising and that are fully consistent with the mission of this State to provide full educational opportunities to children with disabilities. We believe that as new School leaders we need and should have an opportunity to discuss this response directly with the Audit team before a final document is released.”

Ferrera’s Departure

In February 2013, TCS/LHS Executive Director Salvatore Ferrera resigned that post, and gave up his seat on the RIOC Board of Directors. His seat on the RIOC Board has not been filled, and Governor Andrew Cuomo has made no appointments (other than Ferrera) to the RIOC Board, despite two 2012 resident elections to nominate resident Board members, as had been considered and honored by Cuomo’s predecessors. No explanation has ever been given for Democrat Cuomo taking the recommendation of a Republican State Senator (rather than the Senator representing Roosevelt Island) for the RIOC Board seat, but it occurred around the time that Cuomo was rounding up votes for same-sex marriage.

All current Board members’ terms have expired, and each serves “until replaced,” as provided by law. Serving expired terms, each is subject to immediate replacement, with or without cause, by the governor’s office.

Tags: The Child School

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