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NEW YORK TIMES


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Soaring charges by a contractor in special education

By David M. Halbfinger

New York Times

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NEW YORK » Cheon H. Park ran a company that had begun to prosper on government contracts, but he had bigger ambitions. So he tore down his shabby headquarters on a quiet street in Flushing, Queens, and replaced it with a lavish three-story building that had marble floors, granite countertops, red carpets and a soaring chandelier.

Then he brought in the clients: 3- and 4-year-olds with developmental disabilities.

Scores of them came each weekday, their parents lured by the attractive surroundings and the promises of state-of-the-art therapy. New York City and New York state paid for it all, from the expensive renovations to the services themselves, at a rate of as much as $98 an hour.

But many of the children entrusted to Park's company did not get the care they needed, according to numerous interviews with workers and parents and an extensive analysis of government records.

Some children whose first language was Chinese languished in classes taught in Spanish or Korean. Others who were supposed to receive individual tutoring were thrown into groups of four or more children, all with different types of disabilities.

Some children did not have disabilities at all and were simply being used to generate billings, the interviews show.

"We had kids who were little rocket scientists being put in there — who could read and write at a third-grade level," said Angel Tirado, a former aide to Park.

Park's contracts were canceled by the city at the beginning of this school year after The questioned officials about his company.

But his success until then underscores how private contractors have taken advantage of this generously financed but poorly regulated segment of the special-education system, often called special ed pre-K, according to an investigation by The Times.

At Park's company, the costs to treat these 3- and 4-year-olds were enormous. The government routinely spent more than $50,000 in a single year on services for one child, according to an analysis of billing records.

In all, that occurred 281 times from 2005 to 2012, the records show.

The money went to Park's company, Bilingual SEIT, and other providers of related services, including contractors that transported children to his schools. In the 2011-12 school year, Bilingual SEIT billed more than $17 million to the city and state, up from $725,000 it had billed a decade earlier.

As his revenue grew, Park bought a 5,000-square-foot house behind high walls on the North Shore of Long Island and used city and state funds to buy a Mercedes for his 20-minute commute.

The special ed pre-K program provides services for 3- and 4-year olds with developmental disabilities, which include autism. Some children have difficulty communicating, learning and socializing. They might also have problems with cognitive and motor skills, like picking up objects.

The state and its localities together spend more than $2 billion a year on the special ed pre-K program, which has doubled in size over the past decade and is by far the most expensive, per child, in the country.

In New York City, annual costs total $1.2 billion, about 6 percent of the $19.8 billion overall education budget. The state and city jointly supervise the program, with the state paying 60 percent of the cost and the city paying the rest.

The growth in spending has been prompted in part by more awareness of autism, but officials acknowledge that services for children with autism account for only some of the increase.

Supporters of the program said it represented a crucial early investment that pays off in better educational results as children mature.

They maintained that fraud was rare but was giving the program a bad name, unfairly raising doubts about the motivations of hundreds of upstanding contractors. And they said measures to crack down on waste and abuse were making it harder for qualified preschoolers to obtain the specialized instruction and treatment they need.

Yet The Times found that a network of contractors has arisen that routinely bill for questionable services.

The Times' investigation drew on interviews with more than 50 former workers at Park's company, including teachers, therapists, administrators and clerks. Parents, city and state education officials, state auditors, and executives and workers at other contractors in the industry were also interviewed.

The Times analyzed a decade of billing records and financial statements from Park's company and many others and examined thousands of pages of government records.

Billing fraud appears to be common. Some contractors labeled overseas vacations and spa trips as business travel or used corporate credit cards for jewelry or groceries. Others hired relatives for no-show jobs or gave themselves exorbitant salaries and perks like fancy cars, even as they seldom showed up for work. One contractor put a grown son on the West Coast on the payroll, claiming he had opened a satellite office there. Another contractor lived out of state herself.

The bar to entry was low. One preschool contractor had a previous career in Medicare fraud, federal records showed. Another was convicted of weapon possession and workers' compensation fraud.

State and city education officials said The Times' findings were troubling.

"This is a program in serious need of reform," the state education commissioner, John B. King Jr., said. "A few very bad actors are stealing from taxpayers and hurting children."

City officials noted that Mayor Michael R. Bloomberg had asked the state Legislature in January to change the program's rules to rein in costs.

The state budget enacted last month included modest incentives to encourage municipalities to conduct their own audits of special ed pre-K contractors, as well as up to $5 million in financing to enhance oversight at the local and state level. But a more significant overhaul of the program has stalled in Albany after advocacy groups for parents and contractors expressed concerns that tighter rules would limit services for deserving children.

Even so, education officials have often not enforced existing regulations, according to interviews and an analysis of actions by regulators. Until last year, few contractors in the program had been disciplined.

State Comptroller Thomas P. DiNapoli began his own crackdown last year, identifying millions of dollars in excess fees, forcing several contractors to close and referring allegations of fraud to prosecutors.

Last summer, an audit released by DiNapoli — the first serious scrutiny of Park's 13-year-old company — identified $1.5 million that the company had misused. The audit covered only the period from July 2007 to June 2009 and did not examine the quality of the company's work, only how it was spending government money.

Park's lawyer, Scott Hur, said that Park cared deeply about children with disabilities and that his schools provided excellent care. Hur said Park had never cheated the program. Park has sued the city, asking that Bilingual SEIT be restored to the special ed pre-K program.

In two brief interviews with The Times — one on the phone, another on the sidewalk outside one of his schools — Park portrayed himself as a victim, saying auditors and education officials had unfairly singled him out.

"They have power," he said, before walking off. "I don't have power."

HOW TO MAKE ‘REAL MONEY'

Slightly built and prone to chain-smoking, Park, 45, had an amiable nature that sometimes gave way to fits of screaming, especially over money, workers recalled.

He grew up in South Korea, where he studied physical therapy at a Seoul university before arriving in the United States in the early 1990s. He first set up a company that billed the city to treat infants and toddlers with physical disabilities.

Parents soon complained of being ignored, bullied or lied to, according to city records. Park collected fees for unnecessary services and failed to finish evaluations, parents told investigators. As a result, in 1998, the city's health department stopped referring children to his company.

But Park already had his eyes on another revenue source: special ed pre-K.

"That was how you could make real money," a colleague at the time, Nina Maron, recalled Park's saying.

Despite his checkered performance, Park obtained approval from the state Education Department to join the special ed pre-K program by asserting that few contractors served Korean speakers, records show.

Park obtained contracts to evaluate children's disabilities, as well as to provide roving tutors called "special education itinerant teachers," or SEITs. These teachers go to preschools and day care centers around the city, or into children's homes, to work one on one with children with disabilities.

Evaluating children by itself was not much of a moneymaker, yielding perhaps $1,000 per child from the program.

But providing the services that resulted from an evaluation could bring tens of thousands of dollars a year in tuition payments.

The dual roles can pose conflicts of interest. Evaluators can skew assessments to justify expensive instruction provided by their own companies. That is just what happened at Bilingual SEIT, according to interviews and an analysis of city and state records.

"If we could take the kid, we usually got it," said Anthony Daddiego, a former manager at Bilingual SEIT.

In the 2007-8 school year, Bilingual SEIT's evaluators found 434 children in need of services; 174 of them wound up receiving those services from Bilingual itself. No other contractor came close to receiving as many referrals from Bilingual SEIT's evaluators.

Teachers and therapists said Bilingual SEIT's evaluators sometimes exaggerated the disabilities of children with mild speech and other problems to justify expensive instruction.

"When students were quote-unquote not qualified to receive services, the psychologists made children sound more severe," said a former therapist, who spoke on the condition of anonymity to preserve his ability to remain in the field.

Evaluations were such an important source of new business that Park offered therapists at his schools extra money to perform them during their normal workdays, when they should have been treating existing students, said Georgia Gilfeather, a speech teacher who worked at the company's school in Elmhurst, Queens.

Gilfeather said Park also arranged for full-day preschoolers to be sent home early each day to get extra one-on-one tutoring from another Bilingual SEIT teacher — in effect "double-dipping" from the special ed pre-K program.

"He did whatever he wanted," Gilfeather said, referring to Park.

Park's lawyer, Hur, suggested that former workers were criticizing Park because he had been unable to meet the company's payroll after regulators canceled its contracts.

"Bilingual never sacrificed the quality of its services to students by focusing on profits," Hur said.

He said that it would be impossible for Bilingual SEIT or other providers to cheat the program "given the substantial restrictions, as well as a multitude of checks and balances, that are in place."

"The allegation that children's disabilities were overstated for sake of billing is patently false," he added. "Mr. Park worked extremely hard to ensure that Bilingual's programs were of the highest quality."

‘10 OF EVERYTHING'

In 2007, Park took his next big step, opening two of his own special ed preschools in Queens.

While tutors worked with one child at a time, each classroom teacher handled from eight to 13 children.

By 2011, the company was getting nearly 75 percent more per child in classrooms than in the field, according to an analysis of billing records.

"He was just maximizing what they allowed," said Andrew Park, a former office worker at Bilingual (who is not related to Cheon Park). "He gets everything, he gives the teacher whatever, and the rest is his own."

Park ended up building gleaming preschools in Harlem; Sunset Park, Brooklyn; and Elmhurst. He tore down his headquarters on the side street in Flushing, Queens, and put up his new three-story school there.

In addition to the marble, granite and chandelier, he had the classrooms outfitted with flat-screen televisions, computers and other electronic equipment. Closets brimmed with never-used top-of-the-line toys, puzzles and games.

It was all charged to the government.

"I think they said, ‘Ten of everything,"' said John King, an occupational therapist. "We could pick the catalog up and order anything we needed, within a limit of $10,000."

Park's lawyer, Hur, defended these expenditures, saying they were not wasteful.

"Many parents commented that Bilingual's facilities were clean, bright and helped to create a positive learning environment," Hur said.

Still, such financial practices stemmed in large part from the structure of the special ed pre-K program.

Special ed pre-K contractors charge tuition rates that are based upon their expenses the year before. As a result, contractors have often been encouraged to spend more, not less, according to records and interviews.

Such contracts, known as "cost-based," are common in the construction and defense industries.

But they are inherently riskier than fixed contracts and more suited to emergency situations, like disaster relief, for which market prices cannot be anticipated, said Scott Amey, general counsel of the Project on Government Oversight, in Washington.

"They're only as good as the audits being performed," Amey said. "When you create systems without proper checks and balances, people will figure out ways to abuse them."

Park's spending was also as careless as it was lavish, workers said. Libraries were filled with thousands of new books that had little if any use.

"They were for older kids — second- to fourth-graders — and not with disabilities," said Daddiego, the former manager at Bilingual SEIT.

The marble floors were too slippery and unforgiving for small children, workers said. So Park "bought these thick cushiony mats for $45 apiece and put them throughout the classrooms," recalled King, the occupational therapist. "He had hundreds of mats."

Park even put a Korean-American artist, Eunkyung Lee, on the payroll to paint murals.

COURTING ADMINISTRATORS

At first, doctors told Therese Torchon that her daughter, Elisabeth, would never speak. She had pervasive developmental disorder, which is on the autism spectrum, and would not even make eye contact with others.

But Elisabeth, then 3, was showing progress by working with a behavioral therapist at her nursery school in Queens.

Then Torchon got a call from an administrator at the local school district, part of the city's Education Department. The administrator wanted Elisabeth to enter a new preschool being opened by Park's company.

Torchon, a schoolteacher herself, protested.

"I wanted my kid to be in an environment with kids who'd stimulate her in the normal way," she said.

The administrator threatened to cancel Elisabeth's special-education services.

"She was out of her mind, calling me a bad educator," Torchon said.

Torchon held her ground, and the administrator backed down. But Torchon said other parents might have been cowed into agreeing.

Administrators in New York City's school districts play a crucial role in the program, ordering evaluations for children believed to have disabilities and deciding what services they are to receive — and from which contractor.

So Park courted administrators to obtain clients. The administrators often responded by directing parents to Park's schools, according to records and interviews with workers and parents.

Workers at Bilingual SEIT said administrators in Queens and Upper Manhattan were chauffeured to meetings by Park's employees, invited to parties where cash, televisions, computers and other prizes were awarded and encouraged to use the company's offices. Park also recruited administrators for jobs at his company, records show.

An administrator for District 30 in Queens spent so much time in the company's headquarters, and assigned the company so many students, that "I thought she worked for him," a former executive assistant to Park recalled.

The company's revenue from children in District 30 rose to $2.4 million in 2009, from $110,700 in 2004, according to city records. Park regularly urged teachers and therapists to seek more services for students, regardless of whether they were needed, workers said.

"The more services a kid got, the more he'd get paid," a teacher, Maria Acates, said.

At one site in Flushing, parents dropped children off several times a week for one-on-one therapy sessions, as the city mandated. But some children were actually being served in groups of four or more, according to one therapist, who said he quit after Park asked him to see children in groups.

"I said no," the therapist said. "It's unethical. I said these children deserved quality services. I'd question my colleagues, saying, ‘You can't do this.' They'd say, ‘Mr. Park is the boss."'

Park also turned his teachers into traveling salespeople.

They made the rounds of nursery schools and pediatricians' offices, dropping off key chains, clocks or coffee mugs with the company logo, several workers said. Some doctors received model train sets for their waiting rooms.

RED FLAGS IGNORED

Although billions of dollars have been pouring into the special ed pre- K program, the state Education Department last audited a contractor in 2007, state records show.

State officials have relied heavily on the contractors' own accountants to report problems. Yet until recently, when contractors have been accused of overcharging, they have usually been required only to make restitution.

Education officials in New York City and other localities have conducted their own audits, but when they were sent to Albany, they were often ignored. The officials learned not to bother.

Enforcement is made more difficult because children receive treatment for only two years before they leave the program and move to special education in elementary schools. Their parents are often not knowledgeable about the services that their children are supposed to receive — and that contractors are billing for.

As a result, even as reports of malfeasance mount, the city and state have received few complaints from parents about any of the contractors. Bilingual SEIT's lawyers have sought to defend the company by pointing to the absence of many complaints.

One of the few efforts by regulators to examine Bilingual SEIT occurred in 2002, when the state Education Department conducted a "quality assurance" review that focused largely on record-keeping.

There were some red flags — a school district administrator warned that "children are always underserved" — but they appear to have been ignored.

At Bilingual SEIT, Park often boasted that he had never been scrutinized in any serious way, and the lack of oversight seemed to embolden him, workers said.

Some employees were paid high salaries under the program, then told to repay a portion to one of Park's other businesses, unrelated to education, his former executive assistant said.

Park bought several cars with program money, including a Mercedes sedan he treated as his personal car and insured in his own name.

After Park bought AJS Wholesalers, a candy and tobacco distributor in Manhattan, he used program money to pay for new furniture for AJS Wholesalers' offices, said Tirado, the former aide to Park.

Tirado said he and other company workers, several of whom corroborated his account, were sent to count cash and do office work at AJS but were paid by Bilingual SEIT. In other words, the government was billed for their salaries, even as they were employed elsewhere.

"I did a lot of moves for him that, honestly, I didn't feel were right," Tirado said.

Park's lawyer, Hur, denied that Bilingual SEIT's money was used for Park's other businesses.

Asked about oversight of Bilingual SEIT, King, the state education commissioner, said that to curb fraud and waste in the program, the department needed additional financing to hire more staff members.

"The bottom line," King said, was that the state Education Department "has neither the law enforcement power nor the audit capabilities to track down those bad actors."

In January, Bloomberg, testifying before the Legislature on the state budget, called for several changes in the special ed pre-K program to rein in costs.

Bloomberg asked that the city receive more authority to recover excess payments made to contractors. And he said the program should not allow evaluators to have professional ties to service providers.

"That kind of a conflict of interest is just an outrage and would never get us the kind of information we need to know which programs and which providers are making a difference and which ones are not," Bloomberg said.

None of the mayor's proposals were enacted.

NEARING THE END

By 2011, Park was thriving.

He sold his Flushing preschool for $3.15 million, making a sizable profit, real estate records show. He then leased the building back at great expense to the special ed pre-K program, effectively arranging for the government to cash him out. He took steps to do the same with his school in Harlem.

He then closed his biggest acquisition — an $8 million purchase of back-to-back buildings in Jackson Heights, Queens, where workers said he planned his sixth school.

He also moved to protect his assets, according to real estate records. Over time, he transferred his buildings to corporations owned by his wife, Hyun Ham.

They were legally divorced in 2010. But in reality, Park assured his workers at the time, there was no marital discord. They were still together.

It was as if he were preparing for the end.

Soon after, auditors from the state comptroller's office descended.

Workers at Bilingual SEIT said Park responded by trying to conceal his failure to follow the rules.

He put together a large organizational chart and told his staff to memorize it.

The names it showed, with newly invented titles, included those of construction workers and custodians at Park's apartment buildings, company workers recalled. Some names seemed fictitious, they said.

"There were as many as 15 to 20 workers who didn't really work for the company," said Andrew Park, the Bilingual SEIT office worker.

When the auditors asked for mileage records for company cars, Park had workers generate reports saying the vehicles had been used for Bilingual SEIT business, although they had not, the workers said.

"I'd see people forge fake sheets on the mileage," said Tirado, the former aide to Park.

The audit, released in July 2012, looked at two years of billings by Bilingual SEIT, totaling $23.4 million. The auditors disallowed $1.5 million. They even accused Park of using $5,567 in program money to buy bedroom furniture for his daughters.

Park reacted by having that furniture transferred to two of his preschools, then removed the buildings' surveillance cameras and deleted their recordings, Tirado said. (Park's lawyers said he deleted the recordings to respect students' "privacy rights.")

The auditors said in their notes that Park told them he had had no training before becoming a contractor and had never heard of the manual that details what expenditures are permitted.

Park also told them that he had created the company's mileage logs "especially for the audit."

The state comptroller's office referred its findings to the Queens district attorney, whose investigation is still under way.

And for the first time, the city's Education Department stepped up enforcement.

The department withheld $2.6 million that it owed the company. It insisted that Park agree to a schedule for repaying excessive fees flagged by the audit, as well as to other terms.

Park refused. The department responded by canceling his classes in September. Then it declined to renew his contract.

But all was not lost for Park.

Through corporations registered to his ex-wife, he effectively continued to control a number of expensive real estate properties connected to Bilingual SEIT, workers recalled.

Last November and December, the corporations sold the Brooklyn and Harlem preschools and another Flushing building for a total of $9 million, turning a $2.7 million profit in just three years, according to city records.

Park effectively held onto three apartment buildings in Queens, which workers said he had renovated using money from the special ed pre-K program.






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