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Audit says Mountain Lake Academy owner cheated state, overcharged $7.7 million

May 10, 2013

LAKE PLACID - A boarding school for troubled boys and young men here, and another school run by the same company on Long Island, overcharged taxpayers by as much as $7.7 million over a four-year period, according to an audit released May 1 by the state comptroller's office.

Windwood Meadow Inc., which until recently ran the Mountain Lake Academy and Children's Residence on River Road and also has run the Lake Grove School in Suffolk County, "took advantage of lax oversight to bilk taxpayers," Comptroller Thomas DiNapoli said in a press release.

"The State Education Department and the Office of Children and Family Services need to step up and do a better job policing providers and making sure they only charge for appropriate costs they incur for their services, not exorbitant salaries and perks," he said.

In a Jan. 18 response letter to the auditors, Mountain Lake Executive Director Carol Prevost thanked them for their professionalism and promised to implement their recommendations. Furthermore, she said, Mountain Lake's own board resolved on Jan. 17 to reconstitute itself and to sever all ties with Windwood Meadow.

Prevost, in a statement sent to the News Friday, said Mountain Lake is now "totally independent" and has a new board of directors, which is comprised of local business and educational leaders.

The two schools are required to submit annual income and expenditure reports to their funding sources, SED and OCFS, which then use that information to set daily reimbursement rates for services provided to their students.

State auditors found that during a four-year period ending June 30, 2009, Windwood Meadow allocated its management fees among several of its affiliates, including Lake Grove and Mountain Lake, but could not explain how they determined those allocations. Because of that, DiNapoli said his auditors could not verify if the $5.4 million in management fees allocated to Lake Grove and Mountain Lake were proper.

Additionally, auditors found many of the costs embedded within the school's management fees don't qualify for taxpayer reimbursement, including a CEO's pay and perks.

Auditors found that Windwood Meadow's former CEO, John Claude Bahrenburg, did not maintain time or attendance records to show how his time was allotted among Windwood Meadow's facilities, as required under reimbursement guidelines for both SED and OFCS. Bahrenburg was paid $450,521 in fiscal year 2006-07 and $480,619 in both 2007-08 and 2008-09. The state said his salary "significantly exceeded executive compensation for other not-for-profits of comparable size."

Bahrenburg also received a $14,000 vehicle allowance for three years, plus $30,000 for charitable donations for two years - expenses DiNapoli said are not reimbursable under SED guidelines.

The management fees claimed by Windwood Meadow also included $55,395 in interest it paid on a $250,000 loan obtained for the CEO. Bahrenburg was supposed to repay $50,000 per year, but Windwood Meadow excused the annual repayment for two years. That resulted in both the interest and annual payments being charged to the company's affiliates as part of its management fees. The state's Not-For-Profit Corporations Law prohibits loans made by a facility to its officers or directors, according to the comptroller's office.

DiNapoli's auditors determined Windwood Meadow inappropriately paid a board president $180,000 over a three-year period and inappropriately paid $127,334 to 12 other board members for honorariums over a two-year period. Additionally, Windwood Meadow paid $278,963 to three board members for serving as consultants, although auditors could find no evidence of the consultants performing any work for the company.

The audit also uncovered $998,875 in payments that were inappropriate or unsupported, including the salary for a chief operating officer, consultant fees, non-program-related travel, lobbying expenses and food and incidentals for staff.

DiNapoli called on SED and OCFS to revise reimbursement rates for Lake Grove and Mountain Lake and seek restitution for any overpayments. He also said the schools need to ensure their reporting of reimbursable expenses complies with state requirements and said they should enhance their monitoring of expenses.

Schools respond

Prevost wrote in January that Mountain Lake's separation from Windwood Meadow would be finalized in 90 days. The new Mountain Lake board is expected to amend its by-laws, undergo training and work with state agencies to make sure fiscal abuses don't happen again.

"Mountain Lake is the only program of its type in the North Country/Adirondack region and is in good standing with both state agencies (SED and OCFS) in regard to services to youth," Prevost wrote.

Mountain Lake serves adolescent males, ages 12 to 21, "with a history of significant failures in school at home, including school truancy, curfew violations, alcohol and substance abuse, anger management problems, and difficulty in relationships with parents and authority figures," according to its website. It provides individual education, residential, adventure-based and therapeutic programs.

The school was founded in 1965 as the Camelot Boys' Home, part of St. Francis Homes Inc., a Kansas-based organization that ran similar homes throughout the U.S. It changed its name to St. Francis Academy in 1990 and in 1999 became Mountain Lake Academy, paired with Lake Grove School.

Lake Grove, in its response to the audit, said it has a new management team in place, including a new, all-volunteer board of directors and a new executive director who joined the school in November 2011 and is earning a salary 80 percent less than Bahrenburg. An 80 percent reduction of Bahrenburg's 2008-09 salary would be about $96,000.

The new Lake Grove management team has also instituted a new budget process that will follow state reimbursement parameters, and it has outlawed vehicle allowances, allowances for charitable donations and loans to school personnel.

"We are puzzled as to why the previous management team did not provide supporting documentation," Lake Grove's response reads.

Agencies respond

In its response to the audit, OCFS said the expenses of Windwood Meadow's CEO aren't a direct cost of the two schools and therefore don't have to be reported on the school's reports. Since Windwood Meadow itself doesn't operate any residential program under the jurisdiction of OCFS, it isn't required to submit any information to the agency.

"OCFS has no legal authority to deny the executive compensation costs (the comptroller) considers excessive," the response says. The agency later says it has "no legal authority to police the internal financial controls of the corporations operating facilities licensed by OCFS."

SED's response says the state Board of Regents launched a comprehensive examination of special education programs, services and costs last fall. A number of reform proposals, some of which are relevant to the findings in this audit, were adopted in November.

Specifically to this audit, SED agreed with all the comptroller's office's recommendations. The department said it will review and make adjustments to each school's reports for any inappropriate and/or unsupported expenses, and recover any overpayments by recalculating tuition rates. It also agreed to enhance fiscal oversight of the schools and said it will request the necessary documentation when considering future requests for reimbursement.

A copy of the audit is posted online at School owner bilked state



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