Contractors Steal Millions From New York City School System

As with many political entities, the administration of Mayor Michael Bloomberg in New York City has been faced with its share of scandals. One of the most recent, emerging over much of the past year, has involved the city's Department of Education (DOE) and a technology firm hired to create an online system for New York schools. Education Insider takes a look at how the contractors wound up stealing more than $6 million from the DOE.

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A Matter of Fraud

It all started in 2005 when two men, Tamer Sevintuna and Jonathan Krohe, then employed by a firm working on DOE computers, left that company to start their own venture.

That company, Future Technology Associates (FTA), was given a no-bid contract to construct an online ordering system for the schools' principals. However, what the owners of FTA wound up doing was constructing a system that made them richer. . .by submitting false documents and overcharging the DOE for work being done at much lower costs than was being billed.

The plan was simple, and worked to pull the wool over the eyes of the DOE for nearly six years: charge the Department $110 an hour for New York-based contractors it was contractually required to use, and then hire subcontractors in India and Turkey (FTA's contract with the DOE forbids them to use subcontractors or outside agents) and pay them $10 an hour to do the work.

It all began to unravel for FTA in 2009, when New York's Daily News began to publish articles alleging possible misconduct by the company, including the fact that the company did not have physical offices and listed as its address only mailboxes at UPS stores in Florida and Brooklyn. Richard J. Condon, special commissioner of investigation for New York City schools, began his investigation soon after the articles were printed.

Misplaced Loyalty

At some point after the FTA contract was in place Krohe and Judith Hederman, who was then executive director of the New York Education Department's Division of Financial Operations and supervisor of the FTA contract, began a personal relationship. It was then that things got even more out of hand.

'Her loyalty was to him, not to the Department of Education,' Condon told The New York Times in September. Hederman was investigated for allowing Krohe to view confidential information, including DOE e-mails that showed officials questioning the rising costs associated with the FTA contract (despite the claims of another DOE finance official, Vincent Giordano, at the time the contract was awarded that using FTA would save the city $1 million per year).

Amid the scandal Ms. Hederman resigned from her position in May 2011, ironically on the same day Condon's investigation found out about her relationship with Krohe.

'Embarrassing Lack of Supervision'

In a similar case that rose amid the investigation into FTA, a computer consultant named Willard Lanham, hired to work on Internet access for the city's schools, was charged with paying subcontractors at a lower hourly rate and billing the DOE at a much higher rate. The scheme netted Lanham nearly $4 million between 2002 and 2008. He was charged in April 2011.

The cause, or at least most of the cause, of the scandals can be blamed on the fact that there was little supervision over the FTA and Lanham Enterprises contracts. While other officials were supposed to be helping oversee these projects, they simply did not do their jobs. In his investigative report on FTA, Condon indicates that consultants could not have 'free rein over DOE projects that cost millions of dollars' and that officials assigned to supervise the contract 'must be held accountable for failing to supervise them.'

In the Lanham case, The New York Times in April described the scandal as 'another embarrassing lack of supervision' when it came to contractors and technology projects.

So what is the DOE doing in response? It has since incorporated a new contract management process which includes the use of a DOE contract manager and more in-depth cost analyses regarding the services of outside contractors.

School systems are not immune to scandals; read about the cheating scandal that rocked Atlanta schools in the summer of 2011.

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