New Orleans Schools Focus Of Fraud Probe

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The New Orleans public schools have issued paychecks to more than 1,600 people who should not have been paid, according to a consultant's report.

And roughly 2,000 people were enrolled in the district's insurance plans who should not have been, the report presented to school board members this month found.

The findings shed more light on a federal investigation into allegations of fraud, mismanagement, and other wrongdoing that could cost the 68,000-student district millions.

As part of that investigation, a former manager of the district's insurance department, Carl Coleman, has reportedly agreed to testify that he was paid by local contractors to steer business their way. Carter Guice, the assistant U.S. attorney leading the probe, declined to comment.

Mr. Coleman also has been implicated in a kickback scheme that allegedly netted him $400,000 in exchange for contracts totaling $4 million to repair fire damage at schools, according to local news reports.

Mr. Coleman's lawyer, Herbert Larson, declined to comment last week.

Insurance Records

Compensation and Benefits Consulting Services, of King of Prussia, Pa., has been reviewing the district's insurance and payroll programs for the school board since last year. The firm, which will be paid a total of $2 million for its work, is examining records going back to 1999.

Stuart Piltch, the company's managing director, described some of the New Orleans district's problems as "honest mistakes."

The payroll computer system was disconnected from the benefits computer system, Mr. Piltch said, meaning that when people left the district, they weren't removed from the benefits programs.

Still, he added: "Nobody came screaming when we shut down payment to the people who were getting the checks."

Mr. Piltch said his firm started uncovering irregularities during a review of the district's property and casualty insurance. The firm found a work order to repair fire damage that was filed several days before the date of a fire at a school.

"Either someone was clairvoyant or ... ," Mr. Piltch said.

The consultants are now addressing problems with the district's workers' compensation, managed-care, health, life, dental, and student insurance, Mr. Piltch said.

Anthony S. Amato, who has served as superintendent since last spring, estimated that the district has lost "tens of millions" and said it would sue to recover money from individuals who cashed payroll checks.

"This is pretty over-the-top," he said. "This is one of the biggest challenges I've ever faced on the operations side."

The district will save about $30 million this year by correcting its insurance inefficiencies and overpayments, Mr. Amato estimated. The district spends roughly $65 million annually on insurance, Mr. Piltch said.

The superintendent said he has fired several employees and instituted a system of checks and balances to prevent further losseswhich he likened to plugging a huge leak in an oil tanker.

The allegations are a blow to the New Orleans district, which is coping with budget cuts while trying to pay for school improvement efforts to boost lagging student test scores.

Teachers may end up paying for some materials out of their own pockets to support new programs, such as the Success for All reading approach, said Wilson Boveland, the director of member rights for United Teachers of New Orleans.

The 5,000-member affiliate of the American Federation of Teachers is pleased that the district is "actively trying to resolve" the payroll and insurance problems, Mr. Boveland said. Payroll mistakes that left some employees receiving checks for cents instead of dollars finally are being addressed, he added.

Using New Orleans as a cautionary tale, Mr. Piltch said districts nationwide must ensure that proper financial controls are in place. He argued that districts need compliance departments with wide-ranging authority that report directly to school board members and the superintendent.

Vol. 23, Issue 8, Page 3

Published in Print: October 22, 2003, as New Orleans Schools Focus Of Fraud Probe
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