State auditor general calls for criminal probe of Vitalistic charter school [The Morning Call (Allentown, Pa.)]

Sept. 17--Pennsylvania Auditor General Jack Wagner will ask the Lehigh County District Attorney's office to conduct a criminal investigation of Vitalistic Therapeutic Charter School after auditors uncovered possible ethical and conflict-of-interest violations stemming from improper payments to the families of employees and trustess and "illegal" loans and undocumented services to children totaling more than $500,000.

In an audit released Monday, auditors discovered that the charter's founder and former CEO Naomi Grossman paid herself $100,000, in addition to her salary, to run the charter school and the nonprofit preschool during the audit period of July 1, 2006, to Oct. 21, 2010.

The payments could be classified as "improper financial transactions or fraudulent activity" that would jeopardize the viability of the charter school and the preschool, which has since closed due to money problems, the audit states.

In addition, Grossman, who was given free reign over finances and management decisions, paid her son $3,825 during the 2007-08 and 2008-09 school years with "no documentation to show the purpose of the payments," the audit states. Grossman's daughter-in-law also got $500 in 2007-08 school year with no documentation of services rendered.

Other family members of employees also profited off of taxpayers, according to the audit, which faulted the board of trustees for failure to maintain operational and financial control, resulting in two checks being written to a jewelry store for $1,129 with "no receipts or invoices."

In addition, the husband and son of Vitalistic's current business manager, Linda Alderfer, were paid $14,118 for construction services "with no record of board approval" in 2009-10. Alderfer was a member of the non-elected trustees board at that time. State charter school law and the Ethics Act prohibit direct family members of non-elected trustees and employees to be paid for work at the same charter school.

"The number of family relationships surrounding these transactions makes it difficult for the public to be assured that their taxpayer dollars were being used in the best interest of the Charter School's students," the audit states. "Moreover, the risk of misuse in this situation is compounded by the fact that the Charter School did not seek approval from the board of trustees, and by the fact that that board of trustees does not appear to have been independent."

The state audit confirmed many of the same findings first reported 10 months ago in The Morning Call. A Nov. 27 story exposed Vitalistic's financial and managerial problems and a plethora of critical special education audits done by the state Department of Education and poor audits concerning its old mental health program licensed under the state Public Welfare Department.

The story documented how Vitalistic lost its state license after auditors with a managed-care company, which was under contract with Lehigh and Northampton counties, could not determine students received more than $200,000 in mental-health counseling through an outpatient partial hospitalization program licensed by the Public Welfare Department.

The newspaper story also uncovered that Vitalistic had lent nearly $250,000 in tax money to the preschool and then forgave the loan despite state law saying a charter school cannot loan money.

Wagner's report also noted the improper billing and financial relationship between the charter school and preschool.

The report uncovered additional problems with the partial hospitalization program -- and the web of improper family relationships among staff and the board of trustees. State auditors found that the preschool improperly billed the charter school for $168,000 non-partial hospitalization students whose care was not funded by the state in 2010. The charter school paid down $143,000.

The audit states the bills were approved by the preschool's director, Kelli DeIaco, who was a member of the board of trustees that oversaw both the preschool and charter. In addition, she is married to Creed Hyatt, who was on the board between 2008 and 2011, a three-year stint that included time as board president.

In addition, Kelli DeIaco's father is Ron DeIaco, a former East Penn School District administrator who worked at Vitalistic for decades until he was named acting CEO and principal this year.

The audit concludes that the bills Kelli DeIaco authorized "essentially constituted" nothing more than illegal loans from the charter school to the center.

"Again making loans to the center was not within the powers granted to the charter school by the legislature," the audit states. "Moreover, the charter school did not have the power to divert money for this purpose from its state-subsidized funds."

The auditor general's report also faulted the administration and trustees for another "illegal" charter-to-preschool loan, which auditors pegged at between $210,146 and $291,979. But the audit states given the "numerous" financial transactions Grossman performed without board approval, "there can be no assurance" of the final loan amount, which the board of trustees eventually forgave.

"Most importantly, the charter school is not authorized under the [charter school law] to make loans to the [preschool], because its public dollars, the audit states.

Vitalistic's board of trustees fired Grossman as head of the charter school and preschool in May 2010, the same month Vitalistic sought a five-year charter renewal from Allentown and Bethlehem. During the renewal process, Vitalistic officials did not informed the districts about the charter's turmoil. Allentown granted renewal; Bethlehem did not; the state did.

In March, Grossman's replacement, Nancy Egan, resigned, alleging the board of trustees and other administrators were undermining her attempts to correct years of fiscal mismanagement. Egan claimed she uncovered payroll and insurance problems and a pile of over-due bills.

After the Allentown and Bethlehem school districts conducted their own Vitalistic investigation, their school boards voted to hold charter revocation hearings in late October.

Meanwhile, Vitalistic has yet to open for the 2012-13 school year. Its school building was sold last month by the defunct preschool to pay off debt. Vitalistic officials have told Bethlehem and Allentown school officials it plans to move to Calvary Baptist Church, 111 Dewberry Ave., in Bethlehem.

But Bethlehem and Allentown officials have not received a signed lease, and Vitalistic has twice postponed the start of school for its roughly 120 students, from Sept. 10 to Monday and then to Wednesday.

The lack of a building has caused Allentown and Bethlehem officials to threaten to withhold Vitalistic's per pupil tuition payments that are due later this month. If the districts do not pay, Vitalistic can petition the Department of Education for direct payment.

In the meantime, Deborah Hartman, Allentown's executive director of special education and lead liaison to charter schools, has tried to find Vitalistic's students and parents. Vitalistic has told her office they have 120 students, but her office has not received current enrollment records.

So Hartman has used last school year's rosters to send letters to parents, inviting them to enroll their children in Allentown schools. The letters also warn their children may not be getting a "free and appropriate public education" under federal law and inform parents they have to abide by state truancy and compulsory education laws.

Hartman said she got nasty responses form some parents while others have enrolled in Allentown schools -- with no special education records from Vitalistic accompanying their children.

Over in Bethlehem, Superintendent Joseph Roy has asked the Department of Education to take over jurisdiction of Vitalistic. In a Sept. 5 letter, Roy said Bethlehem can ill afford to pay for a costly legal fight Vitalistic plans to wage to keep from losing its charter.

Tim Eller, Education Department spokesman, has said the request is under review.

The charter school traces its origins to Vitalistic Therapeutic Center, a nonprofit preschool Grossman founded in the early 1970s in Allentown. The preschool, which was located at 14th and Hamilton streets in the city, served disabled students like Grossman's autistic daughter, Leah, before they could openly and freely attend regular public schools under federal special education laws.

By the mid-1990s, the preschool was running out of funding. Grossman sought to keep the preschool operating through an infusion of tax dollars by starting an independent public school under the state's 1997 charter school law.

In 2001, Grossman succeeded when the Allentown School Board approved her application for a regional charter school and the state Charter Appeal Board overturned Bethlehem's denial of the same charter. The charter's mission was to serve poor, at-risk students, with emotional and learning disabilities, in kindergarten through third grade. The heart of the charter's mission was intensive mental health counseling offered through the partial hospitalization program.

Under Public Welfare regulations, such patients must receive a minimum of three daily hours of medically supervised psychiatric, psychological or other care, including medication, individual, group or family therapy, and recreational, social or vocational activities.

Since its founding, Vitalistic has received more than $20 million in tax dollars to cover the education and Public Welfare components of its charter.

Part of the tax payments include $43,074 in improper lease reimbursements for its old west Bethlehem school building that was owned by the preschool, according to the auditor general's report. The charter school law prohibits lease reimbursements for buildings owned by a charter school or a so-called related party that shares the same administration or board of trustees as Vitalistic and the preschool did.

Other audit findings include Vitalistic not having 75 percent of its staff certified to teach in violation of charter school law. The report also found Vitalistic did not have proper criminal background checks for bus drivers.

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