Federal auditors want the Newark non-profit that ran the city's Head Start program for a half century to refund $10 million in taxpayer money, claiming the agency "inflated" its enrollment numbers.
But officials with the now-defunct Newark Preschool Council Inc. say the group is bankrupt and has no way to return money already paid to teachers and other staff for work done several years ago.
They also insist their enrollment reports were accurate, and they had met their obligation to serve nearly 2,500 preschoolers at more than 30 locations in the city.
Head Start sites in Newark are now operated by other non-profit groups, particularly La Casa de Don Pedro and The Leaguers.
An audit by the Office of Inspector General of the U.S. Department of Health and Human Services looked at 17 months of Newark Preschool Council's Head Start program from 2013 through 2014.
In a report issued last week, auditors said the Council misrepresented the number of children it reached, falling about 35 percent below the "inflated" number listed in its reports.
Since its federal grant was based on the number of children served, the audit concluded the agency should refund nearly $10 million in grant money.
Newark Preschool was one of the original Head Start sites, opening in 1965 when the landmark education program burst on the scene. Its federal contract was automatically renewed every year until 2014, when it was denied a renewal.
That stemmed from a dispute about the proper oversight of one of the daycare centers they partnered with.
Newark briefly sued the federal government over the funding withdrawal, but withdrew its lawsuit a few months later to focus on closing out the program and transitioning its operations to other community groups.
"We had to begin to look at cutting our losses for the betterment of the kids," said Patrick Council, president of the community board affiliated with the organization. "Once you lose the federal grant, it really vanquishes your economic power to sustain and run an organization."
That had a cascading effect: Once the agency lost its big federal Head Start grant, it no longer had access to the outside vendor's enrollment software it had used when it was up and running, Council said.
That meant it couldn't provide auditors with proof its true enrollment. Instead, it had to rely on lower figures compiled through the school system's records for children attending so-called "Abbott" preschools.
The federal auditors were told about the agency's inability to access its old enrollment data, but chose to ignore that, he said.
"They were trying to say we owe them all that money. But that's not true," Council said.
Newark Preschool was hoping it could get its grant back as late as 2015, but then heard through the grapevine that other local agencies were in the running to become the main providers of Head Start.
Faced with a bleak future, the agency filed for bankruptcy last October. It listed about $300,000 in assets beyond the properties it had purchased. Its liabilities were mortgage payments for those properties, pension payments, and unused sick pay owed to many of its 600-plus workers.
Calls to the group's bankruptcy attorneys were not returned Friday.
Kathleen O'Brien may be reached at kobrien@njadvancemedia.com. Follow her on Twitter @OBrienLedger. Find NJ.com on Facebook.
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