TRENTON – The Educational Services Commission of New Jersey (ESCNJ) amassed a surplus that ballooned to more than $69 million, without an official plan for the money and without seeking to return any of the excess taxpayer funds to the school districts and municipalities it serves, according to a newly released audit by the New Jersey Office of the State Comptroller.

ESCNJ, which serves more than 700 school districts and local governments, has an official mission to save tax dollars by providing educational and business services cost-efficiently. OSC’s audit found, however, that ESCNJ regularly collected revenues that “substantially” exceeded actual costs and accumulated a surplus that jumped from $32.8 million in fiscal year 2020 to $69.6 million in fiscal year 2023.  By comparison, other ESCs in New Jersey maintain relatively stable fund balances, with most falling far below $30 million, OSC’s report said.

Other deficiencies identified in OSC’s audit include:

• ESCNJ improperly awarded seven contracts, with a combined value of about $14.6 million, without seeking competition.
• ESCNJ failed to consider alternative health insurance providers. OSC’s analysis found ESCNJ could have potentially saved a total of about $1 million over three years by using the School Employees Health Benefits Program (SEHBP).
• ESCNJ paid $343,000 more in medical claims than was actually billed in FY 2023.

Additionally, public entities are required to submit procurements, valued at $2.5 million or more, to OSC for review, in order to ensure compliance with procurement laws and guard against cronyism, corruption, and waste. ESCNJ never submitted contracts, despite receiving multiple notices from OSC directing ESCNJ to do so. 

“The routine lack of compliance with procurement laws and sound financial controls is a red flag because it raises the risk of waste,” said Acting State Comptroller Kevin Walsh. “And when an entity has tens of millions of dollars sitting around, along with these red flags, the potential for waste grows exponentially."

Founded in 1977, ESCNJ says it is now the largest of the state’s ten educational service commissions, with revenues of more than $147 million in FY 2023. It operates six special education schools, provides bus service for 14,000 students, and manages a cooperative purchasing program that procures for members everything from computers to commodities, like electricity.

By law, school districts are subjected to statutory limits on the amount of general fund balance they can maintain from one year to the next. ESCs are not subject to these legal constraints. According to OSC’s report, ESCNJ said it deliberately grew its fund balance in order to have adequate funds for operations and future capital projects. However, OSC found ESCNJ had no officially approved plans for capital projects, nor did it have a process or policy in place to identify how much general fund balance is necessary to maintain or when to return funds or reduce fees when revenues far exceed what is spent. As a result, the ESCNJ fund balance grew to more than $69 million in FY 2023 and likely resulted in higher costs for local governments, school districts, and taxpayers.

OSC also found that ESCNJ hired seven professional services firms and consultants, paying them a total of $14.6 million, without using a competitive procurement process or obtaining the documentation required by the Public School Contracts Law. OSC found that reduced the likelihood that ESCNJ secured the best deal for taxpayers. One of those seven vendors –a lobbying firm – was paid $42,000 in fiscal year 2022 but ESCNJ was unable to produce a contract or substantiate the necessity of retaining a lobbying firm. The firm’s invoices also did not contain any itemized description of services rendered.

In New Jersey, public entities, including ESCs, are required to submit procurements exceeding $2.5 million for OSC’s review; if the contracts are valued at $12.5 million or more, the agencies must seek OSC’s review and approval before even seeking proposals. OSC found that ESCNJ had never submitted a contract for OSC’s review until 2024 when it received a draft of this report. In FY 2021 and FY 2022 alone, ESCNJ failed to submit about 43 contracts, valued at more than $900 million, OSC found.

OSC made 12 recommendations.

Read the report.

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To report government fraud, waste, mismanagement or corruption, file a complaint with OSC or call 1-855-OSC-TIPS.