CNR financial probe finds $20 million in unpaid taxes

By Aleesia Forni

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The College of New Rochelle has accrued $20 million in unpaid payroll taxes spanning eight quarters since 2014, according to preliminary findings of a forensic investigation into college finances.

The probe also revealed additional debts and liabilities of $11.2 million, trustees announced in a statement posted to the college’s website on Nov. 1.

College officials said they are exploring their options “to protect the students and preserve the school’s mission.” Closing the 112-year-old Catholic college would be “the very last resort,” they said.

The board placed blame for the school’s financial situation on the school’s controller for failing to file and pay necessary taxes. Additionally, the college’s senior management neglected to provide accurate financial information to the board, trustees said, while an outside auditing firm failed to report the college’s financial issues.

“The financial information that was provided to the board was incorrect, incomplete and lacked transparency,” trustees said.

The board noted that the school’s unmet financial obligations were not discovered until after the college’s controller, Keith Borge, retired last year.

“One of the key focuses of the investigation is why these unmet obligations did not become known until recently and why they were not discovered by a nationally known outside firm that routinely audited the college’s financial statements and situation,” the college’s website reads.

The board discovered the unpaid taxes in September and subsequently appointed a special committee to oversee an investigation and named a chief restructuring officer from the New York City accounting firm Grassi and Associates to restructure and manage the college’s finances.

Trustees also have hired a forensic accountant, PKF O’Connor Davies, and the law firm Pepper Hamilton LLP to conduct the ongoing investigation. The college’s president since 2011, Judith Huntington, resigned in October as the financial probe was publicly announced.

Dorothy Escribano, the college’s former provost and senior vice president for academic affairs, was appointed interim president by the board. Kevin Cavanagh, vice president of enrollment management, was named executive vice president of strategy and planning.

In December 2014, the school was the subject of a federal tax lien by the Internal Revenue Service for failing to pay more than $2 million in Form 941 taxes, which employers use to report income taxes, social security tax or Medicare tax withheld from employee’s paychecks, according to the IRS.

The college was quick to address those unpaid taxes. A certificate of release of the federal tax lien was filed with the Westchester County Clerk’s office in February 2015.

Two other lawsuits were filed with the county clerk’s office earlier this year regarding companies seeking payment from the college.

The college filed a lawsuit in September claiming that DB Systems Corp., a White Plains-based company that has been performing its data services since 1979, agreed to assist in migrating its information systems into a new platform offered by another company. Though the college alleges it has failed to do so, the company billed CNR more than $800,000 for its transfer of information and data. The college alleges that DB Systems has threatened to shut down its remaining information systems, which would leave CNR “paralyzed.”

In February, Brooklyn-based Center for Integrated Teacher Education, a company that offers training, certification and degrees for working professionals, filed a lawsuit claiming it was owed $202,000 for its recruitment of students and for rent costs incurred at sites where classes for those students were held. The college filed a counterclaim, alleging that the company failed to recruit the agreed-upon number of students.

Trustees said that because the tax liability was undisclosed for so long, the board does not have “the normal course of time” to address the situation.

“This is an urgent matter,” CNR officials said in the statement. “The board is diligently examining all feasible options to protect the students and preserve the school’s mission.”

The college is examining possible options with other institutions, though trustees stressed that “the very last resort is closing the college and placing students in other schools.”

In order to avoid closing, the school will need to undergo “significant” cost-cutting measures, including possible administrative and staff cuts. The board said there will be no effect on tuition rates, student resources and activities or academic programs as a result of the school’s financial situation.

Trustees said outside funds and a revamping of its overall practices and procedures will be necessary in order for the college to remain a standalone institution.

“While the full impact of these unmet obligations is not yet clear pending the completion of the investigation, it is clear from the preliminary stages of the investigation that the burden on the college’s operating budget is substantial,” trustees said.

Founded by the Ursuline Sisters in 1904, The College of New Rochelle includes four schools: the School of Arts & Sciences, the School of Nursing and Health Care Professions, the Graduate School and the School of New Resources for adult learners. In addition to its main campus in New Rochelle, it operates five satellite campuses in the New York City boroughs. The former women’s college decided to become fully coeducational in 2015.

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About the author

Aleesia Forni
Aleesia Forni covers transportation, tourism, nonprofits and residential real estate for the Westchester County Business Journal. She previously worked as a financial reporter for the online newsletter Prospect News. She started with the Westchester County Business Journal in April 2016.

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