Special-needs scholarship fund shows favoritism, audit finds

Palmetto Kids First helps provide scholarships for children with special needs to attend private schools like Trident Academy, which specializes in educating students with ADHD, dyslexia and autism-spectrum disorders.

Palmetto Kids First, a publicly subsidized organization that gives private-school scholarships to South Carolina students with special needs, has been granting scholarships to the children of donors, according to a recent S.C. Department of Revenue audit.

“The Department ultimately determined that 100 percent of the children whose parents donated to PKF received scholarships, whereas the Department has some evidence that children with parents who did not donate to PKF did not receive scholarships,” the audit report stated.

Olga Lisinska, executive director of Palmetto Kids First, said the audit report’s finding of a “quid pro quo” arrangement was misleading. In 2014, the year that was scrutinized in the audit, Lisinska said her organization was able to fund scholarships for every eligible applicant.

“Every single applicant got a scholarship, whether they donated or not,” Lisinska said. A Revenue Department spokeswoman said she was unable to confirm that assertion.

The audit also found that Palmetto Kids First violated tax-exempt laws by overpaying the contracting company Scholarship Services, LLC. The company listed Lisinska as its registered agent in state filings, shared a private post office box in Mount Pleasant with Palmetto Kids First and was incorporated the day before it entered the contract with Palmetto Kids First.

In a February 2014 letter to the nonprofit’s board of directors, Lisinska wrote that Scholarship Services “agrees to discount its fees and reimbursable expenses.” The nonprofit paid the company more than $132,000 over four months for what a contract described as “a turnkey management solution,” according to the report.

The Revenue Department sent its audit findings to Palmetto Kids First on Oct. 19 and gave the organization 30 days to correct its violations.

Reached on Tuesday, Revenue spokeswoman Ashley Thomas said Palmetto Kids First “has taken some steps toward compliance.”

Even though Lisinska disputed some of the audit’s findings, she said her organization now has separate scholarship and fundraising committees. And despite disagreeing about the legitimacy of the contract with Scholarship Services, LLC, she said her organization has ended that business relationship.

“The Department of Revenue said they didn’t like that, and we said, ‘OK, whatever you say,’ ” Lisinska said.

Lisinska and her husband, R. Jefferson Davis Jr., were previously involved with a similar scholarship program in Georgia. A proviso in the 2014-2015 state budget prohibited Davis from working for a scholarship funding organization because he had declared bankruptcy.

According to Lisinska, Davis does not have a role in the nonprofit, despite the audit finding he was involved with fundraising and scholarship distribution. One March 2015 Facebook photo showed him and Lisinska handing a giant check to school officials in Ridgeway.

Palmetto Kids First owes its existence to a legislative push for public funding of private schools. The scholarship fund has grown in popularity since a 2013 state law allowed it and three other scholarship funding organizations — two of which support religious schools — to grant donors a dollar-for-dollar tax credit on their state income tax returns.

That tax credit makes the fund attractive for donors, but it also makes it an inefficient way to fund education. A 2014 Post and Courier analysis found that some wealthy donors could receive up to $1.42 in tax savings for every $1 they donated to the scholarship program, thanks to additional federal tax deductions.

Under the most recent state budget proviso, Palmetto Kids First is allowed to issue up to $8 million in tax credits per year. Lisinska said her organization maxed out that amount after three weeks of fundraising last year.

“Instead of sending a check to the Department of Revenue and not knowing where the money is going, they know when they send the check to us that the money is supporting special-needs children,” Lisinska said.

S.C. Sen. Larry Grooms, R-Charleston, introduced a bill in 2015 that would establish the scholarship program permanently in state law and increase the available tax credits from $8 million to $25 million. The House has since passed a similar bill, and Grooms said he is hopeful that it will pass in the Senate.

Grooms said Wednesday he had not seen the full audit report, but that the Revenue Department should prosecute for fraud if they have evidence of a quid pro quo.

“I believe the program is working and working well, but if there are any issues where you have a scholarship organization or even a parent filing fraudulent documents, the Department of Revenue has an obligation to follow up and to make sure everyone is in compliance with the law,” Grooms said.

Reach Paul Bowers at (843) 937-5546 or twitter.com/paul_bowers.

A previous version of this story needed to be clarified.