Purpose

To determine whether the costs reported by Gateway-Longview, Inc. (Gateway) to the State Education Department (SED), Office of Children and Family Services (OCFS), Office of Mental Health (OMH) and Department of Health (DOH) were properly calculated, adequately documented and allowable under the respective governing guidelines of these State agencies. This audit covered the period July 1, 2008 through June 30, 2011.

Background

Gateway, located in Buffalo, New York, is a not-for-profit organization that provides supportive, educational, housing and substitute care services for children, youth and families. Gateway receives funding from multiple sources including SED, OCFS, OMH and DOH. These agencies have issued manuals and guidelines to provide direction on reimbursable costs. For the three fiscal years ended June 30, 2011, Gateway received about $68.6 million in revenue from government sources.

Key Findings

For our audit period, we disallowed a total of nearly $2.4 million in ineligible costs, including costs lacking required documentation and/or sufficient details of the charges. Gateway routinely entered into business transactions with companies affiliated with members of Gateway’s Board of Directors without competitive bidding or evidence that transactions were fair and reasonable. The cost of these related-party transactions totaled $7,042,903. We disallowed $1,999,744 for the amounts charged to the programs.

• We also disallowed $378,946 for items such as expenses lacking documentation; expenses that were not program-related; and expenses for ineligible items such as food, flowers, personal expenses and gifts for staff. These disallowances also included $64,110 in payments for car and cell phone allowances for Gateway’s former Chief Executive Officer and other officials. These costs were inappropriate, not properly documented and/or not reimbursable.
• We also questioned certain actions involving Gateway’s Board of Directors that pertain to the related-party business arrangements. Based on these actions, we concluded that significant improvements in the Board’s conduct are needed to ensure the financial and programmatic integrity of Gateway’s programs in the future. In addition, we questioned $792,704 in interest costs on loans to cover operating losses.

Key Recommendations

• SED, OCFS, OMH and DOH should follow up on the inappropriate and unsupported expenses identified in our report, revise the reimbursement rates for Gateway and seek restitution, as appropriate.
• Direct Gateway to ensure that board members avoid conflicts of interest and annually file written disclosures of any business involvement with Gateway or related parties.

Other Related Audits/Reports of Interest

State Education Department: Westchester School for Special Children - Compliance With the Reimbursable Cost Manual (2011-S-41)
Office of Children and Family Services/State Education Department: Maintenance and Tuition Payments to the Lake Grove School and Mountain Lake Children’s Residence (2009-S-90)