Purpose

To determine whether the costs reported by the Sunshine Developmental School on its Consolidated Fiscal Reports (CFRs) were allowable and properly documented pursuant to the State Education Department’s (SED) Reimbursable Cost Manual (Manual). The audit included all expenses claimed for the three fiscal years ended June 30, 2011.

Background

The Sunshine Developmental School (Sunshine Developmental) provides special education and integrated therapeutic preschool programs for about 600 children between the ages of three and five years in the New York City boroughs of Brooklyn, Queens, and the Bronx. Sunshine Developmental’s special education programs (Programs) are funded by the New York City Department of Education (DoE), as well as other school districts and counties whose children are served by its special education programs. The DoE and other localities reimburse Sunshine Developmental via tuition payments based on reimbursement rates set by SED. SED periodically revises these rates based on the financial information reported by Sunshine Developmental on its annual CFRs. SED issued the Manual to provide guidance to special education providers on the eligibility of reimbursable costs and the documentation necessary to support those costs. SED reimburses the DoE and other localities for a portion of their payments to Sunshine Developmental. Sunshine Developmental reported Programs-related costs of about $27 million for the three fiscal years ended June 30, 2011.

Key Findings

We identified $1,776,434 in unsupported and/or inappropriate costs charged to the Programs we audited. The ineligible charges include personal service costs totaling $1,392,542 and nonpersonal service costs totaling $383,892. Specifically, Sunshine Developmental improperly claimed:

• $1,375,964 in compensation paid to individuals for services provided to business affiliates of Sunshine Developmental. The services in question did not support the audited Programs;
• $16,578 of unsupported payroll charges; and
• $157,873 in non-reimbursable legal and lobbying fees; $53,732 to a contractor for undocumented services; and $172,287 in over-allocated and/or undocumented miscellaneous expense charges.

Key Recommendations

To SED:

• Review the disallowances identified in this report and, considering any previous SED disallowances, adjust Sunshine Developmental’s CFRs and tuition rates as appropriate.
• Work with Sunshine Developmental officials to help ensure that only eligible costs are included on their CFRs.

To Sunshine Developmental:

• Ensure that costs reported on any CFRs prepared after the scope period comply with Manual requirements.

Other Related Audits/Reports of Interest

State Education Department: Bilingual SEIT & Preschool, Inc. - Compliance With the Reimbursable Cost Manual (2011-S-13)
State Education Department: IncludED Educational Services, Inc. - Compliance With the Reimbursable Cost Manual (2010-S-59)