Purpose

To determine whether the costs reported by Starting Point Services for Children (Starting Point) on its Consolidated Fiscal Reports (CFRs) were properly documented, program related, and allowable pursuant to the State Education Department’s (SED) Reimbursable Cost Manual (Manual). The audit included all expenses claimed on Starting Point’s CFR for the fiscal year ended June 30, 2013, and certain expenses claimed on Starting Point’s CFRs for the two fiscal years ended June 30, 2012.

Background

Starting Point is a Brooklyn, New York-based not-for-profit organization that is authorized by SED to operate, among other SED-approved programs, the Preschool Special Education Itinerant Teacher (SEIT) and Special Class Integrated Setting (SCIS) programs to disabled children between the ages of three and five years. During the 2012-13 school year, Starting Point served 942 students. The New York City Department of Education (DoE) refers students to Starting Point based on clinical evaluations and pays for their services using rates established by SED. The rates are based on the financial information that Starting Point reports to SED on its annual CFRs. SED reimburses DoE for a portion of its payments to Starting Point based on statutory rates. For the fiscal year ended June 30, 2013, Starting Point reported approximately $16.4 million in reimbursable costs for the audited programs. Our audit scope period focused primarily on fiscal year 2012-13. However, we expanded our review to include certain items claimed on the CFRs for fiscal years 2010-11 and 2011-12.

Key Findings

For the three fiscal years ended June 30, 2013, we identified $2,585,454 in reported costs that did not comply with Manual requirements and recommend such costs be disallowed. These ineligible costs included $2,228,711 in personal service costs and $356,743 in other than personal service costs. Among the disallowances we identified were:

• $1,981,802 in non-reimbursable shared staff compensation costs. This included $1,502,245 in ineligible salaries and $479,557 in related fringe benefits because Starting Point overstated the number of SEIT hours allocable to the programs we reviewed by 34,810 hours;
• $310,136 in inadequately documented consulting costs. The consultant’s invoices did not indicate the specific services provided and the hourly fee charged, as otherwise required by the Manual;
• $173,539 in unsupported bonuses to staff. This bonus compensation (for 33 employees) was not supported by performance evaluations, as required by the Manual;
• $70,078 in non-program (for Related Services) costs; and
• $49,899 in misclassified costs, food costs, and other ineligible costs.

Key Recommendations

To SED:

• Review the recommended disallowances resulting from our audit and make the appropriate adjustments to Starting Point’s CFRs and reimbursement rates.
• Work with Starting Point officials to help ensure their compliance with Manual provisions.

To Starting Point:

• Ensure that costs reported on future CFRs comply with all Manual requirements.

Other Related Audits/Reports of Interest

Bilingual SEIT and Preschool, Inc.: Compliance with the Reimbursable Cost Manual (2011-S-13)
IncludED Educational Services, Inc.: Compliance with the Reimbursable Cost Manual (2010-S-59)