Purpose

To determine whether the costs reported by Mid Island Therapy Associates LLC (Mid Island), aka All About Kids, 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 Mid Island’s CFR for the fiscal year 2012-13, and certain expenses claimed on Mid Island’s CFRs for the two fiscal years ended June 30, 2012.

Background

Mid Island is a for-profit organization authorized by SED to provide, among other programs, a preschool Special Education Itinerant Teacher (SEIT) program to disabled children between the ages of three and five years. During the 2012-13 school year, Mid Island served approximately 271 students. Local school districts refer preschool special education students to Mid Island’s programs based on clinical evaluations. The counties pay for the preschool special education services Mid Island provides using rates established by SED. The rates are based on the financial information that Mid Island reports to SED on its annual CFRs. The State, in turn, reimburses the counties 59.5 percent of the tuition paid by the counties. Reimbursable costs must be reasonable, necessary, program-related, and properly documented. For the fiscal year ended June 30, 2013, Mid Island reported approximately $3 million in reimbursable costs to the SEIT program. 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 $655,055 in reported costs that did not comply with the Manual’s requirements and recommend such costs be disallowed. These ineligible costs included $621,191 in personal service costs and $33,864 in other than personal service (OTPS) costs, as follows:

• $466,575 in over-allocated salaries and fringe benefits charged to the SEIT program;
• $147,121 in non-allowable 2012-13 retroactive salary increases that were paid in April and May 2014;
• $33,864 in non-reimbursable OTPS costs; and
• $7,495 in employee bonuses that were not in compliance with the Manual’s guidelines.

Key Recommendations

To SED:

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

To Mid Island:

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

Other Related Audits/Reports of Interest

State Education Department: Whitestone School for Child Development - Compliance With the Reimbursable Cost Manual (2014-S-38)
State Education Department: Institutes of Applied Human Dynamics - Compliance With the Reimbursable Cost Manual (2014-S-39)