Purpose

To determine whether the costs reported by The Arc of Orange County (Arc Orange) on its Consolidated Fiscal Reports (CFRs) were properly calculated, adequately documented, and allowable under the State Education Department’s (SED) guidelines, including the Reimbursable Cost Manual (RCM). We audited costs that Arc Orange reported on its CFR for the year ended December 31, 2013. In addition, we expanded our audit work to review certain costs that Arc Orange reported on its CFR for the year ended December 31, 2012.

Background

Arc Orange is an SED-approved, not-for-profit special education provider located in Orange County, New York. Arc Orange provides preschool special education services to children with disabilities who are between the ages of three and five years. Arc Orange is reimbursed for preschool special education services through rates set by SED. The reimbursement rates are based on financial information, including costs, that Arc Orange reports to SED on its annual CFR. To be eligible for reimbursement, reported costs must comply with RCM requirements. For the calendar year ended December 31, 2013, Arc Orange reported over $5.5 million in reimbursable costs on its CFR for four rate-based preschool special education programs (Programs).

Key Findings

For the two years ended December 31, 2013, we identified $94,969 in ineligible costs that Arc Orange reported on its CFRs for the Programs. The ineligible costs included:

• $70,950 in personal service costs, which consisted of $69,310 in severance pay and $1,640 for staff service awards; and
• $24,019 in other than personal service costs, which consisted of $18,606 in costs that were not related to the Programs, $3,474 in food, $1,206 in gifts, $437 in retainer fees, and $296 in other non-reimbursable costs.

Key Recommendations

To SED: 

• Review the disallowances identified by our audit and make the necessary adjustments to the costs reported on Arc Orange’s CFRs and to Arc Orange’s tuition reimbursement rates, as appropriate.
• Remind Arc Orange officials of the pertinent SED guidelines that relate to the deficiencies we identified.

To Arc Orange:

• Ensure that costs reported on annual CFRs fully comply with SED’s requirements, and communicate with SED to obtain clarification as needed.

Other Related Audits/Reports of Interest

State Education Department: Rivendell School - Compliance With the Reimbursable Cost Manual (2015-S-25)
State Education Department: Starting Point Services for Children - Compliance With the Reimbursable Cost Manual (2014-S-64)