Purpose

To determine whether the costs reported by Kidz Therapy Services PLLC (Kidz Therapy) 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 covered expenses claimed on Kidz Therapy’s CFR for fiscal year 2011-12 and certain expenses claimed on Kidz Therapy’s CFRs for fiscal years 2012-13 and 2013-14.

Background

Kidz Therapy is a Nassau County based for-profit organization authorized by SED to provide Special Education Itinerant Teacher (SEIT) and other preschool special education programs to disabled children between the ages of three and five years. During the 2013-14 school year, Kidz Therapy served about 200 students. Local school districts refer students to Kidz Therapy based on clinical evaluations and pay for their services using rates established by SED. The rates are based on the financial information that Kidz Therapy reports to SED on its annual CFRs. Reimbursable costs must be reasonable, necessary, program-related, and properly documented. SED reimburses the school districts for a portion of their payments to Kidz Therapy based on statutory rates. For the three fiscal years beginning July 1, 2011 and ended June 30, 2014, Kidz Therapy reported approximately $4.77 million in reimbursable costs for its SEIT Program.

In addition to the SEIT Program, Kidz Therapy operated two other SED-approved preschool special education programs: Evaluations and Related Services. However, payments for services under these two programs were based on fixed fees, as opposed to cost-based rates established through CFR reported financial information. Kidz Therapy also operates an affiliated entity, Gayle E. Kligman Therapeutic Resources (GEK), which offers evaluations, other services, and programming options for school-age children who are not eligible for services through their local school districts, as well as services for children who are not eligible for services through the Early Intervention or Preschool Programs.

Key Findings

For the three fiscal years ended June 30, 2014, we identified $249,850 in reported costs that did not comply with the Manual’s requirements and recommend such costs be disallowed. These ineligible costs included $240,553 in personal service costs and $9,297 in other than personal service (OTPS) costs, as follows:

• $164,004 in ineligible compensation. Kidz Therapy overstated the number of hours eligible for allocation to the SEIT program;
• $37,041 in pension expenses that did not comply with the applicable provision of the Manual;
• $17,300 in bonuses to employees who served in non-direct care titles. Bonus compensation is restricted only to direct care employees;
• $16,025 in ineligible expenses, including $13,225 in fringe benefits for employees of a related entity, $2,149 in life insurance premiums, and $651 in health insurance expenses for a former employee;
• $9,297 in OTPS costs that did not comply with the Manual’s requirements; and
• $6,183 in excess compensation to certain Kidz Therapy employees.

Key Recommendations

To SED:

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

To Kidz Therapy:

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

Other Related Audits/Reports of Interest

State Education Department: Starting Point Services for Children - Compliance With the Reimbursable Cost Manual (2014-S-64)
State Education Department: Kew Gardens SEP, Inc. - Compliance With the Reimbursable Cost Manual (2014-S-63)