Purpose

To determine whether the costs reported by Books and Rattles, Inc. (Books and Rattles) on its Consolidated Fiscal Reports (CFRs) were reasonable, necessary, directly related to the special education program, and sufficiently documented pursuant to the State Education Department’s (SED) Reimbursable Cost Manual (Manual). The audit included all expenses claimed on Books and Rattles’ CFR for the fiscal year ended June 30, 2014, and certain expenses claimed on Books and Rattles’ CFRs for the two fiscal years ended June 30, 2013.

Background

Books and Rattles is a New York City-based for-profit organization authorized by SED to provide full-day Special Class (SC) and full-day Special Class in an Integrated Setting (SCIS) preschool special education services to children with disabilities who are between the ages of three and five years. For purposes of this report, these programs are collectively referred to as the SED costbased programs. During the 2013-14 school year, Books and Rattles served about 139 students. The New York City Department of Education (DoE) refers students to Books and Rattles based on clinical evaluations, and pays for Books and Rattles’ services using rates established by SED. The rates are based on the financial information that Books and Rattles reports to SED on its annual CFRs. SED reimburses DoE for a portion of its payments to Books and Rattles based on statutory rates. Reimbursable costs must be reasonable, necessary, directly related to the special education program, and sufficiently documented. For the three fiscal years ended June 30, 2014, Books and Rattles reported approximately $9.7 million in reimbursable costs for the audited cost-based programs.

In addition to the SC and SCIS cost-based preschool special education programs, Books and Rattles operated another SED-approved preschool special education program: 1:1 Aides. However, payments for services under this program were based on fixed fees, as opposed to the cost-based rates established through CFR-reported financial information. Furthermore, Books and Rattles’ Executive Director owns a related company (Green Educational Services, LLC), which operates private day care programs in the same locations as the SED cost-based programs. Books and Rattles also received monetary grants from other governmental sources.

Key Findings

For the three fiscal years ended June 30, 2014, we identified $242,357 in reported costs that did not comply with the Manual’s requirements and recommend that such costs be disallowed. The ineligible costs included $115,949 in personal service costs and $126,408 in other than personal service costs. Among them were:

• $60,690 in unsupported compensation, including $46,684 paid to employees of another organization;
• $57,097 in vehicle expenses that did not comply with the Manual’s requirements;
• $39,226 in unsupported expenses, including $10,806 in classroom supplies and $6,671 in repairs and maintenance expenses; and
• $39,027 in unsupported allocated costs for shared employees.

Key Recommendations

To SED:

• Review the recommended disallowances identified by our audit and, if warranted, make the appropriate adjustments to the costs reported on Books and Rattles’ CFRs and to Books and Rattles’ tuition reimbursement rates.
• Work with Books and Rattles officials to help ensure their compliance with the provisions in the Manual.

To Books and Rattles:

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

Other Related Audits/Reports of Interest

Milestone School for Child Development: Compliance With the Reimbursable Cost Manual (2014-S-37)
Whitestone School for Child Development: Compliance With the Reimbursable Cost Manual (2014-S-38)