Purpose

To determine whether the costs reported by North County Kids, Inc. (North Country) 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). The audit covered expenses reported on North Country’s CFR for the fiscal year ended June 30, 2014, and certain expenses reported on North Country’s CFR for the fiscal year ended June 30, 2013.

Background

North Country is an SED-approved, for-profit special education provider located in Clinton County, New York. North County provides preschool special education services to children with disabilities who are between three and five years of age. North Country is reimbursed for preschool special education services through rates set by SED. The reimbursement rates are based on financial information, including costs, that North Country reports to SED on its annual CFR. To be eligible for reimbursement, reported costs must comply with the RCM requirements. For the two fiscal years ended June 30, 2014, North Country reported $2.6 million in reimbursable costs on its CFRs for the rate-based preschool special education programs (Programs) it operated.

Key Findings

For the two years ended June 30, 2014, we identified $79,084 in ineligible costs that North Country reported on its CFRs for the Programs. The ineligible costs included:

• $69,272 in other than personal service costs, which consisted of $54,694 in less-than-arm’slength lease expenses, $5,791 in non-reimbursable interest expense, $5,580 in ineligible life insurance expenses, and $3,207 in other non-reimbursable expenses that included food, gifts, charitable donations, and expenses that lacked sufficient documentation; and
• $9,812 in personal service costs, which consisted of $8,579 in ineligible bonuses and $1,233 in incorrectly allocated salary and fringe benefit costs.

Key Recommendations

To SED:

• Review the disallowances identified by our audit and, if warranted, make the necessary adjustments to the costs reported on North Country’s CFRs and to North Country’s tuition reimbursement rates.
• Remind North Country officials of the pertinent SED requirements that relate to the deficiencies we identified.

To North Country:

• 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

HTA of New York, Inc.: Compliance With the Reimbursable Cost Manual (2016-S-36)
Jowonio, Inc.: Compliance With the Reimbursable Cost Manual (2016-S-48)