Purpose

To determine whether the costs reported by Hawthorne Foundation, Inc. (Hawthorne) on its Consolidated Fiscal Report (CFR) were properly calculated, sufficiently documented, and allowable under the State Education Department’s (SED) guidelines, including the Reimbursable Cost Manual (RCM). The audit covered the fiscal year ended June 30, 2015.

Background

Hawthorne is an SED-approved, not-for-profit special education provider located in Westchester County, New York. Hawthorne provides preschool special education services to children with disabilities who are between three and five years of age. Hawthorne is reimbursed for preschool special education services through rates set by SED. The reimbursement rates are based on financial information, including costs, that Hawthorne reports to SED on its annual CFR. To be eligible for reimbursement, reported costs must comply with RCM requirements. For the fiscal year ended June 30, 2015, Hawthorne reported approximately $2.8 million in reimbursable costs on its CFR for one rate-based preschool special education program that it operated.

Key Findings

For the fiscal year ended June 30, 2015, we identified $75,189 in ineligible costs that Hawthorne reported on its CFR for the rate-based preschool special education program that it operated. The ineligible costs included:

• $56,619 in personal service costs for insufficiently documented staff time; and
• $18,570 in other than personal service costs, which consisted of $11,419 in expensed equipment that was not properly capitalized and depreciated; $4,483 in non-program-related expenses; $1,378 in real estate taxes that was not properly allocated; and $1,290 in other nonreimbursable expenses.

We also determined Hawthorne did not disclose related-party transactions with three entities on its CFR, as required.

Key Recommendations

To SED:

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

To Hawthorne:

• Ensure that costs and staff hours reported on annual CFRs fully comply with SED’s requirements, and communicate with SED to obtain clarification as needed.
• Ensure related-party transactions are properly disclosed on the CFR in accordance with SED’s requirements.

Other Related Audits/Reports of Interest

State Education Department: The Alcott School - Compliance With the Reimbursable Cost Manual (2015-S-97)
State Education Department: Westchester Community Opportunity Program, Inc. - Compliance With the Reimbursable Cost Manual (2016-S-33)