Purpose

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

Background

HeartShare is a New York City-based not-for-profit organization authorized by SED to provide preschool special education services to children with disabilities who are between the ages of three and five years. During the 2013-14 school year, HeartShare served about 318 students. The New York City Department of Education (DoE) refers students to HeartShare and pays for its services using rates established by SED. The DoE is reimbursed by SED for a portion of its payments to HeartShare. For the three fiscal years ended June 30, 2014, HeartShare reported approximately $38 million in reimbursable costs for the SED preschool cost-based programs. In addition to the SED programs, HeartShare operates several New York State Office for People with Developmental Disabilities (OPWDD) programs, a Universal Pre-Kindergarten program, and two subsidiaries: St. Vincent’s Services and Wellness Inc.

Key Findings

For the three fiscal years ended June 30, 2014, we identified $1,529,789 in reported costs that did not comply with the Manual’s requirements, as follows:

• $891,018 in non-program expenses for compensation paid to 71 individuals who did not work for HeartShare’s SED preschool cost-based programs. These individuals provided services to HeartShare’s fixed-fee, OPWDD, and St. Vincent’s Services programs;
• $204,855 in ineligible employee bonuses that did not comply with SED’s reimbursement requirements;
• $201,237 in over-allocated expenses, including $60,338 in personal service costs and $140,899 in other than personal service costs. These expenses should have been allocated to HeartShare’s fixed-fee and Wellness Inc. programs;
• $118,199 in ineligible compensation to HeartShare’s Executive Director, Assistant Executive Director, and Chief Financial Officer. The compensation for the three executives exceeded SED’s reimbursement limits for the preschool cost-based programs;
• $63,675 in expenses for non-auditing services. According to SED’s guidelines, these expenses were not reimbursable; and
• $50,805 in other ineligible and insufficiently documented expenses, including costs for consulting, advisory, and pre-merger services; as well as the cost of food for staff.

Key Recommendations

To SED:

• Review the recommended disallowances resulting from our audit and make the appropriate adjustments to HeartShare’s CFRs and tuition reimbursement rates, as warranted.
• Work with HeartShare’s officials to ensure their compliance with SED’s reimbursement requirements.

To HeartShare:

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

Other Related Audits/Reports of Interest

New York League for Early Learning, Inc.: Compliance With the Reimbursable Cost Manual (2015-S-43)
Books and Rattles, Inc.: Compliance With the Reimbursable Cost Manual (2016-S-25)