Objective

To determine whether the costs reported by Omni Childhood Center, Inc. (Omni) 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 (RCM) and the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual). The audit focused primarily on expenses claimed on Omni’s CFR for the fiscal year ended June 30, 2015 and certain expenses claimed on its CFRs for the two fiscal years ended June 30, 2014.

About the Program

Omni is a New York City-based proprietary organization authorized by SED to provide preschool Special Education Itinerant Teacher (SEIT) services to children with disabilities who are between the ages of 3 and 5 years. During the 2014-15 school year, Omni served approximately 518 students. Omni also operated another SED-approved preschool special education program (Evaluations) and a Department of Health Early Intervention program. However, payments for services under these programs are based on fixed fees, as opposed to the cost-based rates established through financial information reported on CFRs. In addition, Omni shares services, building space, and teaching and administrative staff with another proprietary institution, Feigi Taub Halberstam Audiology and Speech Pathology, P.C. (FTH), owned by the same individuals who own Omni. FTH provides occupational therapy, speech therapy, audiology, and hearing aid services.

The New York City Department of Education refers students to Omni and pays for its services using rates established by SED. The rates are based on the financial information Omni reports to SED on its annual CFRs. For the three fiscal years ended June 30, 2015, Omni reported approximately $29.4 million in reimbursable costs for the SEIT cost-based program.

Key Findings

For the three fiscal years ended June 30, 2015, we identified $1,588,037 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $488,549 in legal expenses that were not related to the SEIT preschool cost-based program;
• $249,930 in compensation expenses that were overallocated to the SEIT preschool cost-based program;
• $245,526 in non-reimbursable property-related expenses, including $162,739 in overallocated property rental expenses and $82,787 in non-program-related and overallocated expenses;
• $183,027 in unsupported compensation expenses that were charged to the SEIT preschool cost-based program;
• $162,530 in non-program-related compensation expenses that were charged to the SEIT preschool cost-based program;
• $141,596 in non-reimbursable accounting costs, including $122,311 in expenses that were insufficiently documented, $12,782 in unsupported accounting expenses, and $6,503 in ineligible non-audit services that were provided during the same 365-day period of required audit work;
• $43,405 in non-mandated fringe benefits that were not in compliance with RCM requirements, including $40,361 in benefits that were not proportionally similar to those provided for other employees and $3,044 in benefits that were incorrectly allocated to the SEIT preschool cost-based program;
• $38,322 in consulting fee expenses that did not comply with RCM requirements; and
• $35,152 in ineligible expenses, including $26,105 in personal Internet service fees and $9,047 in other expenses that were either not adequately supported, not program related, or overallocated.

Key Recommendations

To SED:

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

To Omni:

• Ensure that costs reported on annual CFRs fully comply with SED’s requirements, and communicate with SED to obtain clarification, as needed.