Objective

To determine whether the costs reported by St. Mary’s Hospital for Children, Inc. (St. Mary’s) on its Consolidated Fiscal Reports (CFRs) were reasonable, necessary, directly related to the special education program, and sufficiently documented under the State Education Department’s (SED) guidelines, including the Reimbursable Cost Manual (RCM) and the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual). The audit focused primarily on expenses claimed on St. Mary’s CFR for the calendar year ended December 31, 2019 and certain expenses claimed on its CFRs for the 2 years ended December 31, 2018.

About the Program

St. Mary’s is a not-for-profit organization authorized by SED to provide full-day Special Class services to children with disabilities between the ages of 3 and 4 years. For the purposes of this report, the program we reviewed is referred to as the SED preschool cost-based program. During calendar year 2019, St. Mary’s served approximately 131 students. To be eligible for reimbursement, reported costs must comply with the RCM requirements. St. Mary’s also operates other programs, including Special Education Itinerant Teacher, Evaluations, 1:1 Aides, Related Services, and Early Intervention. 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. St. Mary’s is a subsidiary of St. Mary’s Healthcare System for Children, Inc., a not-for-profit organization that provides inpatient care, facility-based services, and community programs.

The New York City Department of Education (DOE) refers students to St. Mary’s and pays for its services using rates established by SED. The rates are based on the financial information St. Mary’s reports to SED on its annual CFRs. For the 3 calendar years ended December 31, 2019, St. Mary’s reported approximately $12 million in reimbursable costs for the SED preschool cost-based program.

Key Findings

For the 3 calendar years ended December 31, 2019, we identified $257,142 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $150,752 in overallocated bank charges related to the construction of a new patient care pavilion;
• $90,301 in executive compensation expenses that were above the regional median;
• $8,183 in ineligible expenses including lobbying costs, food for staff, building violations, and vehicle expenses;
• $4,849 in valet parking services that were neither reasonable nor directly related to the SED preschool cost-based program;
• $2,372 in overstated non-mandated fringe benefits; and
• $685 in staffing expenses that were in excess of the approved ratios.

Key Recommendations

To SED:

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

To St. Mary’s:

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