Objective

To determine whether the costs reported by Liberty Resources, Inc. (LRI) 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 covered expenses reported on LRI’s CFRs for the 2 fiscal years ended June 30, 2021.

About the Program

LRI is a not-for-profit special education provider located in Rochester that serves students in Monroe and Wayne counties. LRI is authorized by SED to provide Preschool Special Class (2.5 hours per day) and Preschool Integrated Special Class (2.5 hours per day) education services to children with disabilities who are between the ages of 3 and 5 years. For the purposes of this report, these programs are referred to as SED preschool cost-based programs. LRI also operated other SED-approved preschool special education programs including Special Education Itinerant Teacher services and 1:1 Aides. However, payments for services under these programs are based on fixed fees, as opposed to the cost-based rates established using CFR-reported financial information. During the 2020–2021 school year, LRI served 195 preschool children in the SED preschool cost-based programs.

The counties that use LRI’s preschool special education services pay tuition to LRI using reimbursement rates set by SED. The State, in turn, reimburses the counties for a portion of the tuition paid. SED sets the special education rates based on financial information, including costs, that LRI reports to SED on its annual CFRs. For the 2 fiscal years ended June 30, 2021, LRI reported approximately $5.54 million in reimbursable costs for the SED preschool cost-based programs.

Key Findings

For the 2 fiscal years ended June 30, 2021, we identified $38,336 in reported costs that did not comply with the requirements in the RCM and CFR Manual, as follows:

• $36,187 in expenses that were ineligible for reimbursement, including amortization of goodwill, payments to the previous owner for a non-compete agreement, gifts, and food for staff.
• $1,322 in salaries and fringe benefits that could not be supported.
• $827 in program administrative expenses that were not sufficiently documented, including shipping and postage expenses and travel expenses.

Key Recommendations

To SED:

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

To LRI:

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