Objective

To determine whether the costs reported by Small Wonder Preschool, Inc. (Small Wonder) 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 Small Wonder’s CFR for the fiscal year ended June 30, 2021 and certain expenses claimed on its CFRs for the 2 fiscal years ended June 30, 2020.

About the Program

Small Wonder is a New York City-based not-for-profit organization authorized by SED to provide full-day Special Class services to children with disabilities who are between the ages of 3 and 5 years. For the purpose of this report, this program is referred to as the SED preschool cost-based program. Small Wonder also operated two other SED-approved preschool programs: Evaluations and 1:1 Aides. However, payments for services under these other programs are based on fixed fees, as opposed to the cost-based rates established through financial information reported on CFRs. During the fiscal year ended June 30, 2021, Small Wonder served approximately 85 students in the SED preschool cost-based program.

The New York City Department of Education refers students to Small Wonder based on clinical evaluations and pays for its services using rates established by SED. The rates are based on the financial information that Small Wonder reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2021, Small Wonder reported approximately $5.9 million in reimbursable costs for the SED preschool cost-based program.

Key Findings

For the 3 fiscal years ended June 30, 2021, we identified $264,701 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $153,004 in undocumented or insufficiently documented other than personal service costs, including $85,578 in audit fees, $52,456 in information technology service costs, $7,383 in storage fees, $3,163 in miscellaneous costs, $2,508 in website marketing and advertising costs, and $1,916 in adjusting journal entries.
• $70,308 in bonus compensation that was not in compliance with the RCM’s guidelines.
• $30,173 in compensation costs for seven 1:1 aides that were incorrectly charged to the SED preschool cost-based program. The costs for 1:1 aides should have been reported on Small Wonder’s CFRs under the 1:1 aide cost center.
• $8,527 in costs that did not meet RCM requirements, including $4,740 in non-reimbursable contracted direct care costs; $1,281 in personal vehicle insurance premiums; $824 in costs that were claimed in the incorrect CFR reporting period; $809 in interest on a non-SED approved loan given to Small Wonder by its Executive Director; $378 in overallocated repairs and maintenance costs; $260 in notary public exam costs; $134 in lobbying-related costs; $52 in food for staff; and $49 in travel costs related to an administration law court hearing.
• $2,689 in staffing expenses that were in excess of the approved staffing ratios.

Key Recommendations

To SED:

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

To Small Wonder:

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