Objective

To determine whether the costs reported by Adaptive Solutions Multi Services, PLLC (Adaptive Solutions) 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 (RCM) and the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual). The audit focused primarily on expenses claimed on Adaptive Solutions’ CFR for the fiscal year ended June 30, 2018, and certain expenses claimed on its CFRs for the 2 fiscal years ended June 30, 2017.

About the Program

Adaptive Solutions is a New York City-based proprietary organization authorized by SED to provide full- and half-day Special Class and full-day Special Class in an Integrated Setting services to children with disabilities who are between the ages of 3 and 5 years. For purposes of this report, these programs are collectively referred to as the SED preschool cost-based programs. Adaptive Solutions also operated one other SED-approved program, 1:1 Aides. However, payments for services under this other program 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, 2018, Adaptive Solutions served approximately 200 students in the SED preschool cost-based programs.

Adaptive Solutions also shared services, building space, and staff with another proprietary school, Our Children The Leaders of Tomorrow, Inc. (Our Children), that was owned and operated by the same individuals who own and operate Adaptive Solutions—the Executive Director and the Clinical Director. Further, these two officials owned a day care named Sunflower Kidz Daycare LLC (Sunflower). They each received compensation from all three entities during our audit period.

The New York City Public Schools (NYCPS) refers students to Adaptive Solutions based on clinical evaluations and pays for its services using rates established by SED. The rates are based on the financial information that Adaptive Solutions reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2018, Adaptive Solutions reported approximately $11.2 million in reimbursable costs for the SED preschool cost-based programs.

Key Findings

For the 3 fiscal years ended June 30, 2018, we identified $803,921 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $277,388 in compensation costs for two Adaptive Solutions’ officials who also operated, and had common ownership, in two other entities. Together, they exceeded the allowable limit of a 1.0 full-time equivalent employee.
• $230,051 in compensation costs for 16 employees reported as 1:1 aides that were incorrectly charged to the SED preschool cost-based programs. The costs for 1:1 aides should have been reported on the Adaptive Solutions’ CFRs under the 1:1 Aides program cost center.
• $206,354 in insufficiently documented IT ($116,700) and cleaning/janitorial services ($89,654). The invoices provided by Adaptive Solutions officials did not include required information such as the specific service provided, dates of service, fee per hour, and number of hours provided.
• $61,999 in interest working capital costs where officials could not provide sufficient supporting documentation, including official amortization schedules and details on the purpose of the loans.
• $14,204 in unsupported and non-program-related personal service costs, including $7,693 in employee compensation and $6,511 in pension contribution costs.
• $13,925 in ineligible and insufficiently documented other than personal service costs, including $5,653 in staff development costs, $5,159 in lease/rental property costs, and $3,113 in start-up costs and other various costs.

Key Recommendations

To SED:

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

To Adaptive Solutions:

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