Objective

To determine whether the costs reported by the New York Institute for Special Education (Institute) 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 the Institute’s CFR for the fiscal year ended June 30, 2020 and certain expenses claimed on its CFRs for the 2 fiscal years ended June 30, 2019.

About the Program

The Institute 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. The Institute 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. The Institute also operated evaluation, education, and residential programs for students who are between the ages of 5 and 21 years and are blind or visually impaired. During the fiscal year ended June 30, 2020, the Institute served approximately 123 students in the SED preschool cost-based program.

The New York City Department of Education refers students to the Institute based on clinical evaluations and pays for its services using rates established by SED. The rates are based on the financial information that the Institute reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2020, the Institute reported approximately $17.5 million in reimbursable costs for the SED preschool cost-based program.

Key Findings

For the 3 fiscal years ended June 30, 2020, we identified $3,256,007 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $3,132,751 in unsupported compensation costs. Institute officials could not provide time records to substantiate that 41 teacher assistants and substitute teacher assistants worked the hours for which they were paid. Officials initially informed us that sign-in sheets for these employees were accidentally shredded during our audit but later indicated this occurred before they were notified of the audit. We asked officials if they could provide other documentation to substantiate the employees’ work time and activities, but the documentation they provided was insufficient.
• $65,778 in insufficiently documented other than personal service costs, including $57,250 in audit fees, $5,585 in staff recruitment costs, $2,428 in equipment depreciation costs, and $515 in employee reimbursement for supplies and materials.
• $30,557 in non-allowable and non-program-related costs:
  • $15,508 in non-program-related costs, including equipment depreciation, computers/monitors, staff recruitment, and E-ZPass replenishment used for non-SED preschool cost-based programs.
  • $15,049 in non-allowable physician costs.
• $22,225 in executive compensation that exceeded SED’s median allowable compensation limit.
• $4,696 in ineligible health code violation and tax payments.

Key Recommendations

To SED:

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

To the Institute:

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