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NYS Comptroller

THOMAS P. DiNAPOLI

Taxpayers' Guide to State and Local Audits

State Education Department
IncludED Educational Services, Inc.
Compliance with the Reimbursable Cost Manual


Issued: July 20, 2012
Link to full audit report 2010-S-59

Purpose
To determine whether the costs reported by IncludED Educational Services Inc. (IncludED) on it's Consolidated Fiscal Report (CFR) were properly calculated, adequately documented, and allowable under the State Education Department's (SED) Reimbursable Cost Manual (Manual). The audit covers the two fiscal years ended June 30, 2009.

Background
IncludED Educational Services (IncludED), located in Cedarhurst, NY, provides special education itinerant teacher and integrated special class services to disabled preschool children. The New York City Education Department (DoE) and other localities pay tuition and fees to IncludED using rates set by SED. SED sets these rates using financial information that IncludED presents in it's annual CFRs filed with SED. During fiscal years 2007-08 and 2008-09, IncludED claimed and received approximately $12.6 million in State support.

Key Findings
We disallowed $2,634,511 in costs claimed by IncludED because they were not properly calculated, were inadequately documented, or were otherwise unallowable per the Manual. The disallowances included $1,864,843 in personal service costs and $769,668 in other than personal service costs. Specifically, we determined that:

  • IncludED could not provide documentation to adequately support salary and wage costs for 50 employees totaling $1,540,082. Of this amount, $856,827 was paid to 11 relatives of the Executive Director - who routinely deposited the paychecks (totaling $115,196) of his two sons into his own personal bank account. When fringe benefits (totaling $324,761) were allocated, the disallowance for personal services totaled $1,864,843.
  • Supporting documentation was either unavailable or insufficient for several other than personal service costs. For example, IncludED was unable to provide invoices or receipts for $156,158 in claimed office supply and advertising expenses. In addition, there was no documentation supporting the methodology for and calculation of depreciation expenses totaling $59,553; and
  • Certain claimed costs were for the personal benefit of IncludED's Executive Director or his relatives. For example, IncludED claimed $15,382 in rent and other expenses related to the personal residence (in California) of the son of the Executive Director. Other personal expenses that were claimed included $19,888 in meals, $9,720 in student loan payments, and $1,269 for airline tickets and related travel costs.

Key Recommendations

  • SED should review the exceptions identified by our audit and take the appropriate actions to recover the disallowed expenses.

Other Related Audits/Reports of Interest

Special Education Associates: Compliance with the Reimbursable Cost Manual Report 2010-S-31
Capital District Beginnings: Compliance with the Reimbursable Cost Manual Report 2011-S-1


State Government Accountability Contact Information:
Audit Director: Brian Mason
Phone:(518) 474-3271; Email: StateGovernmentAccountability@osc.state.ny.us
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236