To determine whether the costs reported by Alternatives For Children (Alternatives) on its Consolidated Fiscal Reports (CFR) were properly calculated, adequately documented, and allowable under the State Education Department’s (SED) guidelines, including the Reimbursable Cost Manual (RCM). The audit covered expenses reported on Alternatives’ CFR for the fiscal year ended June 30, 2015, and certain expenses reported on Alternatives’ CFRs for the two fiscal years ended June 30, 2014.
Alternatives is an SED-approved, not-for-profit special education provider located in Long Island, New York. Alternatives provides preschool special education services to children with disabilities who are between three and five years of age. Alternatives is reimbursed for preschool special education services through rates set by SED. The reimbursement rates are based on financial information, including costs that Alternatives reports to SED on the annual CFR. To be eligible for reimbursement, reported costs must comply with RCM requirements. For the three fiscal years ended June 30, 2015, Alternatives reported approximately $25.9 million in reimbursable costs on its CFRs for the five rate-based preschool special education programs (Programs) that it operated.
For the three fiscal years ended June 30, 2015, we identified $253,494 in ineligible costs that Alternatives reported on its CFRs for the Programs. The ineligible costs included:
$130,528 in other than personal service costs, which consisted of $37,446 in expensed equipment that was not properly capitalized and depreciated; $35,956 in rent expenses for a location that was no longer being used; $25,430 in non-audit services that were performed by the same CPA firm Alternatives contracted with for its annual audit; $21,843 in costs that were not allocated according to the methodologies prescribed in the RCM; $7,852 in lobbying expenses; and $2,001 in other non-reimbursable expenses; and
$122,966 in salary costs that were improperly charged directly to the Programs. We determined these costs were administrative in nature and should have been allocated across all of Alternatives’ programs.
- Review the disallowances identified by our audit and, if warranted, make the necessary adjustments to the costs reported on Alternatives’ CFRs and to Alternatives’ tuition reimbursement rates.
- Remind Alternatives officials of the pertinent SED requirements that relate to the deficiencies we identified.
- Ensure that costs reported on annual CFRs fully comply with SED’s requirements, and communicate with SED to obtain clarification as needed.