Objective

To determine whether the costs reported by Little Meadows Early Childhood Center, Inc. (Little Meadows) 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 Little Meadows’ 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

Little Meadows is a New York City-based proprietary organization authorized by the State Education Department (SED) to provide full-day Special Class, half-day Special Class, Integrated Preschool, and half-day Integrated Preschool Special Education services to children with disabilities who are between the ages of 3 and 5 years. For the purposes of this report, these programs are collectively referred to as the SED preschool cost-based programs. Little Meadows also operated three other SED-approved preschool special education programs – Evaluations, Related Services, and 1:1 Aides – and a Department of Health Early Intervention program. However, payments for services under these programs are based on fixed fees. During the 2017-18 school year, Little Meadows served approximately 178 students.

The New York City Department of Education (DOE) refers students to Little Meadows and pays for its services using rates established by SED. The rates are based on the financial information Little Meadows reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2018, Little Meadows reported approximately $10.2 million in reimbursable costs for the SED preschool cost-based programs.

Key Findings

For the 3 fiscal years ended June 30, 2018, we identified $395,644 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $192,089 in excessive allocation/compensation expenses related to an independent contractor ($95,864), employees of Little Meadows ($88,045), and an independent contractor who later became an employee of Little Meadows ($8,180).
• $60,466 in accounting fees and services that were not in compliance with the RCM’s requirements;
• $57,834 in expenses that were reported in the incorrect reporting period, including $47,873 in other than personal services and $9,961 in personal services;
• $30,857 in non-reimbursable 1:1 Aides program expenses that should have been reported under a separate program code;
• $25,380 in expenses where an independent contractor did not work the required number of hours per month;
• $13,795 in non-reimbursable expenses, including $12,626 in fringe benefits and $1,169 in home office expenses;
• $6,985 in advertising expenses that did not meet the requirements of the RCM;
• $4,810 in unallowable expenses (e.g., employee perquisites, violations and fines, staff/parent food); and
• $3,428 in consulting and legal fees that did not meet reimbursement requirements.

Key Recommendations

To SED:

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

To Little Meadows:

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