Objective

To determine whether the costs reported by Jackson Child Development Center, Inc. (JCDC) 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 JCDC’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

JCDC is a New York City-based not-for-profit organization approved by SED to provide preschool special education services to children with disabilities ages 3 to 5. During the 3 fiscal years ended June 30, 2020, JCDC operated full-day and half-day Special Class programs. In the fiscal year ended June 30, 2018, JCDC also provided full-day Special Class in an Integrated Setting. For the purposes of this report, these programs are collectively referred to as the SED preschool cost-based programs. In addition to the SED preschool cost-based programs, JCDC operated two other SED-approved programs: 1:1 Aides and Evaluations. However, payments for services under these programs 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, 2020, JCDC served 341 students in the SED preschool cost-based programs.

During the fiscal year ended June 30, 2018, JCDC’s full-day Special Class in an Integrated Setting program was operated in collaboration with an affiliated entity’s Universal Pre-K (UPK) program. This affiliate—Jackson Children Services (JCS), a for-profit related-party entity owned by JCDC’s Executive Director—utilized JCDC’s resources in operating JCS’ Early Intervention and UPK services during the 3 fiscal years ended June 30, 2020.

The New York City Public Schools refers students to JCDC and pays for its services using rates established by SED. The rates are based on the financial information JCDC reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2020, JCDC reported approximately $24 million in reimbursable costs for its SED preschool cost-based programs.

Key Findings

For the 3 fiscal years ended June 30, 2020, we identified $3,020,800 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $1,060,159 in overallocated personal service costs, including $815,797 in salaries and $244,362 in fringe benefits.
• $507,256 in unsupported personal service costs, consisting of $393,536 in salaries and $113,720 in fringe benefits reported for two family members of JCDC’s Executive Director.
• $370,007 in insufficiently supported, non-program, or prior period contracted direct care expenses.
• $352,551 in insufficiently supported other than personal service costs, such as duplicative expenses, penalties and fines for violations, gifts, and miscellaneous expenses for which JCDC did not provide the required supporting records.
• $304,996 in non-reimbursable fringe benefits. This includes non-mandated fringe benefits that were not sufficiently documented, not necessary, not directly related to the SED preschool cost-based programs, not proportionately similar to benefits provided to other classes or groups of employees, or that were incurred outside of the reporting period.
• $169,440 in overallocated rental costs. This includes $106,029 in overallocated costs from JCDC’s use of a related-party-owned building and an additional $63,411 in overallocated costs of the amount charged to JCDC for the rental, utilities, and maintenance costs of buildings JCDC shared with an affiliate (i.e., JCS).
• $73,150 in unsupported personal service costs, including $55,745 in salaries and $17,405 in fringe benefits.
• $69,127 in costs incurred in excess of approved grant funds charged to the SED preschool cost-based programs.
• $61,570 in overallocated and unapproved non-facility costs. This includes an insufficiently supported allocation of office, telephone, and postage expenses for costs incurred by related parties.
• $18,554 in non-program compensation costs ($14,006 in salaries and $4,548 in fringe benefits) reported under both the SED preschool cost-based programs and the 1:1 Aides program in fiscal years 2018-19 and 2019-20.
• $17,167 in miscellaneous costs, including $14,089 in insufficiently supported bonus expenses and $3,078 in disability payment distributions made by JCDC’s insurance provider.
• $16,823 in ineligible CPA non-audit service costs.

Key Recommendations

To SED:

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

To JCDC:

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