Objective

To determine whether the costs submitted by The Arc Jefferson-St. Lawrence (Arc-JSLC) 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 Arc-JSLC’s CFR for the fiscal year ended June 30, 2021, and certain expenses claimed on its CFRs for the 2 fiscal years ended June 30, 2020.

About the Program

Arc-JSLC is a not-for-profit special education provider located in Watertown that serves students from Jefferson and Lewis counties. Arc-JSLC is authorized by SED to provide Preschool Special Class (over 2.5 hours per day) and Preschool Integrated Special Class (2.5 hours per day) education services to children with disabilities between the ages of 3 and 5 years. For the purposes of this report, these programs are referred to as the SED preschool cost-based programs. Arc-JSLC also operated other SED-approved preschool special education programs, including Evaluations, Related Services, and 1:1 Aides. However, payments for services under these programs are based on fixed fees, as opposed to the cost-based rates established using CFR-reported information. During the 2020-21 school year, Arc-JSLC served approximately 56 preschool children in the SED preschool cost-based programs.

Jefferson and Lewis counties pay tuition to Arc-JSLC using reimbursement rates set by SED. The State, in turn, reimburses the counties for a portion of the tuition paid. SED sets the special education rates based on financial information, including costs, that Arc-JSLC reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2021, Arc-JSLC reported approximately $5.4 million in reimbursable costs for the SED preschool cost-based programs.

Key Findings

For the 3 fiscal years ended June 30, 2021, we identified $91,887 in reported costs that did not comply with the requirements in the RCM and CFR Manual, as follows:

• $43,789 in unsupported general ledger entries that were reported on the CFRs, including $43,331 in OTPS costs and $458 in personal service costs
• $17,406 in vehicle costs that were not sufficiently documented
• $13,749 in bonus payment compensation costs that were not in compliance with the RCM’s guidelines
• $7,520 in unsupported related-party costs
• $6,944 in ineligible costs, including staff food and beverages, advertising, gift cards, and laundry costs
• $2,323 in executive compensation that exceeded SED’s median allowable compensation limit
• $156 in working capital interest costs related to late CFR filings

Key Recommendations

To SED:

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

To Arc-JSLC:

• Ensure that costs reported on annual CFRs fully comply with SED’s requirements and communicate with SED to obtain clarification as needed.
• Ensure that expenses reported on the CFR match the expenses reported on the financial statements.