Objective

To determine whether the costs reported by Charles R. Drew Early Childhood Center, Inc. (Charles R. Drew) 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 Charles R. Drew’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

Charles R. Drew is a New York City-based not-for-profit organization authorized by SED to provide full-day Special Class and full-day Integrated Special Class to children with disabilities who are between the ages of 3 and 5 years. For the purpose of this report, these programs are referred to as the SED preschool cost-based programs. In addition, Charles R. Drew operated two other SED-approved programs: Special Education Itinerant Teacher services in the fiscal year ended June 30, 2018 and 1:1 Aides in the 3 fiscal years ended June 30, 2020. However, payments for services under these two programs are based on fixed fees, as opposed to the cost-based rates established through financial information reported on CFRs. Charles R. Drew operated several other programs, including a Universal Pre-Kindergarten and a New York City Administration for Children’s Services (ACS) Early Learn program, both funded by the New York City Public Schools (NYCPS), formerly the New York City Department of Education. During the fiscal year ended June 30, 2020, Charles R. Drew served approximately 54 students in the SED preschool cost-based programs. 

NYCPS refers students to Charles R. Drew based on clinical evaluations and pays for its services using rates established by SED. The rates are based on the financial information that Charles R. Drew reports to SED on its annual CFRs. For the 3 fiscal years ended June 30, 2020, Charles R. Drew reported approximately $3.2 million in reimbursable costs for the SED preschool cost-based programs.

Key Findings

For the 3 fiscal years ended June 30, 2020, we identified $536,185 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, as follows:

• $196,602 in excess personal service costs that were inappropriately charged to the SED preschool cost-based programs. These costs should have been charged to the ACS Early Learn program.
• $95,691 in staffing expenses in excess of SED’s approved staffing ratios.
• $82,454 in unsupported or insufficiently documented other than personal service costs.
• $73,296 in unsupported, insufficiently documented, and non-allowable personal service costs.
• $68,242 in ineligible contracted direct care costs.
• $19,900 in other costs that did not meet RCM requirements:
  • $11,068 in travel and other expenses officials indicated as non-reimbursable costs that were still claimed on the CFR.
  • $6,063 in non-program-related costs.
  • $2,769 in miscellaneous expenses such as expenses claimed in the incorrect CFR reporting period ($1,637), food for staff ($813), and raffle tickets and flower arrangements ($319).

Key Recommendations

To SED:

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

To Charles R. Drew:

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