Objective

To determine whether the costs reported by the Children’s Home of Kingston (CHK) 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 the CHK’s CFR for the fiscal year ended June 30, 2022, and certain expenses claimed on its CFRs for the 2 fiscal years ended June 30, 2021.

About the Program

CHK is a Kingston-based not-for-profit organization approved by SED to provide School-Age Special Class services to children with disabilities ages 8 to 21 years. For the purposes of this report, we refer to this program as the SED cost-based program. During the fiscal year ended June 30, 2022, CHK served 44 students with disabilities in the SED cost-based program. In addition to the SED cost-based program, CHK operated other SED-approved programs such as 1:1 Aides. However, payment for services under these additional programs is based on fixed fees rather than cost-based rates established through financial information reported on CFRs. During our audit scope, CHK also operated a Residential Program funded by the Office of Children and Family Services and a program funded using grants from the U.S. Department of Health and Human Services Administration for Children & Families’ Office of Refugee Resettlement (ORR), the Unaccompanied Alien Children Shelter Program (ORR Program).

Various New York State local education districts, including but not limited to those located in Ulster, Oneida, and Schenectady counties, refer students to CHK and pay for CHK’s services using rates established by SED. The rates are based on the financial information that CHK reports to SED on its annual CFRs. To qualify for reimbursement, CHK’s reported costs must comply with the criteria in SED’s RCM and the CFR Manual, which provide guidance to special education providers on the eligibility of reimbursable costs, the documentation necessary to support these costs, and cost allocation requirements for expenses related to multiple programs and entities.

For the 3 fiscal years ended June 30, 2022, CHK reported $6,289,798 ($5,233,219 in personal service costs and $1,056,579 in other than personal service costs) in expenses for the SED cost‑based program.

Key Findings

For the 3 fiscal years ended June 30, 2022, we identified $670,549 in reported costs that did not comply with the requirements in the RCM and the CFR Manual including:

• $201,518 in insufficiently supported other than personal services (OTPS) costs. CHK did not maintain required records supporting the actual costs (such as invoices), allocation methodology, and its basis, or its records did not contain required details in support of these expenses. This includes an overallocated share of expenses provided for the benefit of CHK’s Residential Program and/or its ORR Program.
• $198,335 in costs for 1:1 Aides incorrectly charged to the SED cost-based program. These costs should have been charged directly to the 1:1 Aides program.
• $118,788 in non-program personal services costs allocated to the SED cost-based program. This includes the salaries and fringe benefits of staff of its ORR Program and CHK’s former Director of its Residential Program.
• $107,236 in overallocated facility-related expenses.
• $25,689 in unsupported payroll expenses. CHK reported compensation costs for eight employees in excess of the amounts documented in the employees’ personnel records.
• $18,983 in expenses that did not comply with the RCM and/or the CFR Manual’s requirements. This includes $18,337 in expenses that were reported in the incorrect CFR reporting period, as well as $646 in overallocated agency administration expenses.

Key Recommendations

To SED:

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

To CHK:

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