Purpose

To determine whether the costs reported by Kids Quality Care, Inc. (KQC) on the Consolidated Fiscal Report (CFR) were properly calculated, adequately documented, and allowable under the Reimbursable Cost Manual (Manual) issued by the State Education Department (SED). The audit covers the two fiscal years ended June 30, 2009.

Background

KQC, a privately-owned company located in New York City, provides special education itinerant teacher (SEIT) and related services to disabled preschool children. KQC leases office space in Manhattan for its business operations. In turn, KQC subleases to and shares office space with another privately-owned special education company, Kids & the Training Institute (KTI). The New York City Department of Education (DoE) pays tuition and fees to KQC using rates set by SED, which are based on financial information KQC presents in an annual CFR filed with SED. SED reimburses the DoE for a portion of its payments to KQC. For the two fiscal years ended June 30, 2009, KQC claimed and received $2.7 million in public support.

Key Findings

• KQC claimed $237,926 in costs that were not properly calculated, adequately documented, or allowable for the two years covered by our audit. The disallowances include $138,136 in personal services and $99,790 in other-than-personal services.
• The personal service disallowances consisted of $73,258 in excess salary costs for its Executive Director/Owner and $64,878 in unsupported bonus payments to employees.
• The other-than-personal service disallowances included $31,925 for unapproved facility lease and improvement costs and $32,120 for ineligible vehicle costs (among a range of ineligible expenses.)
• KQC did not comply with provisions of the Manual pertaining to a less-than-arms-length business relationship with KTI, time and attendance records, and the classification of expenses in its accounting records.

Key Recommendations

• SED should review disallowances resulting from our audit and make the appropriate adjustments to costs reported on the CFRs and the tuition reimbursement rates.
• SED should direct KQC officials to comply with provisions of the Manual pertaining to LTAL business relationships, time and attendance records and classification of expenses.
• KQC should comply with the procedural guidance provided by the Manual (e.g. LTAL business relationships, time and attendance records, classification of expenses). Also, ensure costs reported on CFR comply fully with the Manual requirements.

Other Related Audits/Reports of Interest

Bilingual SEIT & Preschool, Inc: Compliance with the Reimbursable Cost Manual (2011-S-13)
Special Education Associates, Inc: Compliance With the Reimbursable Cost Manual (2010-S-31)