special education audit

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New York State O ce of the State ComptrollerThomas P. DiNapoli

Division of State Government Accountability

Report 2012-S-103 December 2012

Fiscal and Program Oversight of

Special Educa on Providers

State Educa on Department


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Division of State Government Accountability 1

Execu ve SummaryPurposeTo determine whether the State Educa on Department (SED) provides adequate onsite scal andprogram monitoring of special educa on providers. The audit covers the period from July 1, 2008

to November 2, 2012.

BackgroundSED oversees special educa on programs for students with disabili es between the ages of 3and 21. In addi on to services provided by local school districts, these programs include servicesdelivered to about 75,000 preschool students by more than 300 for-pro t and not-for-pro ten es at an annual cost of approximately $1.3 billion. Fi een State Comptroller audit reportsof private special educa on providers have iden ed widespread fraud and abuse resul ng in$13.2 million disallowances out of a total of $139.8 million examined costs which were fundedby the State and local governments. In addi on, six of these audits have been referred to law

enforcement. In response to the audit ndings, the New York State Board of Regents has directedSED to iden fy necessary program reforms.

Key Findings There has been no scal audit oversight of individual providers since 2007. There is also no

system to ensure programma c review of providers on any cyclical basis. In the past four years,only about one-third of providers have been reviewed. Other scal oversight is limited to thedesk reviews of self-reported informa on contained in the Consolidated Fiscal Reports (CFRs)that providers submit annually.

Because of the lack of other scal oversight, the Cer ed Public Accountants (CPAs) rolein cer fying the CFR has become a cri cal control in the process. However, our audits havedetermined and SED agrees - that CPAs are not ful lling the responsibility and as a result theinforma on is not su ciently reliable. S ll, prior to our audits, SED had no formal process torefer CPAs for professional discipline or to follow up on such cases.

Not only is the reliability of the CFR informa on ques onable, but the process itself is complicatedand an quated requiring many manual calcula ons and alloca ons, all of which increase therisk of human error and/or the opportunity for abusive manipula on.

SED has not taken advantage of opportuni es to use technology to replace many of the manualsteps that sta must undertake. The 17 rate-se ng sta work with CFR data from more than700 providers who operate over 1,400 programs, each of which could require several di erentrate calcula ons and adjustments.

Providers receive limited training and instruc ons from SED. Training is limited to an op onalCFR prepara on course o ered twice each year. SED does give all providers manuals andperiodic updates describing regula ons, cost reimbursement rules and CFR claiming processes.However, it mainly relies on providers to ask ques ons if they dont understand something.

CFRs are o en led late and are o en rife with error. Exis ng penalty provisions do not func onas an e ec ve deterrent to these problems.

Rates are usually not nalized un l a year a er services have been provided and paid for.However, when audit disallowances do occur, the State recovers its funding immediately by


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reducing payments to the e ected county, which is then le to handle any possible collec onfrom the provider.

Informa on sharing between SED and other funding agencies is ad-hoc at best. Cost adjustmentsdo not result in a revised CFR available to other funding agencies. Although some sharingdoes occur through the CFR Interagency Commi ee in the case of large audit adjustments

or suspected fraud, many programs funded by these other agencies are not cost-based andtherefore not a ected.

Key Recommenda ons Develop and implement a strategy, including necessary resources, for providing adequate onsite

scal and program monitoring of special educa on providers. Establish a formal process for iden fying and repor ng CPAs who appear negligent in their

cer ca on of CFRs to the O ce of the Professions. Coordinate with other State agencies to develop a system to ensure that CPAs cer fying provider

CFRs demonstrate appropriate training, competence and performance. Review the CFR and rate-se ng processes to iden fy opportuni es for streamlining opera ons,

upda ng technology and reducing complexity and the occurrence of errors. Assess the feasibility of meaningful monetary penal es for providers failing to provide an

accurate and mely CFR. Formalize policy and procedures for sharing iden ed provider problems with other State

agencies that are also funding the provider. Reevaluate and enhance provider training requirements, including frequency, content and

requirements for a endance.

Other Reports of InterestIncludED Educa on Services, Inc.: Compliance With the Reimbursable Cost Manual (2010-S-59)Achievements, PLLC: Compliance With the Reimbursable Cost Manual (2011-S-18)Bilingual SEIT, Inc.: Compliance With the Reimbursable Cost Manual (2011-S-13)
http://www.osc.state.ny.us/audits/allaudits/093012/10s59.pdfhttp://www.osc.state.ny.us/audits/allaudits/093013/11s18.pdfhttp://www.osc.state.ny.us/audits/allaudits/093012/11s13.pdfhttp://www.osc.state.ny.us/audits/allaudits/093012/11s13.pdfhttp://www.osc.state.ny.us/audits/allaudits/093013/11s18.pdfhttp://www.osc.state.ny.us/audits/allaudits/093012/10s59.pdf


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O ce of the State ComptrollerState of New York


December 18, 2012

Dr. John B. King, Jr.CommissionerNYS Educa on Department89 Washington AvenueAlbany, New York 12234

Dear Dr. King:

The O ce of the State Comptroller is commi ed to helping State agencies, public authori esand local government agencies manage government resources e ciently and e ec vely and, byso doing, providing accountability for tax dollars spent to support government funded servicesand opera ons. The Comptroller oversees the scal a airs of State agencies, public authori esand local government agencies, as well as their compliance with relevant statutes and theirobservance of good business prac ces. This scal oversight is accomplished, in part, through ouraudits, which iden fy opportuni es for improving opera ons. Audits can also iden fy strategiesfor reducing costs and strengthening controls that are intended to safeguard assets.

Following is a report of our audit of the State Educa on Department: Fiscal and Program Oversight of Special Educa on Providers . This audit was performed pursuant to the State Comptrollersauthority under Ar cle V, Sec on 1 of the State Cons tu on and Ar cle II, Sec on 8 of the StateFinance Law.

This audits results and recommenda ons are resources for you to use in e ec vely managingyour opera ons and in mee ng the expecta ons of taxpayers. If you have any ques ons aboutthis dra report, please feel free to contact us.

Respec ully submi ed,

O ce of the State Comptroller Division of State Government Accountability


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State Government Accountability Contact Informa on:Audit Director: John F. BuycePhone: (518) 474-3271Email: [email protected]:

O ce of the State ComptrollerDivision of State Government Accountability110 State Street, 11th FloorAlbany, NY 12236

This report is also available on our website at: www.osc.state.ny.us

Table of ContentsBackground 5

Audit Findings and Recommenda ons 7

Current Fiscal and Programma c Monitoring E orts are Insu cient 8

Current Repor ng and Rate Se ng Processes No Longer MeetProgram Needs 11

SED Can Improve the Quality of Data by Advancing Technologyand Training 14

Recommenda ons 15

Audit Scope and Methodology 16

Authority 16

Repor ng Requirements 17

Contributors to This Report 18

Exhibit A 19

Exhibit B 20

Agency Comments 22

State Comptrollers Comments 28
mailto:StateGovernmentAccountability%40osc.state.ny.us?subject=http://www.osc.state.ny.us/http://www.osc.state.ny.us/mailto:StateGovernmentAccountability%40osc.state.ny.us?subject=


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BackgroundIn New York State, the State Educa on Department (SED) has primary responsibility for overseeingspecial educa on programs that provide services to students with disabili es between the agesof 3 and 21. Based on the individual needs of students, school districts arrange for services,which can be provided by public en es like Boards of Coopera ve Educa onal Services (BOCES)and State-supported schools, or by private special educa on providers. While most school agestudents with disabili es receive educa onal services directly from public school districts, many(including preschool students) receive services from programs operated by private providers (bothnot-for-pro t and for-pro t en es). Presently there are over 300 private providers deliveringpreschool special educa on services to about 75,000 students at an annual cost of approximately$1.3 billion.

SEDs Special Educa on Quality Assurance (SEQA) O ce is charged with monitoring all publicand private special educa on providers and for ensuring compliance with federal requirementsunder the Individuals with Disabili es Educa on Improvement Act. There are seven regionalSEQA o ces located throughout the State sta ed by about 60 regional associates responsible formonitoring about 1,500 special educa on programs.

To receive State funding, special educa on providers must submit a Consolidated Fiscal Report(CFR) on an annual basis. The CFR requirement applies to providers who operate programs forSED, as well as those who run programs administered by the O ce of Alcoholism and SubstanceAbuse Services (OASAS), the O ce of Mental Health (OMH) and/or the O ce for People WithDevelopmental Disabili es (OPWDD). Representa ves of these agencies comprise the CFRInteragency Commi ee. Comprehensive guidance is provided to service providers through theConsolidated Fiscal Repor ng and Claiming Manual (CFR Claiming Manual) which gives detailed

instruc ons for each schedule that must be led and is updated annually. SEDs ReimbursableCost Manual (RCM) provides further guidance to en es receiving public funds for educa ngstudents with disabili es, including both for-pro t and not-for-pro t providers. The RCM describesreimbursable costs in detail and also provides informa on on the methodology used to set rates.

Because the CFR data is self-reported, each special educa on program provider is required tohave an independent cer ed public accountant (CPA) cer fy not only their nancial statements,but also that the CFRs has been prepared in accordance with applicable instruc ons. The purposeof the CPA cer ca ons is to ensure that the CFR data is reported consistently and can be reliedupon. Special educa on program providers are allowed to claim CPA audit fees associated withCFR cer ca ons as an expense on the CFR.

SEDs Rate-Se ng Unit (RSU) is responsible for establishing rates paid to special educa onproviders. RSU uses informa on contained in the CFRs on revenues, expenses, sta ng andenrollment to set reimbursement rates. These rates, as well as the rate-se ng methodology,are subject to the approval of the Division of the Budget (DOB). As of November 2012, RSUhad 17 employees to carry out this responsibility. For the 2011-12 school year, these sta used CFR data from 735 providers to develop rates for 1,470 special educa on programs.


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Once rates are approved, SED uses its System to Track and Account for Children (STAC) to applydata on student counts and calculate the amounts to be paid to school districts and coun esas reimbursement for the provision of services to students with disabili es. Preschool specialeduca on providers are paid in the rst instance by coun es based on invoices submi ed.Coun es then submit for reimbursement from the State. The State funds 59.5 percent of the cost

of special educa on providers and the coun es must fund the remaining 40.5 percent.

Although coun es fund a signi cant por on of these costs, they have li le input about whatservices will be provided. Instead, in consulta on with parents, decisions about the nature andextent of special educa on services that students require are made by a commi ee composed of representa ves from the school district and other educa onal professionals.


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Audit Findings and Recommenda onsSince 2003, our audits of special educa on providers have repeatedly uncovered increasinglyserious de ciencies in scal management, including cases of outright fraud. (See Exhibit A.)The results of these audits have prompted this current audit which nds that SEDs onsite scaloversight of private special educa on providers has been largely inadequate to ensure proper useof public funding, while its onsite programma c oversight, which has been more substan al, isextremely limited. SED performs a limited number of program reviews of private special educa onproviders and has no process in place to ensure all providers are reviewed on a cyclical basis.Without such monitoring, there is signi cant risk that providers may spend State and local fundsinappropriately, operate ine ciently and lack long-term nancial viability.

SEDs scal oversight is limited to its rate-se ng process, which uses self-reported informa onfrom each providers CFR to establish the amount each provider will be paid for services. TheCFR prepara on process is complex, di cult for providers to understand and in many ways is

outdated. The process relies on self-reported nancial informa on and manual processes thatleave substan al room for human error, as well as possible willful misrepresenta on. Althoughrate-se ng sta provides a thorough review of reported CFR informa on to develop rates, thisprocess was never intended to scru nize the accuracy of the informa on and it a ords only limitedcapability to prevent and detect fraud. In addi on, technology has not been used e ciently tokeep pace with program growth and complexity.

Absent independent scal oversight, SEDs requirement that all CFRs be cer ed by an independentCPA has become a cri cal control in the oversight process. However, our audits have shown andSED recognizes that many of these CPA cer ca ons have not been reliable. S ll, un l veryrecently, SED has not had a process in place to refer CPAs it suspects of not having performed the

necessary due diligence in cer fying provider CFRs to its O ce of the Professions for poten aldisciplinary ac on. In addi on, there is no formal process in place for tracking, repor ng andissuing warnings to CPAs exhibi ng simple negligence in the cer ca on of CFRs. Further, theO ce of the Professions does not have a process to no fy rate-se ng sta of the disciplinaryac ons taken, if any, in cases where gross negligence has been found.

Lastly, training for CFR accoun ng and repor ng is not required by current laws or regula on forspecial educa on providers, boards of directors, CPAs and any other persons in duciary roles.Furthermore, there are no deterrents or penal es to providers when nancial reports containsigni cantly misstated informa on or are led late.


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Current Fiscal and Programma c Monitoring E orts are Insu cient

SED needs to significantly enhance its fiscal and program monitoring of private specialeducation providers to help prevent mismanagement and abuse of public funds.

Fiscal Monitoring

Within SED, the O ce of Audit Services (Audit Services) has primary responsibility for conduc ngaudits of educa onal en es regulated by or receiving funds administered by SED, including privatespecial educa on providers. O cials informed us that the unit with its current complement of 17sta was originally created to audit service providers. In the course of the audit, we found thatAudit Services has not conducted any scal or programma c audits of private special educa onproviders since 2007. Instead, its focus has shi ed to local school districts and their compliancewith certain federal requirements. This shi in focus has le a void in onsite scal monitoring of private special educa on providers.

Similarly, SEQA also does not provide any scal oversight of private special educa on providers.Regional sta are involved in the ini al review of applica ons made by providers for newprograms, but these reviews do not include evalua ons of the appropriateness and accuracy of reported costs, and follow-up reviews are not performed to ensure scal viability. We did ndsome coordina on with rate-se ng sta who work with regional sta from the SEQA o ce duringthe ini al approval process for a program and who also provide recommenda ons of providersfor SEQA to review. Following such a review, a copy of the report is also given to RSU sta , whodetermine if any ndings have rate-se ng implica ons. Coun es may also conduct their ownaudits of special educa on providers; however, rela vely few coun es have done so.

As a result, scal oversight by SED is largely limited to the rate-se ng process for special educa onservices, where sta perform desk reviews of CFRs to help ensure that providers have submi edallowable costs as described in the RCM. However, these reviews are limited to performing aseries of error checks of the reported data and ensuring the providers expenses do not exceedcertain thresholds, known as cost screens. In some cases, RSU sta make inquiries and obtainlimited source documenta on from providers to help assure that reported costs are necessary,reasonable and appropriate. In addi on, rate-se ng sta has referred speci c providers to ourO ce for poten al audit based on their review of provider CFRs. RSU sta believes that regularlyconducted audits would have a bene cial impact on the accuracy and appropriateness of costsreported on the CFRs.

CPA Cer ca on of Provider CFR Submissions

As part of the CFR submission process, special educa on program providers are required to haveindependent CPAs express an opinion on their nancial statements and cer fy that the CFR isprepared in accordance with applicable instruc ons. The purpose of the CPA cer ca on is toensure that the CFR data is reported consistently and can be relied upon by the RSU for therate-se ng process. Special educa on program providers are allowed to claim CPA audit fees


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associated with CFR cer ca ons as an expense on the CFR.

CPAs are required to follow the audit guidelines contained in Appendix AA of the CFR ClaimingManual, which outlines the minimum tes ng procedures a CPA should use to cer fy a CFR. Theguidance was originally developed by the CFR Interagency Commi ee with the assistance of a

task force of the New York State Society of Cer ed Public Accountants. The objec ve of theguidance is to provide uniformity in the scope of work completed by independent accountantson the CFR Schedules.

About ve years ago, the CFR Interagency Commi ee undertook an e ort to make the auditguidelines more rigorous. According to RSU sta , the American Ins tute of Cer ed PublicAccountants (AICPA) and the New York State Society of Cer ed Public Accountants (NYSSCPA)discussed and approved the language used in the cer fying statements. However, RSU sta indicates that, based on their review of cer ed CFRs and recent OSC audits, tes ng proceduresare not being consistently followed by CPAs. As a result, although RSU sta place signi cantreliance on CPA cer ca ons, they recognize some are not reliable.

As part of the rate-se ng process, RSU sta accountants review the program data reportedon the CFR and compare it to informa on contained in the nancial statements of the specialeduca on program provider, as well as student data from SEDs STAC system. When repor ngerrors are found, RSU sta accountants make adjustments to the reported CFR data. As of September 25, 2012, RSU records indicated adjustments made for the 2009-10 repor ng yearincluded 733 adjustments totaling about $3.9 million for claimed program costs and another 361totaling about $13.8 million for agency administra ve costs. RSU sta stated that many of theseadjustments would not have been necessary had CPAs performed the minimum tes ng requiredprior to cer fying CFRs.

OSC audits have found numerous errors in cost repor ng on CFRs that can be a ributed to thelack of due diligence by CPAs hired by special educa on program providers. Examples includeinstances of no-show jobs, personal expenses included with program expenses, nepo sm, less-than-arms-length transac ons, self-dealings and ine ec ve oversight by boards of directors. Theaudits also found repor ng errors in alloca on methodologies used to distribute program costs,as well as errors in accoun ng methodologies used for deprecia on, amor za on and accrualsthat led to addi onal disallowances. If the CPAs had performed tes ng procedures as requiredunder the CFR guidelines/regula ons, it is likely that many of these audit ndings would havebeen discovered during the cer ca on process.

CPAs can be subject to discipline by SEDs O ce of the Professions for failing to properly carryout their responsibili es associated with cer fying special educa on providers CFRs. Accordingto the O ce of the Professions, there are two categories of errors which can be made by CPAs:gross negligence and simple negligence. Gross negligence occurs when accoun ng or audi ngstandards are not followed and material errors result. Simple negligence occurs when errors aremade which indicate a failure to use ordinary care. Under current statutory requirements, CPAscan face disciplinary ac on for exhibi ng gross negligence in the cer ca on of CFRs.


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Although rate-se ng sta suspect that some CPA cer ca ons are not reliable, it is only recentlythat RSU began referring suspect rms for possible professional discipline, primarily as a result of recent OSC audits. To date, RSU sta has referred eight CPAs to the O ce of the Professions forinves ga on. O ce of the Professions sta con rmed that four of these CPAs are currently underinves ga on and another has already been disciplined. The other three CPAs were inves gated,

but sta determined no ac on was warranted. Although RSU now has procedures in place torefer suspect rms, there is s ll no internal process for the O ce of the Professions to no fyRSU of what ac ons, if any, were taken. In addi on, there is no other formal process in placefor tracking, repor ng and issuing warnings to CPAs who may exhibit simple negligence in thecer ca on of CFRs.

Our analysis shows that 11 out of 122 CPA rms hired by providers (9 percent) serve about 46percent of the private special educa on providers in New York. One of these CPAs, hired by atleast 13 providers, is on the list of rms that RSU referred to the O ce of the Professions.

Par cularly troubling is the fact that special educa on providers are allowed to claim audit fees asa reimbursable expense, even when RSU sta nd signi cant repor ng errors that result in costadjustments to cer ed CFRs. In e ect, New York State taxpayers are then paying for a servicethat is required by State regula ons, but which does not result in reliable informa on for use byagency o cials. RSU sta have suggested that SED, in coopera on with the other agencies thatrequire CFR repor ng, pre-approve a pool of CPAs authorized to cer fy providers CFRs. Thisprac ce could signi cantly improve the quality of CFR data if uniform contractual standards areenforced.

Program Monitoring

SEQA regional sta assess local school district compliance with federal repor ng requirementsand annually report on 20 State performance indicators that assess program areas such asgradua on rates, drop-out rates, complaints and suspension rates through several types of reviews. These State performance indicators are reported at the school district level and areaggregated statewide.

Once federal repor ng requirements have been met, regional sta select some private specialeduca on providers for focused reviews. Focused reviews evaluate seven programma c areas:implementa on of Individualized Educa on Programs (IEPs), instruc onal prac ces, accessto general educa on curriculum and assessments, behavioral interven on plans, health andsafety, responsibili es to parents and maintenance of con den ality, and discipline. Private

special educa on providers are selected for reviews using a risk-based system which is based oncomplaints made by parents, school districts or other par es of interest; areas of non-compliancereported by providers in annual self-reviews; and recommenda ons made by RSU.

However, there is no process in place to ensure that all private special educa on providers arereviewed on a cyclical basis, including follow-up reviews of newly approved providers. During thefour years covered by our audit, SEQA performed 114 focused reviews of 112 private providers;about one-third of the provider popula on. This included a review of one of the 15 special


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educa on providers covered by our prior audits listed in Exhibit A.

The lack of comprehensive program monitoring lessens the possibility of iden fying early poten alsigns of agency risk which could then trigger a more in depth scal review or independent audit.

Current Repor ng and Rate Se ng Processes No Longer MeetProgram Needs

SEDs current process is complex and cumbersome, not designed to detect fraud or abuse,and results in financial risk to local governments.

Consolidated Fiscal Repor ng Process

Our review found the CFR prepara on process can be cumbersome, me-consuming and costly both for lers and for the oversight agencies. Special educa on providers are generally requiredto submit nine separate schedules on the CFR. (Exhibit B presents a ow chart depic ng theCFR repor ng process). Revenues, expenses, sta ng, enrollment and shared costs are all self-reported within these nine schedules, rst in the aggregate and then allocated to each programadministered by the provider. CFRs can become further complicated when shared costs mustbe allocated to programs reimbursed by di erent agencies. Providers must also reconcile their

nancial statements to the allowable costs reported on their CFRs. Finally, as noted earlier,providers are responsible for hiring CPA rms to cer fy that the CFRs were prepared in compliancewith the current set of applicable instruc ons. Both the providers execu ve director and the CPAmust sign and cer fy to the validity of informa on contained in the completed CFR.

The CFR Claiming Manual, RCM and CFR are all complex documents that can be di cult tounderstand, par cularly for providers with less experienced sta . The repor ng requirementsand related guidance can also change from year to year as the oversight agencies in the CFRInteragency Commi ee determine that repor ng modi ca ons are necessary. For example, SEDrecently added a sec on to the CFR requiring greater detail about consultants in response tocertain OSC audit ndings about services provided by consultants.

CFR prepara on includes several manual processes that can be unwieldy for providers tocomplete. For example, when mul ple programs are administered from one loca on, sharedcosts such as u li es, deprecia on and lease expenses must be allocated among the programsfairly. The CFR Claiming Manual and RCM each explain in detail how these alloca ons are to bemade and reported on the CFR. However, performing these manual processes s ll leaves roomfor human error and possible willful misrepresenta on of informa on.

Rate-se ng sta use cer ed CFRs to set reimbursable rates and o en note repor ng errorsduring the rate-se ng process. Repor ng errors become me consuming and costly becauseRSU sta must contact providers to determine why the errors occurred and to obtain correct


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repor ng amounts. Repor ng errors can also be noted during OSC or county audits of providers,which can lead to the need for RSU to repeat the en re rate se ng process.

The complexity of the CFR also contributes to problems with the meliness of repor ng. Providersmust submit their CFRs no later than 120 days a er the end of the repor ng period; a 30-day

extension beyond the ini al due date is automa cally granted to each provider reques ng suchan extension. Penal es may apply if CFRs are not led on me. Penal es can include delayingreimbursements, reducing the amount of reimbursable interest expense that can be claimed asan allowable cost and freezing the reimbursement rate.

We found that penal es for late ling are inadequate to deter the prac ce. As of September30, 2012, 24 providers had not yet led their 2010-11 CFRs and were therefore ten months late,those reports having been due by November 30, 2011. Currently, poten al penal es for late lersconsist only of reduc ons in reimbursable amounts of interest expense, delayed payments and/or the freezing of rates at prior year levels. In some cases, it is possible that this ini al rate couldbe higher than the nal rate that would be calculated for a program, making the rate freeze anactual bene t rather than a penalty. Monetary nes are not currently used as penal es. RSU sta note that the use of penal es is discre onary and, in some cases, penalizing providers could leadto program closures and a loss of services for students.

Rate-Se ng Process

Although RSU sta provide a thorough review of reported CFR informa on to develop rates, thisreview adds further complexity to the overall process. RSU sta do not conduct any onsite providerreviews. Instead, RSU conducts desk reviews which rely heavily on a combina on of manualsteps, electronic edit checks and threshold comparisons. The available technology is dated and

is not being used e ciently. Source documents (such as invoices) are not rou nely reviewedby RSU sta , but may be requested during follow-up discussions with providers. Furthermore,there are few controls in place to prevent and detect fraud. (See Exhibit B for a more detaileddescrip on of rate-se ng ac vi es and procedures).

Comprehensive manual checklists are maintained by sta to ensure that the CFR reviews areconsistent and well-documented. Screens are applied to ensure that overall or speci c costs arenot excessive, speci cally with respect to median salaries of execu ve sta , non-direct costs andtotal costs; screens also ensure that o se ng revenue is ne ed out from program costs. As partof this standard examina on, SED reviews speci c areas that are considered to be more likely toreveal weaknesses in legi mate costs, including:

Related party informa on, which is not always disclosed and could indicate a less-than-arms-length transac on;

The ve highest paid employees and ve highest paid independent contractors; A comparison of execu ve salaries to the regional median salary; Whether providers also operate programs not re ected in the CFR, such as residen al

programs for the O ce of Children and Family Services (OCFS); and


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Agency administra on costs, which may include charges paid to the parent company of the program.

However, even though these reviews may result in adjustments to approved costs, the adjustmentsmay not necessarily iden fy the speci c source of a disallowance, but rather just the magnitude

of the overage. For example, a recent audit OSC completed of IncludED Educa onal Services, Inc.(Report 2010-S-59 issued July 20, 2012) iden ed over $15,000 of inappropriate costs included ina CFR for the rental of an apartment in California for the son of the providers owner. SEDs costscreening process had already reduced the allowable por on of expense in this category by morethan the amount of the inappropriate rent, but that adjustment was based en rely on the totalamount of cost claimed, not on the knowledge that the costs were inappropriate or poten allyfraudulent. As a result, while SED may have limited some of the disallowed costs because of thecost screens, the control is not an e ec ve means of deterring fraud and abuse.

Audit Disallowances and Recoveries

For any audit that results in the iden ca on of a program cost disallowance or adjustment,whether completed by OSC or a county, rate-se ng sta generate an audited or nal rate foreach year in the audit scope period. Sta compare audit disallowances and/or adjustments tochanges made to cost and program data reported by the provider during the ini al CFR reviewand rate se ng process. Any audit adjustments greater than any amounts previously disallowedby RSU sta through their costs screens are included in the nal rate calcula on. A er RSU sta calculate the nal rate, a rate-se ng methodology packet, including a copy of the audit report,is sent to the Division of the Budget (DOB) for approval. Once approved by DOB, the providersrates are adjusted on SEDs system and the disallowance amount is generated. SED immediately recoups audit disallowances from coun es and school districts by adjus ng thereimbursement rates on its system. The revised lower rate generates the disallowance amountthat the county or school district owes back to SED. The next payment SED makes to the countyor school district is then reduced by the States share of the audit disallowance. The county orschool district is then responsible for recouping the audit disallowance from the provider.

Some coun es and school districts require providers to send them reimbursement checks whileothers reduce the next payment made to a provider. Some coun es and school districts (includingNew York City) may allow a provider to pay back the disallowance over me rather than all at once.If a provider closes down before the county fully recovers any audit disallowances or other rateadjustments, the county incurs the nancial loss. Other than the amount of the disallowance, no

other nes or penal es are imposed on a provider. Sharing of Signi cant Findings with Other State Agencies

The four State agencies that use the CFR all have access to the same informa on reported byproviders on the CFR, as well as corresponding provider nancial statements which are used todetermine the providers rate. However, agencies do not generally have access to amended orcorrected CFR informa on, or to disallowances and adjustments that may have been applied by


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SED. Furthermore, SED does not rou nely no fy other State agencies of any correc ons to theCFRs or adjustments that have been iden ed. Similarly, while providers and coun es may viewrevised rates online, there is no formal process in place to no fy other agencies if a rate has beenrevised or why.

SED indicates that because other State agencies generally do not use reported provider costs asa basis for reimbursement, adjustments it iden es o en do not a ect those other agencies.However, SED o cials stated they do communicate with these other State agencies in cases of fraud or egregious misuse of funds by a provider. This communica on generally occurs informallythrough bimonthly mee ngs of the CFR Interagency Commi ee. O cials stated they alsocommunicate with other agencies that provide funding to the same provider, but do not use theCFR as a basis for reimbursement. For example, SED noted contact from me to me with OCFS,which does not use the CFR, concerning educa onal placements for residen al students. SEDindicates that contact with OCFS o en occurs when there are discussions of major changes to aprogram and its rate. Finally, in recogni on of its own lack of audit resources, for the past severalyears SED has referred speci c providers to OSC for poten al audit when they have iden ed riskareas that warrant closer scru ny.

SED Can Improve the Quality of Data by Advancing Technology andTraining

SED needs to take steps to modernize the existing process and increase providertraining to make better use of resources and improve the quality of CFR information.

U lizing Technology to Improve Current Processes

Technology is o en used by agencies to perform their func ons more e ciently. In situa onswhere the same comparisons and calcula ons are done mul ple mes, using a database andautoma ng these tasks can greatly improve e ciency. Database so ware can store, validate,compare and analyze data for trends and outliers. Through be er use of available technology,RSU sta could become more e cient while performing a more thorough review of all CFR data.

RSU sta has so ware available to them that could be used to automate some of the steps intheir review process, which could reduce the me spent manually verifying CFR informa onfor completeness, accuracy and reasonableness. In addi on, RSU sta could u lize database

so ware to further expand and improve overall knowledge of each special educa on providerscharacteris cs, iden fying providers that may need further review and a en on. Improving Special Educa on Provider Training

Because of the complexity of the CFR and rate-se ng systems, outreach and training for providersand their sta is cri cally important to avoid poten al repor ng problems. We found SEDsimpact in this area has been limited, in large part due the fact that providers are not required to


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par cipate.

In conjunc on with OASAS, OMH and OPWDD, SED does o er regular training sessions on theaccoun ng and repor ng requirements necessary for the comple on of the CFR. The training isheld twice a year at two or more loca ons, including New York City and at least one upstate site.

SED indicates that training on CFR prepara on is encouraged, but not required, for private specialeduca on providers. Par cipa on is open to members of the providers sta , boards of directors,execu ve directors, comptrollers, chief nancial and opera ng o cers, as well as contracted CPAs.Online training is also available on the use of the CFR repor ng system so ware and one-on-onetraining can be arranged with SED sta upon request. In addi on, new program applicants areencouraged to meet with SEDs RSU sta before, during or a er commencing programs.

However, because regula ons do not require providers or their CPA rms to a end any training,SEDs outreach program is s ll largely reliant on having providers make speci c inquiries or askfor assistance with issues they do not understand. RSU sta does take some proac ve steps toregularly communicate with providers about repor ng requirements, changes in guidance andspeci c repor ng informa on. Providers are encouraged to contact SED directly if they haveques ons regarding allowable and non-allowable expenses. RSU sta keeps track of frequentlyasked ques ons and coordinates responses through a point person to ensure consistency of guidance and whether subsequent clari ca on is needed in the annual updates of the CFRClaiming Manual and RCM.

Recommenda ons

1. Develop and implement a strategy, including necessary resources, for providing adequateonsite scal and program monitoring of special educa on providers.

2. Establish a formal process for iden fying and repor ng CPAs who appear negligent in theircer ca on of CFRs to the O ce of the Professions.

3. Coordinate with other State agencies to develop a system to ensure that CPAs cer fyingprovider CFRs demonstrate appropriate training, competence and performance.

4. Review the CFR and rate-se ng processes to iden fy opportuni es for streamlining opera ons,upda ng technology and reducing complexity and the occurrence of errors.

5. Assess the feasibility of meaningful monetary penal es for providers failing to provide anaccurate and mely CFR.

6. Formalize policy and procedures for sharing iden ed provider problems with other Stateagencies that are also funding the provider.

7. Reevaluate and enhance provider training requirements, including frequency, content andrequirements for a endance.


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Audit Scope and MethodologyThe objec ve of our audit was to determine if SED is providing adequate scal and programma coversight of private special educa on providers. We also evaluated what steps, if any, need tobe taken to remedy any oversight de ciencies. Our audit scope period was from July 1, 2008 toNovember 2, 2012.

To accomplish our objec ves, we reviewed laws and regula ons that iden fy SEDs scal andprogram oversight responsibili es of private special educa on providers. We interviewed o cialsand sta from various o ces and units within SED responsible for special educa on ini a ves,including the O ce of Audit Services, the O ce of Special Educa on Quality Assurance, the Systemto Track and Account for Children Unit and the Rate Se ng Unit. We reviewed the proceduresused by these o ces and units to obtain and evaluate program and scal informa on reported bythe providers of special educa on programs. In addi on, we reviewed the process used by SED toestablish rates which reimburse providers for these program costs. We obtained evidence of any

programma c reviews completed by SED, which determine if private special educa on providersare providing adequate services and ful lling program requirements. We also assessed the levelof guidance available from SED to special educa on providers and the level of communica onand sharing of informa on between SED and other State agencies.

We conducted our performance audit in accordance with generally accepted government audi ngstandards. Those standards require that we plan and perform the audit to obtain su cient,appropriate evidence to provide a reasonable basis for our ndings and conclusions based onour audit objec ves. We believe that the evidence obtained provides a reasonable basis for our

ndings and conclusions based on our audit objec ves.

In addi on to being the State Auditor, the Comptroller performs certain other cons tu onally andstatutorily mandated du es as the chief scal o cer of New York State. These include opera ngthe States accoun ng system; preparing the States nancial statements; and approving Statecontracts, refunds, and other payments. In addi on, the Comptroller appoints members tocertain boards, commissions and public authori es, some of whom have minority vo ng rights.These du es may be considered management func ons for purposes of evalua ng organiza onalindependence under generally accepted government audi ng standards. In our opinion, thesefunc ons do not a ect our ability to conduct independent audits of program performance.

AuthorityThe audit was performed pursuant to the State Comptrollers authority as set forth in Ar cle V,Sec on 1 of the State Cons tu on and Ar cle II, Sec on 8 of the State Finance Law.


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Repor ng RequirementsWe provided a dra copy of this report to SED o cials for their review and formal comment.We considered their comments in preparing this report and have included them in their en retyat the end of it. In their response, SED o cials fully agreed with ve of our recommenda onsand par ally agreed with two of our recommenda ons. O cials indicated the ac ons theywill take to improve their oversight of special educa on programs. Also, our rejoinders tocertain comments raised in SEDs response are included as State Comptrollers Comments.

Within 90 days of the nal release of this report, as required by Sec on 170 of the Execu ve Law,the Commissioner of the State Educa on Department shall report to the Governor, the StateComptroller, and the leaders of the Legislature and scal commi ees, advising what steps weretaken to implement the recommenda ons contained herein, and where the recommenda onswere not implemented, the reasons why.


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Andrew A. SanFilippo, Execu ve Deputy Comptroller518-474-4593, asan [email protected]

Elliot Pagliaccio, Deputy Comptroller518-473-3596, [email protected]

Jerry Barber, Assistant Comptroller518-473-0334, [email protected]

Vision

A team of accountability experts respected for providing informa on that decision makers value.

Mission

To improve government opera ons by conduc ng independent audits, reviews and evalua onsof New York State and New York City taxpayer nanced programs.

Contributors to This Report

John Buyce , Audit DirectorEd Durocher , Audit Supervisor

Claudia Christodoulou , Examiner-in-ChargeMary Roylance , Examiner-in-ChargeJennifer Bachinsky, Sta ExaminerJason Dessureault , Sta Examiner

Claire Eatz , Sta Examiner
mailto:asanfilippo%40osc.state.ny.us%0D?subject=mailto:epagliaccio%40osc.state.ny.us?subject=mailto:jbarber%40osc.state.ny.us?subject=mailto:jbarber%40osc.state.ny.us?subject=mailto:epagliaccio%40osc.state.ny.us?subject=mailto:asanfilippo%40osc.state.ny.us%0D?subject=


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Exhibit A

O S C A u d i t s o f S p e c i a l E d u c a t i o n P r o v i d e r s

R e p o r t s I s s u e d f r o m J u n e2 0 0 4

t h r o u g h N o v e m b e r 2 0 1 2

S u m m a r y o f D i s a l l o w a n c e s a n d C a t e g o r i z a t i o n o f F i n d i n g s

A u d i t e d P r o g r a m

Y r s

T o t a l

D i s a l l o w a n c e

E v i d e n c e

o f

N e p o t i s m

F u n d s

D i v e r t e d

F u n d s U s e d

f o r

A u d i t

N u m b e r

P r o v i d e r / A u d i t N a m e

C o s t s R e p o r t e d

o n C F R

i n S c o p e

N o S h o w

J o b s

t o P e r s o n a l

U s e

U n a l l o w a b l e

I t e m s

N o t F o r P r o f i t P r o v i d e r s

2 0 0 3 - S - 3

H i g h b r i d g e A d v i s o r y C o u n c i l F a m i l y

S e r v i c e s

$ 7 , 9 4 8 , 8 8 5

2

$ 2 , 5 2 4 , 9 9 1

X

2 0 0 3 - S -2 2

E a s t B r o n x D

a y C a r e C e n t e r

$ 5 , 0 4 4 , 3 7 3

3

$ 9 4 8 , 5 3 6

X

2 0 0 4 - S -1 4

M a n h a t t a n C e n t e r f o r E a r l y

L e a r n i n g

$ 3 , 0 9 6 , 3 4 0

1

$ 6 1 7 ,1 0 9

X

X

2 0 0 6 - S -1 2 3

L e a k e & W a t t s S e r v i c e s , I n c .

$ 2 1 , 5 8 4 , 0 0 0

1

$ 6 4 6 , 0 6 6

X

2 0 0 7 - S - 9 1

P y r a m i d s P r e s c h o o l

$ 2 ,1 3 0 , 6 0 1

1

$ 2 3 9 , 8 8 9

X

X

X

X

2 0 0 8 - S - 6 8

A S t a r t i n g P l a c e

$ 3 , 3 7 9 ,2 7 0

1

$ 2 1 , 5 5 5

X

2 0 1 0 - S - 5 9

I n c l u d E D E d u c a t i o n

S e r v i c e s , I n c .

$ 1 2 , 5 6 2 , 9 8 7

2

$ 2 , 6 3 4 , 5 1 1

X

X

X

X

F o r P r o f i t P

r o v i d e r s

2 0 0 4 - S - 8 1

V i l l a g e C h i l d D

e v e l o p m e n t C e n t e r

$ 6 ,1 9 6 , 9 6 5

2

$ 6 0 0 ,1 0 1

X

X

2 0 0 6 - S - 6 5

H o m e T h e r a p y A s s o c i a t e s

$ 5 , 5 0 8 , 6 3 6

1

$ 1 , 0 6 3 , 6 2 3

X

2 0 0 9 - S - 3 7

I n t e g r a t e d T r e a t m e n t S e r v i c e s

$ 1 0 , 4 4 2 ,2 1 3

2

$ 5 1 1 , 6 1 5

X

X

X

2 0 1 0 - S - 3 1

S p e c i a l E d A s s o c i a t e s

$ 1 2 , 5 2 6 , 8 5 0

2

$ 6 7 0 , 8 5 7

X

X

X

X

2 0 1 0 - S - 3 2

I m p o r t a n t S t e p s , I n c .

$ 5 , 6 9 1 , 3 1 9

1

$ 2 4 4 , 8 7 4

X

X

2 0 1 1 - S -1

C a p i t a l D i s t r i c t B e g i n n i n g s

$ 1 2 , 0 7 5 , 6 7 5

2

$ 8 3 1 ,2 4 4

X

X

X

X

2 0 1 1 - S -1 3

B i l i n g u a l S E I T , I n c

$ 2 3 , 4 1 4 , 3 4 8

2

$ 1 , 4 7 4 , 9 2 4

X

X

X

X

2 0 1 1 - S -1 8

A c h i e v e m e n t s , P L L C

$ 8 ,1 8 3 , 9 5 2

5

$ 1 8 2 , 5 9 0

X

X

X

$ 1 3 9 , 7 8 6 , 4 1 4

$ 1 3 ,2 1 2 , 4 8 5

P o r t i o n o f A u d i t e d C o s t s D

i s a l l o w e d

9 . 4 5 %


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Exhibit B

SEDs Rate-Se ng Process

RSU sta calculate several types of rates for individual programs depending on the ming of thedata being used and constantly revises these rates based on updated informa on. RSU sta calculate a prospec ve rate for a program using two-year-old cost data rst trended forward bythe approved growth factor (No growth factor has been applied for the last three years). This rateis then subjected to a series of cost screens and other adjustments.

RSU sta calculate a reconcilia on rate for a program a er a CFR is led for that program usingreported actual data. Any adjustment made to reported data as a result of RSUs review, includingthe applica on of cost screens, is re ected in the revised reconcilia on rate.

SED can also generate a nal rate for a program if an audit of that program has a nding whichwould result in a cost adjustment; for example, if a posi on was reported as a direct care cost, butupon audit was discovered to actually be non-direct care.

A corrected rate can be generated at any me that an error is found.

Rate adjustments can also be made if, upon review, costs are not considered necessary or directlyrelated to the opera on of the program, cannot be substan ated with adequate documenta on,have been incurred as a result of unsound business prac ces or have been incurred as a result of less-than-arms-length transac ons.

A tui on rate appeal can also lead to a rate adjustment if a program can demonstrate that theprogram would have insu cient resources to meet the educa onal needs of students beingserved without such an adjustment.

Each year, RSU sta process informa on from CFRs submi ed by providers in late fall, setsreconcilia on rates in February and March and sends these rates to DOB around April 1 st . Inaddi on to approving individual rates by program, DOB also annually reviews and approves therate-se ng methodology. In accordance with this cycle, reconcilia on rates for the 2011-12school year will not be nalized un l spring 2013.

The chart on the following page depicts the documenta on ow for a CFR.


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Agency Comments

THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234

DEPUTY COMMISSIONEROffice of Performance Improvement and Management ServicesO: 518.473-4706F: 518.474-5392

December 6, 2012

Mr. John BuyceAudit Director Office of the State Comptroller 110 State Street, 11 th Floor Albany, NY 12236-0001

Dear Mr. Buyce:

I am responding to your letter of November 30, 2012 to Commissioner King regarding theOffice of the State Comptrollers (OSC) draft audit report (2012-S-103) entitled Fiscal and ProgramOversight of Special Education Providers. I offer some overall comments on the contents of thereport and then specifically address each of the seven recommendations.

As part of its general supervision activities, and its review of the Office of the StateComptroller audits of private special education providers, the Board of Regents initiated acomprehensive examination of the special education programs, services and costs associated withthe providers at its September 6, 2012 meeting and directed Department staff to further explore andrecommend specific measures to enhance existing provider oversight and accountability. Followinga review and analysis of the current fiscal oversight and accountability provisions applicable tospecial education private providers, and to other providers in comparable sectors, a number of reform proposals were presented and adopted by the Board of Regents on November 5, 2012. Alsoat the November meeting, the Board of Regents approved the development of a budget priorityrequest to support the implementation of the adopted reform proposals. Several of the Board of Regents reform proposals directly relate to the findings and recommendations outlined in the draftaudit report and have the shared goal of strengthening the fiscal oversight and accountabilitymeasures of private special education providers in order to ensure that resources are being utilizedeffectively and appropriately.

The Departments specific response to the draft audit is organized to correspond to thespecific recommendations.

Recommendation 1:

Develop and implement a strategy, including necessary resources, for providing adequateonsite fiscal and program monitoring of special education providers.


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*Comment

1

2

We partially agree with this recommendation. We agree that oversight provisions with respect toonsite review should be enhanced in order to strengthen the Departments existing fiscal and program monitoring of special education providers. However, we do not agree with certain keyfindings and statements made in the draft audit which undervalue the monitoring activitiesconducted currently by the Department and believe that the draft audit discounts the importance and

functionality of a priority/risk-based approach to program oversight.i

We agree that oversight provisions with respect to onsite review should be enhanced in order tostrengthen the Departments existing fiscal and program monitoring of special education providers.Due to the reliance placed on the current external audit requirements of the private special education providers, the Board of Regents reform proposals would strengthen this accountability measure byrequiring special education providers to select a CPA from a Department approved list for the purposes of certifying its Consolidated Fiscal Report (CFR) or financial statements.ii

The Board of Regents reform proposals also seek to increase the onsite fiscal audits of the privatespecial education providers by continuing to support the current OSC audit initiative and by

supporting additional resources for further audits, including both random audits and audits targetedto providers with specific risk-factors associated with fraud. The Board of Regents reform proposalsalso aim to assist the audit efforts of the counties by recommending an increase in the amount of overpayments that may be recovered by the county or municipality conducting the audit andrecommending that a disincentive for municipal audits be eliminated through ending the statesrecoupment of all of the disallowed funds from the municipality if the provider ceases operation and,after diligent efforts, the municipality is unable to recover the funds.

In addition, the Board of Regents reform proposals for enhanced oversight of the special education private providers include strengthening aspects of the programmatic supervision of both new andexisting providers. For example, the Department has imposed a short-term moratorium on theapproval of new providers and program expansions while it revises the approval application toinclude an in-depth review of: services, staffing and methodologies necessary to ensure provision of high-quality programs; program environment to ensure the health and safety of students withdisabilities; appropriate agency background and qualifications to provide sound fiscal practices; andgovernance qualifications that will provide effective fiscal and program oversight.

The Department is also in the process of creating a new protocol for program monitoring reviewsthat will focus on service delivery structures and models, efficient use of staff, resources andinstructional effectiveness, as well as regulatory compliance. The Office of Special Education hasdeveloped a plan to review increased numbers of selected preschool special education programsduring the 2012-2013 school year utilizing the priority/risk-based approach to target certain providers based on the timely need for intervention.

In order to undertake a more cyclical review of existing special education providers, the Board of Regents reform proposals include a request for additional resources to support new staff dedicated todeveloping and implementing a rigorous program reapproval process for all preschool special

* See State Comptrollers Comments, on page 28.


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4

the development and implementation of these proposals would begin within the Department with the potential for more coordinated efforts with other agencies in the future.

Recommendation 4:

Review the CFR and rate-setting processes to identify opportunities for streamliningoperations, updating technology and reducing complexity and the occurrence of errors.

We agree with this recommendation. The Department will review the information and findingsoutlined in the draft audit and identify opportunities as described in the recommendation.

Recommendation 5:

Assess the feasibility of meaningful monetary penalties for providers failing to provide anaccurate and timely CFR.

We agree with this recommendation. The Department will review the information and findingsoutlined in the draft audit, examine the existing monetary penalties imposed for failing to timelysubmit the CFR and assess the feasibility of new monetary penalties both for late filing and for filinga CFR with significantly misstated information.

Recommendation 6:

Formalize policy and procedures for sharing identified provider problems with other Stateagencies that are also funding the provider.

We agree with this recommendation. As identified in the draft audit, the Department currently hasan informal process for information sharing with other state agencies through bimonthly meetings of the CFR Interagency Committee and through meetings with OCFS to discuss changes to programsthat concern both agencies. The Department welcomes discussions with the other state agencies inorder to identify areas where more coordinated efforts for information sharing would prove beneficial.

Recommendation 7:

Reevaluate and enhance provider training requirements, including frequency, content andrequirements for attendance.

We agree with this recommendation. The reform proposals adopted by the Board of Regents includea requirement for annual fiscal training relating to the CFRs submitted by the special education providers. As identified in the draft audit, the Department currently offers regular CFR training and, pursuant to the Board of Regents reform proposals, this training would be mandatory for anyindividual who prepares or certifies a CFR of a provider. Additionally, the Board of Regents propose to require members of the providers governing body (board members or owners) to


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complete training regarding their legal, fiduciary, and ethical responsibilities. In order to monitor compliance with the new training requirements and other financial accountability measures, theBoard of Regents proposals include requiring an annual attestation statement for board members andowners of the providers.

If you have any questions regarding this response, please contact James Conway at (518)473-4516.

Sincerely,

Sharon Cates-Williams

c: Commissioner KingValerie GreyJames ConwayJames DeLorenzoDoug LentivechMary Kogelmann

5


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6

i The draft audit characterizes existing Department oversight as limited in many respects. Although we agree thatimprovement should be made to enhance existing oversight, as identified in the Board of Regents reform proposals, werespectfully believe that current monitoring practices should be given more significance. For example, the rate settingunit performs a thorough review of the financial reports submitted by the providers in order to analyze theappropriateness of the expenses and ensure that reimbursement claims are allowable pursuant to program fundingstandards. The rate setting unit will undertake an even more extensive review on a case by case basis (includingobtaining source documentation for submitted claims) if their desk audit reveals problematic reporting. As noted in thedraft audit, for the 2009-10 reporting year the rate setting unit review resulted in over 700 adjustments totaling nearly $4million for claimed program costs and over 350 adjustments totaling nearly $14 million for agency administrative costs.The draft audit also identifies the in-depth focus reviews undertaken by the Special Education Quality Assurance Office,including the review of Individualized Education Programs (IEPs) implementation, instructional practices, access togeneral education curriculum and assessments, behavioral intervention plans, health and safety, responsibilities to parents and maintenance of confidentiality, and discipline. Utilizing a priority/risk-based approach, programs aremonitored because they exhibit factors associated with non-compliance or there is a need for timely intervention. As thedraft audit notes, the Special Education Quality Assurance Office conducted focused reviews of 117 private providers(about one-third of the provider population). We believe that the priority/risk-based approach to the selection of privatespecial education providers to be monitored is appropriate with respect to the monitoring demands and availableresources. This methodology also proved beneficial for both the Department and OSC when referring and identifyingthe special education providers for audit as part of OSCs current audit initiative.ii

The Department is in the process of developing a Request for Qualifications (RFQ) to approve CPAs that may certify aspecial education providers CFRs or financial statements and a CPA may be disqualified if found to have certified aCFR or financial statement without following the Departments required procedures.iii The Office of Professions has protocol within its Professional Misconduct Enforcement System which includes the process for filing a complaint, conducting an investigation, pursuing disciplinary action, and providing informationregarding complaint status and final outcome. All complaints are investigated (members of the State Board for the profession may be consulted during the investigation) and if substantial evidence of misconduct is found, thendisciplinary action is pursued. Cases that do not result in disciplinary action are confidential and cases where the Boardof Regents takes disciplinary action may be searched, by name or by month, on the Departments website. In all cases,the individual who filed the misconduct complaint is informed of the status of the complaint and the final outcome.


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State Comptrollers Comments1. We acknowledge that the Department currently provides certain levels of program and

scal oversight. However, these measures are not adequate to detect extensive fraud andabuse on a mely and comprehensive basis, as evidenced by our recent audits.

2. We recognize that a process currently exists, but it needs to be improved with more formalcommunica on and coordina on within the various units of the Department.

special education audit

Documents