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NYS Comptroller


Taxpayers' Guide to State and Local Audits

State Education Department
Fiscal and Program Oversight of Special Education Providers

Issued: December, 18, 2012
Link to full audit report 2012-S-103
Link to 90-day response

To determine whether the State Education Department (SED) provides adequate onsite fiscal and program monitoring of special education providers. The audit covers the period from July 1, 2008 to November 2, 2012.

SED oversees special education programs for students with disabilities between the ages of 3 and 21. In addition to services provided by local school districts, these programs include services delivered to about 75,000 preschool students by more than 300 for-profit and not-for-profit entities at an annual cost of approximately $1.3 billion. Fifteen State Comptroller audit reports of private special education providers have identified widespread fraud and abuse resulting in $13.2 million disallowances out of a total of $139.8 million examined costs which were funded by the State and local governments. In addition, six of these audits have been referred to law enforcement. In response to the audit findings, the New York State Board of Regents has directed SED to identify necessary program reforms.

Key Findings

  • There has been no fiscal audit oversight of individual providers since 2007. There is also no system to ensure programmatic review of providers on any cyclical basis. In the past four years, only about one-third of providers have been reviewed. Other fiscal oversight is limited to the desk reviews of self-reported information contained in the Consolidated Fiscal Reports (CFRs) that providers submit annually.
  • Because of the lack of other fiscal oversight, the Certified Public Accountants' (CPAs) role in certifying the CFR has become a critical control in the process. However, our audits have determined – and SED agrees - that CPAs are not fulfilling the responsibility and as a result the information is not sufficiently reliable. Still, prior to our audits, SED had no formal process to refer CPAs for professional discipline or to follow up on such cases.
  • Not only is the reliability of the CFR information questionable, but the process itself is complicated and antiquated requiring many manual calculations and allocations, all of which increase the risk of human error and/or the opportunity for abusive manipulation.
  • SED has not taken advantage of opportunities to use technology to replace many of the manual steps that staff must undertake. The 17 rate-setting staff work with CFR data from more than 700 providers who operate over 1,400 programs, each of which could require several different rate calculations and adjustments.
  • Providers receive limited training and instructions from SED. Training is limited to an optional CFR preparation course offered twice each year. SED does give all providers manuals and periodic updates describing regulations, cost reimbursement rules and CFR claiming processes. However, it mainly relies on providers to ask questions if they don't understand something.
  • CFRs are often filed late and are often rife with error. Existing penalty provisions do not function as an effective deterrent to these problems.
  • Rates are usually not finalized until a year after services have been provided and paid for. However, when audit disallowances do occur, the State recovers its funding immediately by reducing payments to the effected county, which is then left to handle any possible collection from the provider.
  • Information sharing between SED and other funding agencies is ad-hoc at best. Cost adjustments do not result in a revised CFR available to other funding agencies. Although some sharing does occur through the CFR Interagency Committee in the case of large audit adjustments or suspected fraud, many programs funded by these other agencies are not cost-based and
    therefore not affected.

Key Recommendations

  • Develop and implement a strategy, including necessary resources, for providing adequate onsite fiscal and program monitoring of special education providers.
  • Establish a formal process for identifying and reporting CPAs who appear negligent in their certification of CFRs to the Office of the Professions.
  • Coordinate with other State agencies to develop a system to ensure that CPAs certifying provider CFRs demonstrate appropriate training, competence and performance.
  • Review the CFR and rate-setting processes to identify opportunities for streamlining operations, updating technology and reducing complexity and the occurrence of errors.
  • Assess the feasibility of meaningful monetary penalties for providers failing to provide an accurate and timely CFR.
  • Formalize policy and procedures for sharing identified provider problems with other State agencies that are also funding the provider.
  • Reevaluate and enhance provider training requirements, including frequency, content and requirements for attendance.

Other Related Audits/Reports of Interest

IncludED Education Services, Inc.: Compliance With the Reimbursable Cost Manual Report 2010-S-59
Achievements, PLLC: Compliance With the Reimbursable Cost Manual Report 2011-S-18
Bilingual SEIT, Inc.: Compliance With the Reimbursable Cost Manual Report 2011-S-13

State Government Accountability Contact Information:
Audit Director:John Buyce
Phone:(518) 474-3271; Email:
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236