ITHACA, N.Y.—A recent audit of the Franziska Racker Centers by the Office of the New York State Comptroller (OSC) found that Racker had reported $199,372 in ineligible costs on its Consolidated Fiscal Report (CFR) for the 2018 year.
Racker, a nonprofit organization that provides preschool and other special education programs for individuals with disabilities, set out in 1948 with a mission of creating meaningful supported learning opportunities for families with loved ones with intellectual and developmental disabilities. The founding sentiment of the center being that “We don’t want our child with a disability to be in an institution. We want them to be at home. We want them to go to school with everyone else.”
The audit, which was specifically focused on the preschool program located in Cortland (though the Racker Center is headquartered in Tompkins County), found $199,372 in “ineligible” reported costs. As per the Reimbursable Cost Manual (RCM) the center uses, all costs submitted for reimbursement must be proved as “reasonable, necessary and directly related to the special education program and sufficiently documented.”
The larger of two categories examined in the audit was that of personal service costs, defined as salaries and fringe benefits, which must also be categorized as direct or non-direct care costs, teacher or administrator costs respectively. Within the $94,258 objectionable funds in the personal service category, $69,538 were listed as having inadequate time records, $20,977 in improperly allocated funds and $3,743 in unauthorized extra compensation payments, like bonuses, which the audit found to be not written into employee contracts as the RCM requires.
The other category, what the audit calls Less Than Arms Length (LTAL) (but more simply known in this case as rent), is lease transactions, which are listed at $87,304, and the CFR Manual requires providers to “report all transactions, including compensation, where an individual has significant authority and control in the organization with which the reporting entity may deal.”
According to the RCM, all LTAL costs associated with rent payments will be reimbursed based on the amount of actual payments made. Racker’s policies include disclosure of LTAL relationships that may be a conflict of interest, though the report states that proper documentation was not provided making these costs not reimbursable.
All timesheets must be documented on payroll and completed monthly with signatures from both the employee and their supervisor. Any “extra compensation” funds also require proper documentation within the employee’s contract, and one-time bonus compensation gets categorized as a merit award and is not directly related to the employee’s hours worked.
The state’s audit makes three recommendations to the center for moving forward: first, that the State Education Department (SED) will review reported costs and adjust reimbursement as it sees fit; second, that it will ensure calculations are reviewed pertaining to tuition costs to ensure accuracy and third, to “remind Racker officials of the pertinent SED requirements that related to the deficiencies.”
In the Racker Centers’ audit acknowledgment letter, Executive Director Daniel Brown addressed OSC’s findings, stating that each Racker entity has different cost-reporting requirements that can make cohesive policies challenging.
The letter from Brown also notes that the Center switched from paper timekeeping to electronic timekeeping in 2019 which has ensured proper documentation for reimbursable salary costs.
The rent LTAL costs that the OSC disputes are “just wrong,” according to Brown, who went on to explain that an “LTAL exists when a person can exert undue influence on a decision creating an opportunity for favorable treatment,” something that occurred in a dispute between previous associate and Emeritus board members in non-voting positions. “We are very confident that the SED will read our responses and take no actions,” Brown said.
In 2018, Racker switched to an electronic time management system after previously reporting timesheets manually and using an approval system for exempt staff. “Although some of the paper documentation and approvals were incomplete, we have no doubt that the employees’ time was authorized and approved by their supervisors.”
While courts are not involved in addressing what audits find, Mark Johnson of the OSC said that “the next step is for the State Education Department to recoup the overpayments by adjusting rates going forward.”
“Racker has had a preschool program since our founding in 1948,” Brown said. “Our board and staff are committed to this work and we use all the money we raise from the community to keep providing this service.”
CORRECTION: The original version of this article listed Racker’s medical director along with Brown, though he has since been removed as he had no part in the audit.