Anybody who receives government funding knows that funding from the government is a two-way street… yes, you receive funding on either a cost based or fee-based basis, but at some point in time, the government will be checking in to determine if you properly expended the funds and you have properly documented your compliance with laws and regulations. If not, you may be writing a check back to cover your compliance shortfalls. The main agencies that perform these audits within New York State are the Office of the State Comptroller (cost-based services), the Office of the Medicaid Inspector General (fee-based Medicaid funded), or the specific funding source (cost based, fee based, programmatic).
OSC Audits:
The OSC has been performing audits of preschool special education providers since 2014. In 2023, the OSC continues to perform provider audits as they continue to work through their mandate to audit all preschool special education providers. While the number of OSC audits are down, the findings they continue to report on are consistent:
- Misallocation of staff and expenses
- Lack of back-up support for expenses
- Non-allowable costs charged to tuition-based programs
- Contractor invoices that lack information mandated by the RCM
- Rent not in accordance with approval letters
- Pension and other benefit costs not in compliance with RCM
Remember, in a cost-based reimbursement system, maintain proper documentation of expenditures, understand the reimbursement methodology (read the RCM), have support for the nature of expenditures and how they are allocated, and put in place strong systems.
Child Care Stabilization Funding Reviews:
In May, OCFS sent around an e-mail to all providers that received Child Care Stabilization funding to remind them that when they received the Child Care Stabilization Grant, that such funding was subject to review by the OSC. We are not aware of any agency receiving notification that they were selected for a review, but it is clear that such reviews will be coming. It is unclear as to how many agencies will be reviewed, what the exact audit protocols will be, how long they will last, etc., but providers who receive the Child Care Stabilization funding should begin to ensure they have all the necessary documentation in place. Please click here for Stabilization Grant Recipient Guidance distributed by OCFS. Take the time to review the package and pull together a complete audit package to support how you expended these funds.
OMIG Audits:
Similar to the OSC’s audits of 4410 providers, the OMIG has commenced its audits of all EI providers. However, unlike the OSC audits, which are based upon expenditures, the OMIG audits are compliance focused. The OMIG has issued its audit protocols (click here to review), which outline the steps that the OMIG will take in performing its audit. To date there have only been a few OMIG audits that have occurred, but don’t worry, if you are in the space, you will get your golden ticket in the future and you need to be prepared. We recommend you familiarize yourself with these protocols and incorporate them into your utilization review and/or your Medicaid compliance audit procedures. Also, consider stalking the OMIG’s website to review reports that have been issued to get an idea of what sort of findings they are identifying. The OMIG uses statistical sampling to choose its samples for testing (usually a fraction of 1% of your claims) and then extrapolates its error rate over the entire population, so a small error can extrapolate to a large recovery.
IRS Audits of ERC Claims:
The employee retention tax credit provided pursuant to the CARES act provided much needed support for many providers impacted by the COVID pandemic. Unfortunately, many third-party providers took aggressive positions with respect to these credits, filing claims where individuals may not be eligible for them. As a result, the IRS has begun performing audits of ERC claims. While the IRS hasn’t specifically identified what it will be looking for in conjunction with these audits, based upon other IRS audits, the focus will most likely be on: eligibility, accuracy of amounts claimed, and other errors. The IRS typically has three years from the date you filed your refund claim to audit you.
NYC OAG IDEA Audits:
Several providers have undergone NYC OAG audits of their IDEA funding. The OAG has been reviewing appropriateness of expenditures and accuracy of student counts/FTE’s which drive the amount of funding to begin with. This has resulted in recoupments by the OAG.
Funding Source Audits:
In addition to the above, annual audits by your funding sources from a programmatic and fiscal perspective typically take place. The programmatic audits are typically compliance related, resulting in findings and a need for a corrective action plan, while the fiscal audit could result in recoveries.
With many of your funders interested in ensuring compliance with regulations, we will continue to see an increase in audit activity. Knowing this, it is in your best interest to closely monitor audit reports, implement stronger quality assurance/internal audit functions, strengthen documentation and internal controls, and elevate the overall compliance of your organization.
Brian Warfield, MS
Senior Accountant
Brian is a member of Cerini & Associate’s senior SED audit and consulting staff where he works with nonprofit, special education and school district clients.