Fiscal Report

The Consolidated Fiscal Report

24 Jun 2015

SED guidelines require Executive Directors, Chief Financial Officers, and auditors of special education programs to have a strong working knowledge of the Consolidated Fiscal Report, or CFR. SED has set-up up a webinar on their website, and there have been CFR training throughout the State to help these individuals become more knowledgeable. These training have focused on the preparation of CFR’s, the core schedules, and the various supplemental schedules that need to be filed. While these are very important, it is also important to understand the significant level of information that exists on the CFR and how C-level executives should look at the CFR on an overall basis to determine if the agency is properly spending its funds, has appropriate controls in place, and is maximizing its efficiencies.

As stated above, the CFR filing for SED programs consists of certain core schedules (CFR-1, CFR-2, CF-3, CFR-4 and 4a, CFR-5, and CFR-6) as well as 2 supplemental schedules (SED-1 and SED-4). Each schedule has a different purpose, but at the end of the day, the information on the various schedules is all integrated and must make sense. In doing a top side review, CEO’s and CFO’s should consider the following:

CFR-1: The purpose of CFR-1 is to outline your costs by program. Your SED funded programs are broken into cost based programs (special education tuition based programs, including SEIT, and your IDEA grants) and fee based programs (EI, evals, RSO, 1:1 aides). Programs cannot make a profit on their cost based programs and can make a profit on fee based programs. As such, the total revenue on line 100 of CFR-1 (net of line 86), should not exceed the total expenses on line 67 of CFR-1 for any of your tuition based programs. If it does, it may indicate that there is a mistake (e.g. too much revenue is recorded in the GL or the wrong rate was used to calculate revenue). If your expenses are greater than your revenue in any program, cost or fee based, this is an indication that you may have a loss in these programs for the year.

Tuition based programs are subject to two screens, a non-direct care screen, and a total cost screen. The total cost screen limits your reimbursable expenditures to the prior year’s reconciled rate per child impacted for any trend factor (note there has not been any trend factor in the past 6 years). As long as you are utilizing the correct rates, you will be able to identify if you are hitting a total cost screen when you compare your expenses to your revenue. The non-direct care screen is a little harder to determine. SED limits the amount of non-direct care costs providers can spend in tuition based programs to 30%. Any costs above that threshold are non-allowable. Direct costs include salaries and related fringes for direct care staff (200 and 300 level staff), food, participant transportation, staff travel, participant incidentals, expensed adaptive equipment, staff development, contracted direct care staff, classroom supplies, and depreciation on classroom equipment (e.g. computers and smart boards). All other costs are considered non-direct care costs for determination of the non-direct care screen.

You are required to capitalize all assets that have a value of $5,000 or more and a useful life of 2 years or more. The $5,000 value is not a per item amount, it is a cumulative total for the year. For example, if you purchased three computers in September at $1,000 each and another three computers in May at $1,000 each, according to the RCM, all six computers should be capitalized.

You should establish an allocation policy and a non-allowable cost policy. The allocation policy should outline the various allocation methodologies for each line used on CFR-1 (review Appendix J) and your non-allowable cost policy should outline how you determine if costs are allowable or not. You should utilize both the RCM and Appendix X of the CFR.

CFR-2: Summarizes all of your costs by program. The key to this schedule is that your revenues and expenses per this schedule need to be reconciled to your financial statements (providing your financial statements and CFR are filed on the same year-end). Your reconciliation should appear in a supporting schedule of the CFR.

CFR-3: Outlines agency administrative costs incurred by the agency. Line 68 shows your overall administrative percentage for your SED program. The higher this percentage, the more likely you will hit a non-direct care screen. Administrative costs are allocated to the various programs utilizing the ratio value method.

CFR-4: Outlines the salaries paid by the provider to employees. The salaries are reflected by position title code. As previously outlined 200 and 300 level staff are considered direct and the rest of the staff are non-direct. When SED reviews CFR’s they are interested in ensuring that staff are not misclassified between direct and non-direct. As a result, they will focus on certain position title codes used by your agency

  • Supervising teacher (PTC 215 vs 518) – both of these are supervising teachers. Code 215 should only be for teachers who are supervising for 25% or less of their time. An individual charged to 518 should have an administrative license
  • IEP Coordinator/Curriculum Coordinator – Programs often place supervisory staff that are not licensed in this category or a program or assistant program director, in order to convert non-direct to direct costs
  • 500 level verse 600 level staff – While both of these code levels are administrative, 500 level staff are chargeable to programs on CFR-1 while 600 codes are allocated through CFR-3 using the ratio value method. 500 level staff, as well as any staff being charged to multiple programs, should have time studies prepared covering 2 weeks each quarter

You should make sure you have job descriptions that match out to the work people are performing and to their position title codes.

CFR-4a: Outlines amounts paid to direct care outside contractors for services provided to the agency. There should be no teaching staff on CFR-4a as teachers should be paid staff and not outside contractors. The position title codes on CFR-4a are the same as the codes on CFR-4.

CFR-5: Requires providers to disclose related party payments. This includes wages paid to related parties, payments made to related entities, repayment of debt, etc. It is important to remember that unless you have a waiver, payments made to a related party are held to the lesser of fair market value or actual costs incurred by the related party. Any amounts paid in excess of the related parties actual costs will be disallowed. You should make sure you have a conflict of interest policy and annual statements signed by your key management, fiscal staff, board members, audit committee members, and IT staff.

CFR-6: Requires providers to list the 5 highest paid employees whose annualized salary is in excess of $75,000 and all employees generating more than $125,000 in annualized compensation. What is reflected on CFR-6 is annualized compensation, not compensation paid. CFR-6 also requires providers to list the top 5 providers that were paid in excess of $50,000.

SED-1: Requires providers to disclose information about their classes and the students they serve. The approved classroom ratios reflected on your CFR should match to your latest approval letter; the students should make sense given classroom ratios and number of classes, taking into consideration if any classes were overenrolled; and SEIT services should reflect delivered services and not mandated on line 115. In addition, unless a provider is operating solely collaborative integrated classrooms, non-disabled student counts should be reflected on SED-1. If you have non-disabled students counts in your integrated classrooms on SED-1, then you should have a corresponding amount of offsetting revenue in these programs on CFR-1.

SED-4: Focuses on two measurements of efficiency/productivity of a provider’s related service delivery. The first is a provider’s delivery rate, which is its delivered units divided by its mandated units. This percentage should be in excess of 80%. The second measurement is the delivered services as a percentage of available staff and contractors, which is reflected in column 6 of the form. If this percentage is low (below 70% or so), you need to explain to SED why the percentage is low when you go for an appeal or a cost waiver due to an increase in student intensity. This percentage is built off the premise that related party staff will deliver 50 half-hour units of service per week. If you are not building those levels of productivity standards into your staff scheduling, it will be difficult for you to hit an appropriate percentage.

The CFR is an important document, one that contains a lot of information. If you do not properly complete your CFR, you will find out on desk audit, or more costly when the OSC or counties come in to audit you. Take the time to read the manual and instructions and the RCM (they are both on the SED website), and if you have any questions, do not hesitate to contact us.

This article was also featured in our newsletter Special Ed-ition Vol. 13