The New York State Comptroller, Thomas P. DiNapoli, recently announced the release of two audits by the Office of the State Comptroller (OSC) of programs funded by the Office of Alcoholism and Substance Abuse Services (OASAS), which oversees state programs for the prevention and treatment of alcohol and substance abuse. The audits were conducted to determine whether OASAS was effectively monitoring its contracts to ensure that funding claims submitted to OASAS were allowable, property supported, and consistent with contract terms. Agencies that contract with OASAS to receive net-deficit funding reimbursement are required to report all program related expenses annually within the Consolidated Fiscal Report (CFR) in compliance with the requirements stipulated within the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual) and OASAS’ Administrative and Fiscal Guidelines for OASAS-Funded Providers (OASAS guidelines). The CFR Manual and OASAS guidelines stipulate the types of expenses that are allowable and non-allowable for net-deficit funding reimbursement and how non-allowable costs should be reported within the CFR. The two recent OSC audits identified important areas where providers’ annual CFR reports and/or reimbursement claiming procedures were out of compliance with both the CFR Manual and OASAS guidelines, resulting in potentially millions of dollars of non-allowable costs being reimbursed by OASAS with State funds. For future audits, providers should expect OASAS to improve its CFR data analysis and strengthen its overall fiscal review processes to ensure that non-allowable expenses are identified, disallowed, and recouped if improperly reported or claimed. OASAS providers should be aware of and avoid the following errors in CFR reporting and net-deficit funding claiming to OASAS that were identified as a result of these OSC audits:
• Depreciation expense is non-allowable. The OSC audited a total of 321 Drug and Alcohol Treatment programs providers for the period January 1, 2010 through June 30, 2014 to determine whether depreciation was reported, and if so, whether the depreciation expense was included in the provider’s claimed expenses. Through its audit the OSC identified 106 providers that included depreciation expense in its claimed expenses and were collectively reimbursed approximately $2.2 million by OASAS for depreciation expense over the period under audit. It is important to note that per the CFR manual, depreciation may be allowed to be claimed by providers rendering services for other State funded agencies, but it is non-allowable for OASAS net deficit-funding reimbursement.
• Bad debt expense is non-allowable. All bad debt expense that is reported on the CFR must be identified as non-allowable.
• Lobbying expense is non-allowable. It is incumbent on providers to understand and appropriately identify such types of expenses as non-allowable within the CFR. The CFR Manual Appendix X – Adjustments to Reported Costs states that expenses “whose intent is to influence legislation or appropriation actions pending before Local, State or Federal bodies” may be reported within the CFR but must be identified as non-allowable lobbying expenses.
• All expenses that are unreasonable or unnecessary for providing services are non-allowable. Payments for office parties, meals for executives and employees, other entertainment-related expenses, charitable donations, fines, and penalties all qualify as “unreasonable” and/or “unnecessary.” These expenses may be allocated to a program and reported on the CFR but must be identified as non-allowable.
• CFR reporting for programs that are not funded by OASAS must also comply with the CFR Manual and OASAS guidelines. Should OASAS choose to fund a program in the future, it will rely on a provider’s previous filed CFRs to develop program budgets. Therefore, it is vital that providers report expense information in accordance with the CFR Manual and OASAS guidelines for all licensed OASAS programs, both funded and non-funded.
• Transactions with related parties must always be documented, including support that the transaction was at arm’s length. All fiscal transactions with related parties must be reported on schedule CFR-6. Additionally, it is critical that providers maintain documentation to support that all transactions with related parties comply with OASAS competitive bidding guidelines, as described below. All providers should refer to the CFR Manual Appendix A – Glossary, for definitions of related party and arm’s length transactions.
• Purchases of goods and services must comply with OASAS competitive bidding guidelines. OASAS guidelines require that, when goods or services are purchased in excess of $25,000, a provider must obtain at least three written bids. For goods or services valued between $10,000 and $25,000, telephone quotes must be documented and maintained.
• Reasonable documentation must be maintained to support the allocation of costs between related entities and among various programs reported on the CFR. If an expense is shared across program sites, it should be allocated to each program site using an accepted allocation methodology. Providers should consult CFR Manual Appendix J – Allocating Expenses for Shared Program/Site to ensure compliance with CFR Manual and OASAS guidelines for different types of shared expenses.
A copy of the most current CFR manual and OASAS guidelines can be found at the following websites:
Providers should regularly review the OSC and OMIG websites and review issued audit reports. It is a good way to understand what funding/oversight agencies are looking for. Consider doing self-audits to determine your level of compliance. If you have any questions, please feel free to call us.
Lauren has been a member of Cerini & Associates’ audit and consulting practice area for over five years where she focuses on serving nonprofit, healthcare, education and contractor clients. Lauren has experience performing assurance work, outsourced accounting work, and government filings. Lauren brings her expertise, diversified background, and helpful approach to all of her engagements.