Audit Report on the Oversight of Contracted Day Care Centers by the Administration for Children’s Services

AUDIT REPORT IN BRIEF

This audit determined the adequacy of oversight of contracted day care centers by the Administration for Children’s Services (ACS). ACS is responsible for ensuring that all publicly funded day care centers meet Federal, State, and City regulations. Among its primary duties, ACS reviews every sponsor’s annual audit report to ensure that all fiscal obligations are met. In addition, its staff visit every day care center and perform program evaluations. In Fiscal Year 2001, ACS had contracts with 260 sponsors that operated a total of 493 day care centers throughout the five boroughs and cost the City a total of $440 million.

ACS oversight of the day care centers is ineffective and lacks a coordinated and comprehensive approach by the four monitoring units responsible for overseeing the fiscal and programmatic requirements of the contracted day care centers. Our testing of 50 randomly selected sample of sponsors found the following:

• Six percent of our sampled sponsors failed to submit an annual audit report to ACS, and 59 percent of the remaining sponsors submitted the annual report after the required due date.
• Twenty-four percent of the sampled sponsors engaged CPA firms that were not on the Comptroller’s Pre-qualified List, as required by ACS Interim Audit Guidelines.
• Forty-three percent of the sampled sponsors who collected private tuition failed to include those funds in their financial statements.
• There is little communication among the four separate units that monitor and evaluate the sponsors’ performance. In addition, these units have no central tracking system to allow these units to readily identify outstanding deficiencies. As a result, fiscal and programmatic deficiencies remain unresolved or go undetected.
• There are inadequate outreach efforts by ACS to train staff at day care centers that are poorly run and identified by ACS as having serious problems. As a result, the staff most in need of training are not taking the classes offered by ACS.
• ACS failed to perform an annual programmatic evaluation at 20 percent of our sampled day care centers. Half of these day care centers were classified by ACS as "needing the most assistance."

To address these issues, we make 14 recommendations. Among them, we recommend that the Administration for Children’s Services:

• Include in the ACS Interim Audit Guidelines a specific date for sponsors to submit a letter attesting to the engagement of an independent auditor to perform an annual audit. If a sponsor fails to comply by the due date, the director of the Audit Review and Fiscal Compliance Unit should promptly contact the sponsor.
• Determine whether the CPA firm selected by a sponsor is from the current Pre-qualified CPA List. If not, the fiscal unit director should send a reminder to the sponsor that only CPA firms on the Pre-qualified List are acceptable. A current copy of the Comptroller’s Pre-qualified CPA List should be included in the reminder.
• Determine whether each day care center has private tuition students and ensure that this information is accurately reflected in the annual audit reports prepared by the CPA firms.
• Consider reorganizing the Audit Review and Fiscal Compliance Unit and the Technical Assistance Unit to improve communication, avoid duplication of effort, and hold those in charge accountable for all fiscal matters, including reviewing the audit reports, visiting the day care centers, and providing fiscal training to both sponsors and employees of the day care centers.
• Update and develop clearly written procedures and establish a strong internal control structure to ensure that day care centers and sponsors are properly evaluated, that fiscal deficiencies are identified and resolved, and that day care centers and sponsors receive appropriate assistance in resolving fiscal deficiencies.
• Consider reorganizing the Program Assessment Unit and Resource Area Units to improve communication and to hold those in charge accountable for all programmatic matters of day care centers, including performing annual program evaluations, visiting the day care centers, and responding to the centers’ program needs.
• Update and develop clearly written procedures and establish a strong internal control structure to ensure that day care centers and sponsors are properly evaluated, that program deficiencies are identified and resolved, and that day care centers and sponsors receive appropriate assistance in resolving program deficiencies.
• Develop and implement a centralized automated tracking system that includes all the day care centers and sponsors, complete with defined milestones, to ensure that each day care center and sponsor complies with applicable contract requirements. In addition, this system should record deficiencies that remain unresolved at each day care center so that the monitoring unit can follow up to ensure that outstanding deficiencies are resolved. This system should be accessible to all the ACS units.

The matters covered in this report were discussed with ACS officials during and at the conclusion of this audit. A preliminary draft report was sent to ACS officials on April 1, 2003, and was discussed at an exit conference on April 25, 2003. We submitted a draft report to ACS officials on May 1, 2003, with a request for comments. We received a written response from ACS officials on May 22, 2003.

In its response, ACS agreed with 10 of the audit recommendations and partially agreed with the remaining four (#4, #6, #11, and #12). In addition, ACS stated, "A major reconfiguration of ACS Child Care is now underway and as a result of this reconfiguration, the responses to these recommendations may change." The full text of the ACS response is included as an addendum to this report.