Audit of South Shore Stars, Inc. Objectives, Scope, and Methodology

An overview of the purpose and process of auditing the South Shore Stars, Inc.

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor (OSA) has conducted a performance audit of certain activities of South Shore Stars, Inc. (Stars) for the period July 1, 2017 through November 30, 2019.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

During fiscal year 2019, the Department of Early Education and Care (EEC) contacted OSA regarding the results of a site visit EEC had conducted at Stars from May 16, 2018 through May 22, 2018. According to EEC’s June 8, 2018 site visit report, which it provided to OSA,

On March 21, 2018, [Stars] informed EEC of [alleged] fraudulent activities performed by the organization’s Enrollment Director. The Enrollment Director had full access . . . to EEC’s Child Care Financial Assistance application (CCFA) which allowed him to create authorizations and placements within CCFA and, in doing so, intentionally violating regulations and policies that govern the [Child Care Development Fund] program.

EEC’s report states that these allegedly fraudulent transactions⁶ took place between November 2016 and March 2018. They involved 141 families and a total of $563,926 of subsidized early childcare funding, which consisted of $456,246 in payments made by EEC to Stars for families whose incomes were incorrectly reported in the Child Care Financial Assistance (CCFA) database maintained by EEC and $107,680 in daycare copayments that the enrollment director may have misappropriated from parents or caregivers. When EEC officials brought this matter to OSA’s attention, they stated that their site visit only involved looking at the records of the parents or caregivers EEC suspected to be victims of these allegedly fraudulent transactions. EEC officials stated that they would like to know whether any other families were targeted by the enrollment director and whether Stars now ensured that all applications for subsidized childcare were properly processed. As a result, OSA initiated an audit of Stars.

Below is our audit objective, indicating the question we intended our audit to answer, the conclusion we reached regarding the objective, and where the objective is discussed in the audit findings.

Objective	Conclusion
Excluding subsidy files that were previously identified to have misreported eligibility information, did Stars determine eligibility for subsidized childcare in accordance with Sections 10.03 and 10.04 of Title 606 of the Code of Massachusetts Regulations (CMR) and enter eligibility information in CCFA?	No; see Finding 1

 

To achieve our audit objective, we gained an understanding of the processes and internal controls we determined to be relevant to our audit objective by reviewing EEC policy guides and procedure manuals, as well as conducting interviews with Stars’ enrollment staff and management. We evaluated the design and implementation, and tested the operating effectiveness, of controls over eligibility for subsidized childcare and entry of information in CCFA.

Additionally, we conducted further audit testing as described below.

Subsidized Childcare

We obtained authorization and reauthorization records through billing data extracted from CCFA. EEC periodically issues financial assistance policy guides as an aid in implementing 606 CMR 10. We tested authorizations approved from July 1, 2017 through September 30, 2018 using the Financial Assistance Policy Guide for Families, Caregivers, and Service Providers 2013. For authorizations approved October 1, 2018 through November 30, 2019, we used the Interim Financial Assistance Policy Guide, effective October 1, 2018, and the Financial Assistance Policy Guide, effective March 1, 2019.

From the population of unique CCFA authorizations approved July 1, 2017 through September 30, 2018, we removed 141 subsidy files that EEC and Stars had previously reviewed (see discussion of EEC’s June 8, 2018 report above) to arrive at 621 unique authorizations. We then selected a random, nonstatistical sample of 47 unique authorizations. From the population of 386 unique CCFA authorizations approved October 1, 2018 through November 30, 2019, we selected a random, nonstatistical sample of 39 unique authorizations. Because we did not use statistical sampling, we cannot project the results to their respective populations.

For the samples selected, we reviewed eligibility documentation that parents or caregivers must submit when applying for subsidized childcare, such as photo identification (ID), proof of address, children’s birth certificates, need-for-service information, proof of income, and signed applications and fee agreements. We used this documentation to calculate the applicants’ monthly incomes, family sizes, and need for service. We also calculated copayments by referring to the Financial Assistance Parent Co-Payment Table that EEC uses to determine family copayments. We then traced eligible applicants’ information (need for service, income, and children’s and parents’ or caregivers’ names and ages) to CCFA and compared our eligibility determinations, copayments, and need-for-service hours to the corresponding data in CCFA.

Because we did not use statistical sampling, we cannot project the results to their respective populations.

Data Reliability Assessment

Family information, eligibility, authorizations, and placement are recorded in CCFA. To assess the reliability of eligibility data in CCFA, we performed testing on selected system controls (access controls, configuration management, contingency planning, and segregation of duties) implemented during the audit period. We also performed the following tests:

• We selected 20 childcare clients from CCFA and determined whether the information (family ID number assigned by EEC, authorization start and end dates, child name, parent or caregiver name, child birthdate, need for service, and copayment) in CCFA matched hardcopy subsidy files.
• We selected 20 hardcopy subsidy files and traced the information therein (family ID number, authorization start and end dates, child name, parent or caregiver name, child birthdate, need for service, and copayment) to CCFA.
• We ensured that the CCFA data contained no duplicate records, invalid agreement types or subtypes, data outside the audit period, invalid fee amounts, or blank fields.

Based on our assessment, we determined that the data obtained from CCFA were sufficiently reliable for the purposes of our audit work

6.     According to EEC officials, this matter was referred to the local district attorney. On September 16, 2019, the former Stars enrollment director, whom Stars terminated on March 20, 2018, pled guilty to various counts of larceny. He was ordered to pay restitution in the amounts of $456,246 to EEC and $107,680 to Stars.

Date published:	June 30, 2020