Bureau of Audit
Audit Report on the Compliance of the Department of Homeless Services with City Procurement Rules and Controls over Payments to Non-Contracted ProvidersFK09-069A
March 25, 2010
AUDIT REPORT IN BRIEF
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The Department of Homeless Services (DHS) is responsible for providing temporary emergency shelter and social services to eligible homeless families and individuals in a safe and supportive environment. Services for homeless families are primarily delivered by approximately 150 providers under both formal written contracts and unwritten or handshake agreements with DHS. DHS pays non-contracted providers for services based upon mutually-agreed-upon daily rates and provider-reported lodging data.
We conducted this audit to determine DHS compliance with regulations for contracting and paying providers of shelter and social services to homeless families and to assess DHS’s monitoring of those services. In Fiscal Year 2008, DHS made payments totaling $152.7 million to 107 non-contracted providers.
Audit Findings and Conclusions
In Fiscal Year 2008, DHS failed to contract with providers of shelter and social services and did not account for and process provider payments through the City’s Financial Management System (FMS) as required by the New York City Administrative Code, the City Charter, the Procurement Policy Board (PPB) rules, and Comptroller’s Directive #24. Instead, DHS operated using unwritten agreements and paid providers from an agency bank account.
Previous Comptroller’s Office audits and letters in June 1998, October 2003, June 2007, and June 2008 cited DHS for its failure to contract formally for shelter services. Although DHS stated in October 2003 that it would make “every effort to convert to contract,” it failed to do so.
As of February 2008, DHS did not have contracts with 91 of 154 providers. These 91 providers accounted for 5,150 of 9,649 units—more than 53 percent—used to house homeless families. During the course of our audit, DHS made progress towards contracting with providers. As of January 2010, DHS contracts for 60 percent of units, and DHS provided documentation that it is in the process of contracting for an additional 8 percent of units used to house homeless families.1However, DHS needs to make additional progress and should do so expeditiously.
In November 2008, DHS began to account for and process all provider payments through FMS. However, DHS continues to violate Comptroller’s Directive #24 because it is improperly using Purchase Orders to process payments to non-contracted providers. Purchase Order Documents should be used only for special, non-procurement expenditures for which a contract is not required.
DHS failed to institute sound and effective internal controls and did not monitor providers to ensure that they accurately recorded and reported client-lodging days. Therefore, when DHS calculates payments to providers, it relies on an honor system and simply uses the unchecked client-lodging days submitted by providers.
Additionally, DHS made unjustified payments to a provider totaling $953,635. DHS maintained that these payments were for expenses, such as real estate taxes, prior year close-out payments, start-up budget costs, and interest on start-up budget costs. However, DHS is not obligated to reimburse providers for expenses in addition to paying them substantial rates of between $810 and $4,836 2 per family per month. Moreover, since the DHS billing system did not allow lump-sum payments to be made to providers, DHS generated the unjustified payments using duplicate lists of clients and service dates and invented rates and provided this data to support and justify the payments.
DHS also failed to adequately monitor providers to ensure that they provided safe and sanitary shelter to homeless families and transitioned them to permanent housing in a timely manner.
To address these issues, we make 15 recommendations, including that DHS should:
- Enter into contracts with all providers of shelter and social services that delineate services to be provided, establish performance standards, and provide termination clauses and remedies.
- Comply with the New York City Administrative Code, the City Charter, and PPB rules regarding contracting.
- Comply with Comptroller’s Directive #24 and record contracts and associated payments in FMS and use prescribed purchasing documents to process payments.
- Immediately institute a sound and effective system of internal controls and monitor providers to ensure that they accurately record and report client-lodging days. These controls should include, but not be limited to, conducting random, periodic inspections of client sign-in logs.
- Pay providers only for shelter and social services and calculate provider payments based on accurate client-lodging data and mutually-agreed-upon daily rates.
- Conduct unannounced periodic site inspections and interviews with clients and staff.
- Work with providers that consistently fail to meet placement targets to improve their performance.
1 These figures are based on the number of facility units and provider contract status indicated on the DHS Family Shelter Listing dated January 12, 2010, as well as DHS emails regarding contract proposal eligibility determinations and Mayor’s Office of Contract Services Calendars of Public Hearings on Contract Awards.
2 Daily rates ranged from $27 to $161.20 per family per day and averaged $88.53 per family per day. We calculated monthly rates based upon a 30-day month.