Comptroller Lander Conducts Sweeping Audits of 4 Human Service Agencies Use of Subcontractors, Uncovering Significant Deficiencies

New York, NY – In a series of four audits spanning five separate agencies from Fiscal Years 2022-2024, New York City Comptroller Brad Lander found that human service agencies—the Department for the Aging (NYC Aging), the Department of Health and Human Services (DoHMH), the Administration for Children’s Services (ACS), and the Department of Social Services (DSS) that is comprised of the Department of Homeless Services (DHS) and Human Resources Administration (HRA)—maintained insufficient oversight of its prime and subcontractors. In total, prime vendors paid more than $8.6 million to unauthorized subcontractors.

“New Yorkers deserve to know exactly where their tax dollars are being spent, and instead our human service agencies did not consistently maintain vetting records for subvendors, log subvendors into our payment tracker, or keep tabs on prime vendors so that they pay subvendors on time,” said Comptroller Brad Lander. “Procurement policy often falls to the bottom of municipal priorities, but so many essential services from combatting homelessness to children services are done by human service vendors who in turn rely on subcontractors. With inconsistent guidelines, caterers don’t get paid for feeding our seniors and doulas are waiting to be paid for delivering healthy babies. On the flip side, without clear oversight, corruption risks can seep into our contracting process.”

Due to the history of risks in the City’s subcontracting process, the Comptroller’s Office initiated a series of audits focused on agency oversight of subcontractors associated with health and human services contracts on August 30, 2023. The audits uncovered systemic deficiencies across all four agencies:

1. Prime vendors paid more than $8.6 million to unauthorized subcontractors.

When auditors reviewed the general ledgers of 25 vendors across 31 contracts, the auditors found 25 additional subcontractors that performed work on 11 contracts for four agencies, NYC Aging, DOHMH, ACS, and HRA, even though these agencies did not authorize their utilization on these contracts. Of the 25 additional subcontractors found without authorization, prime vendors utilized two subvendors on contracts for which the primes reported that they were not using subcontractors.

In one instance, a prime vendor, Allen AME, included an unapproved subcontractor, Queens Village Transportation, in its invoice to NYC Aging, but listed a different, previously approved subcontractor, Ride Rite Transportation, as the vendor that provided the services. NYC Aging approved and paid this invoice.

2. Agencies did not consistently maintain evidence that subcontractors were vetted and approved

Even though all audited agencies had a policy requiring that proposed subcontractors be vetted and background checks be conducted for subcontracts valued at or above certain dollar amounts, the auditors did not find sufficient evidence to indicate that agencies consistently vetted and conducted background checks on subcontractors. 24 out of the 63 subcontractors on our sampled contracts across all four agencies lacked evidence of being vetted.

DOHMH generally ensured that prime vendors provide Subcontractor Approval Forms (SAFs) for subcontractors; however, the auditors found that the forms were incomplete for six of the 21 approved subcontractors sampled. Specifically, the required dates (such as approval date) were missing, and required boxes (such as agency approval) were not checked.
ACS did not maintain evidence of the vetting process for any of the sampled subcontractors even though its policy requires that subcontracts valued at $20,000 or more undergo a “Responsibility Determination” (vetting process).

3. Agencies did not ensure prime vendors solicited estimates from subcontractors

The prime vendor must solicit and document at least three written estimates for any payment made or obligation undertaken in connection with the agreement for any purchase of goods, supplies, or services for amounts exceeding $25,000.
For three agencies—NYC Aging, DOHMH, and HRA—auditors did not see evidence that prime vendors obtained bids for several subcontracts that were at or above the stated threshold. HRA had no evidence that their prime vendors obtained bids for all 11 sampled contracts requiring a bid.

4. Sampled subcontractors were not consistently recorded or approved in the Payee Information Portal (PIP) in a timely manner

Although prime vendors are required to enter all proposed subcontractors into PIP, none of the five agencies ensured that all subcontracts on the sampled contracts were recorded and approved in PIP in a timely manner. HRA was the most egregious with approvals of subcontracts happening 583 days or longer after the subcontracts’ start dates (and approvals occurring only after auditors discussed the matter with agency officials).

5. Agencies do not monitor timeliness of primes’ payments to subcontractors

While the City must pay prime vendors within 30 days of receiving an invoice, the City has not established any mandatory timeframe for prime vendors to pay subcontractors. However, the audits found that the agencies did not monitor prime contractors’ payments to subcontractors.

For example, auditors found that one of NYC Aging’s prime vendors, Southside United Housing Development Fund Corporation, paid 89% (47) of its invoices to subcontractor Riseboro over 30 days late. DOHMH’s prime vendors on four sampled contracts paid 17 out of 18 invoices submitted by six subcontractors anywhere between 32 to 214 days after the invoice dates. Those 17 subcontracts totaled $2.16 million.

Worse, NYC Aging reimbursed prime contractors $381,700 for subcontractor expenses that had not actually been paid to Salsa Catering & Special Events and Gotham Catering.

6. Inconsistent guidance concerning payment of subcontractors

The Mayor’s Office of Contract Services established a subcontractor agreement template, which recommends that prime vendors pay subcontractors upon receipt of an invoice, but it is not mandatory. Because prime vendors and subcontractors enter their own agreements, payment terms vary. Through PASSPort’s Subcontractor Module, agencies will now be able to validate prime vendors’ payments to subcontractors and gain information like proof of goods and services provided between invoice submission and payment date.

In addition, each audit looked at the progress these four agencies took to close corruption vulnerabilities in the City’s oversight of not-for-profit human service contracts based on the 2021 Department of Investigation report on Corruption Vulnerabilities in the City’s Oversight and Administration of Not-for-Profit Human Services Contracts. While the vast majority of human service nonprofits are dedicated to providing high-quality services and make best efforts to administer public funds responsibly, the 2021 Department of Investigation report revealed significant gaps in oversight that have increased corruption vulnerabilities. Of the 23 recommendations the DOI report made, 18 of these recommendations were directed at these four agencies, five were directed at MOCS, and seven of the 18 recommendations relate to agencies oversight of subcontracting. Auditors found that the audited agencies have not fully implemented DOI’s recommendations four years later. However, the Comptroller’s Office met with MOCS and MOCS communicated that the City is in the process of implementing DOI’s first recommendation.

While these contracts do not have a M/WBE requirement, the audits also looked at M/WBE use on HHS contracts because increased M/WBE use can help the City meet its participation goals. Less than five percent of for-profit subcontractors for the sampled human service contracts went to M/WBEs.

Auditors recommend that for all four agencies, agencies should:

1. Prevent payments to unapproved subcontractors by carefully reviewing invoices submitted by the prime vendors, periodically reviewing prime vendors’ general ledgers, and requesting and reviewing subcontractors’ agreements and invoices.
Agency Responses: NYC Aging and DOHMH agreed with this recommendation. DSS and ACS did not.

2. Ensure that prime vendors are submitting subcontractors’ information including sub agreements and payment information as required in PASSPort (previously PIP and HHS systems).
Agency Responses: NYC Aging, ACS, and DOHMH agreed with this recommendation; DSS partially agreed.

3. Document the process of vetting and conducting background checks of proposed subcontractors.
Agency Responses: NYC Aging and ACS agreed with this recommendation; DSS did not. DOHMH argues that a process is already in place (despite the audit findings).

4. Ensure that competitive bidding is conducted by prime vendors when selecting subcontractors.
Agency Responses: This recommendation applied to NYC Aging, DOHMH and DSS. Only DSS disagreed.

5. Review subcontract agreements for prompt payment stipulations and ensure that prime contractors are paying their subcontractors in accordance with those stipulations.
Agency Responses: NYC Aging and DOHMH agreed with this recommendation; DSS partially agreed; and ACS did not address this recommendation.

6. Ensure costs for goods and services provided by subcontractors are actually incurred by prime vendors as a condition of reimbursement from the City.
Agency Response: This recommendation only applied to NYC Aging, which agreed with this recommendation.

7. Implement DOI’s 2021 recommendations to City agencies and comply with MOCS’ policies and directives created to provide guidance for their implementation.
Agency Responses: This recommendation applied to NYC Aging, ACS, and DSS. NYC Aging and ACS agreed with this recommendation but DSS did not.

8. Consider increasing their use of M/WBE contractors and encourage their prime vendors to increase their use of M/WBE subcontractors.
Agency Responses: NYC Aging and ACS agreed with this recommendation; DSS disagreed. DOHMH found it unnecessary, arguing that it already uses M/WBE vendors.

Read the compilation audit: https://comptroller.nyc.gov/reports/a-compilation-of-audits-of-agencies-oversight-of-prime-vendors-use-of-subcontractors-on-health-and-human-services-contracts/

Read the individual agency audits for the Department for the Aging (NYC Aging), the Department of Health and Human Services (DoHMH), the Administration for Children’s Services (ACS), and the Department of Social Services (DSS).

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