Audit on the Use of Administration for Children’s Services Funds by the Whitney M. Young Jr. Day Care Center

Audit Report In Brief

The Comptroller’s Office performed an audit on the use of Administration for Children’s Services (ACS) funds by the Whitney M. Young Jr. Day Care Center. The Center, now closed, was a not-for-profit organization sponsored by the Staten Island Children’s Council (SICC), which was responsible for the management and control of the Center and other programs. During the course of our audit, we found some potentially fraudulent transactions and misappropriations of both Center and SICC funds.

There were significant irregularities in SICC’s financial practices. SICC failed to disclose the existence of eight bank accounts and commingled Center funds with other program funds, a practice prohibited by the Center’s contract with ACS. Such practices can conceal deposits and withdrawals and can destroy audit trails. We found potentially fraudulent transactions and misappropriation of funds totaling $727,992, specifically:

• Questionable expenses, totaling $367,562, were made from various SICC bank accounts.
• SICC funds, totaling $69,525, were used to make mortgage payments for a personal residence. The Children’s Holding Corporation applied for the mortgage, and the Center’s Executive Director signed as the Corporate Officer for the mortgage.
• The address for a former operator of one of the Center’s family day care homes was the same as one of the home addresses listed in various computer databases for the Center’s Executive Director. We question the payments made, totaling $31,914, to the operator.
• Questionable ATM purchases and withdrawals, totaling $10,156, were made from an SICC bank account.
• Bank penalties for bounced checks, totaling $8,140, were paid from the SICC bank account for the Center.
• Unexplained “Income Tax Debits,” totaling $129,269, were paid from the SICC bank account for the Center.
• Checks used to make payments, totaling $36,941, from various SICC bank accounts had check numbers that duplicated those on checks already issued that totaled $46,877.
• Checks, totaling $27, 608, were paid from and then deposited in the same account.

By ignoring many of the terms of its contract with ACS and by circumventing internal control mechanisms, SICC created an environment that was readily open to abuse.

To address these issues, the report makes seven recommendations, the most significant of which are that ACS should take measures to ensure that:

• The matters identified in this report regarding the irregularities in SICC financial practices are investigated.
• It recoups from SICC the potentially misappropriated funds we identified, totaling $727,992.
• An investigation is conducted to determine whether anyone other than Denise Pedro, the Center’s former Executive Director, was involved with the irregularities in SICC financial practices.
• It does not award any future contracts to SICCor other organizations that have any associations with SICC’s board members or its former Executive Director.

In their response, ACS officials agreed with the audit’s findings and recommendations. The response stated:

“ACS looks forward to working with your office to improve the delivery of services to the children of the City of New York.

“ACS no longer has a contractual relationship with this organization [SICC], therefore recoupment from payments to the program is not possible. Any action to recover these funds must be through legal action. ACS referred the matter to the appropriate agencies that handle legal matters and recommend recovery of funds as an avenue that should be pursued.”