Audit Report on the Administration of the Customized Training Program by the Department of Small Business Services

Executive Summary

The stated mission of the New York City Department of Small Business Services (DSBS) is to unlock economic potential and create economic security for all New Yorkers by connecting them to good jobs, creating stronger businesses, and building thriving neighborhoods across the five boroughs.

This audit is of DSBS’ awards and payments made in connection with the Customized Training Program (CTP), which reimburses eligible businesses for up to 70 percent of eligible training costs.  DSBS, in partnership with the Workforce Development Corporation (WDC), a City-created not-for-profit corporation, is responsible for administering the CTP.[1]  CTP awards are designed to improve employees’ quality of life, reduce employee turnover, and enable businesses to stay competitive.  In accordance with the terms of the CTP, employees of CTP award recipients are supposed to gain new skills, become more valuable, and then potentially be compensated with wage increases.

To be eligible for the CTP, an applicant must be a for-profit business, located in New York City, and it must demonstrate that it can pay for training upfront, project wage increases for at least 50 percent of trainees, and propose to train at least 10 employees.[2]  Businesses that meet the CTP’s eligibility requirements are presented by DSBS to the WDC Board, a majority of which are DSBS employees, including the DSBS Commissioner and First Deputy Commissioner.  The WDC Board then votes to decide whether businesses will receive CTP awards and the award amounts.  During Fiscal Year 2017, DSBS processed 25 CTP applications, issued 20 awards, and entered into agreements with 8 businesses for a combined maximum total of $835,408, all or some of which may ultimately be paid out to those awardees that fulfill the terms of the CTP program.  In addition, during Fiscal Year 2017, 16 businesses completed their training programs and had their CTP awards closed out for a total reimbursement of $538,120.

In this audit we determined whether DSBS adequately ensured that CTP awards were issued to eligible businesses and that those businesses were reimbursed for allowable costs in accordance with the CTP Guidelines, CTP agreements, and Comptroller’s Directive #1.

Audit Findings and Conclusions

Based on our review of all 25 CTP applications processed during Fiscal Year 2017, we found that DSBS approved CTP awards for businesses that met the following eligibility criteria: that they were a for-profit business located in New York City; had demonstrated their ability to pay for training upfront; had projected wage increases for at least 50 percent of their trainees; and had proposed to train at least 10 employees.  In addition, DSBS reimbursements did not exceed CTP agreement-specified maximum award values and were for allowable types of training and training costs.

However, we also found that DSBS had weak controls over its reimbursements paid to participating businesses for certain training expenses.  As a result, we found that DSBS overpaid eight businesses $28,977 (5.4 percent of the total paid out) and underpaid four businesses $517.  Further, we found that once an award was made, DSBS did not always conduct site visits to ensure that businesses provided appropriate training.  Finally, we found that DSBS did not properly conduct, document, or consider the results of background checks before approving awards to businesses.  The program deficiencies we found occurred, in part, because DSBS does not have written policies and procedures for administering the CTP.

Audit Recommendations

To address the issues identified in this audit, we make the following seven recommendations to DSBS:

• Recoup combined overpayments of $28,977 made to eight businesses and pay combined underpayments of $517 to four businesses.
• Ensure that Project Managers request and review supporting documentation for all training expenses.
• Ensure that peer and supervisory personnel fully review reimbursement packages and payment requests to verify that they are adequately supported and correctly calculated.
• Establish formal written due diligence operating procedures for the CTP unit.
• Ensure that supervisory personnel monitor and track staff to verify that they properly conduct and document the due diligence process and communicate the results of the due diligence to appropriate personnel before award consideration.
• Track site visits to ensure that Project Managers conduct one or more site visits for each award.
• Develop written policies and procedures, communicate them to staff, and train staff on their responsibilities for conducting the due diligence process, evaluating applications, granting awards, conducting site visits, and reviewing and approving reimbursement requests.

Agency Response

In its response, DSBS agreed with six recommendations and did not directly address the remaining recommendation.  The full text of DSBS’ response is included as an addendum to this report.

[1] The WDC is a not-for-profit corporation formed by the City that has a contract with the New York City Economic Development Corporation to provide employment and training opportunities for the residents of New York City and to work in conjunction with government officials and agencies to achieve such purposes.

[2] To be eligible, a business has to project a wage increase for at least 50 percent of the trainees and its close-out payment is dependent on the number of trainees that actually do get a wage increase.